Financial accountancy (or financial accounting) is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers,banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.
Financial accountancy is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company. Management accountingprovides accounting information to help managers make decisions to manage the business.
In short, Financial Accounting is the process of summarizing financial data taken from an organization's accounting records and publishing in the form of annual (or more frequent) reports for the benefit of people outside the organization.
Financial accountancy is governed by both local and international accounting standards.
Financial accountants produce financial statements based on Generally Accepted Accounting Principles of a respective country. In particular cases financial statements must be prepared according to the International Financial Reporting Standards.
Financial accounting serves following purposes:
§ producing general purpose financial statements
§ provision of information used by management of a business entity for decision making, planning and performance evaluation
§ for meeting regulatory requirements
The trial balance which is usually prepared using the Double-entry accounting system forms the basis for preparing the financial statements. All the figures in the trial balance are rearranged to prepare a profit & loss statement and balance sheet.
Assets, Expenses, and Withdrawals have normal debit balances (when you debit these types of accounts you add to them), remember the word AWED which represents the first letter of each type of account. Liabilities, Revenues, and Capital have normal credit balances (when you credit these you add to them).