Financial accounting is a field of accounting that specialises in the process of recording, summarizing, preparing and reporting financial documentation to show to relevant parties outside of the company. Documents include balance sheets, income statements and cash flow statements, among others, while outside parties include investors, customers, creditors, the government, suppliers and similar. Financial accountants focus on generating reports based on the financial documents supplied by other accountants according to the stipulated guidelines of the US’s Generally Accepted Accounting Principles (GAAP.)
What tasks does a financial accountant perform?
- Create financial statements, such as:
- Balance sheets
- Income statements
- Statements of retained earnings
- Cash flow statement
- Report findings to relevant external and internal parties of the company
- Advise company management and customers regarding financial goals and decisions on the basis of these reports
- Manage projects
- Ensure compliance with GAAP
What are some different types of financial accounting?
Cash accounting is a method of recording transactions only when they actually occur, meaning that they are only recorded once a payment is either received by or made to the company. This also includes inputting all cash transactions made by the company’s employees such as those incurred on business trips or business meetings.
This method records expected revenue and expenses before the transactions occur. This means that income for goods sold will be recorded prior to the money actually being transferred. Therefore, the accrual accounting method does not truly reflect the company’s current financial standing, but the expected financial standing that is dependent on good faith.
How is financial accounting different from cost accounting?
|Financial Accounting||Cost Accounting|
|Interacts with both internal management and relevant external parties||Interacts with internal management|
|Financial information is presented and recorded according to GAAP principles||Financial data is presented according to the business’s accounting practices|
|Entails compiling standard set of reports||Entails compiling financial information related to the production, running costs and processes of the business’s products|
|Reports are used for advising customers and management regarding future financial decisions||The financial reports are used for budgeting purposes and setting up cost reduction systems|
|Only works with actual financial data||Compares actual costs to budgeted costs|
|Legally mandatory||Not legally required|
|Reports usually produced for the end of the accounting period||Reports produced regularly|
|Focuses on accurately recording and presenting all financial information of the business in a concise, accurate and legible manner||Focuses on reducing cost wasting|
Do I need a CPA to be a financial accountant?
No, you will not need a CPA license to become a financial accountant. However, in most cases you will be expected to have a acquired a bachelor’s degree in accounting, finance or similar, as well as an excellent knowledge of Excel and accounting regulations.