Financial Accounting

Financial accounting (or financial accountancy) is the field of accounting concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders using either the Historical Cost or Constant Purchasing Power Accounting model. Financial capital maintenance can be measured in eithernominal monetary units (HCA) or units of constant purchasing power (CPPA).

A field of accounting that treats money as a means of measuring economic performance instead of as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of an organization as assets and liabilities, and revenues and expenses.

Most entities use the historical cost basis (financial capital maintenance in nominal monetary units) to prepare their financial reports during low and high inflation and deflation. The primary objective of financial accounting is the preparation of financial statements – including the balance sheet, income statement and cash flow statement – that encapsulates the company’s operating performance over a particular period, and financial position at a specific point in time. These statements – which are generally prepared quarterly and annually, and in accordance with Generally Accepted Accounting Principles (GAAP) – are aimed at external parties including investors, creditors, regulators and tax authorities. 

Companies issue financial statements on a routine schedule. The statements are considered external because they are given to people outside of the company, with the primary recipients being owners/stockholders, as well as certain lenders. If a corporation’s stock is publicly traded, however, its financial statements (and other financial reportings) tend to be widely circulated, and information will likely reach secondary recipients such as competitors, customers, employees, labor organizations, and investment analysts.

It’s important to point out that the purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves.