Types of Accounting: Financial Accounting

This type of accounting arises from the need to present financial statements to third parties, such as investors , shareholders or public bodies. There is also a need for the information presented to be homogeneous and standardized. That is why this type of accounting focuses on the preparation of financial statements for third parties and not so much for business management.

Today, with the facilities provided by new computer systems, information for decision-making and information for third parties are obtained both thanks to a unique and integrated accounting system.

Financial accounting is used mainly to obtain in a structured and systematic way quantitative information expressed in monetary units. Financial accounting shows a broad picture of the situation of the company through the balance sheet and the balance of profit losses. However, it does not provide the cost accounting data that could cause the company's know-how to be copied.

In summary financial accounting allows outsiders to obtain the following data: liquidity, solvency, solidity, cash cycle, cash flow , economic profitability, financial profitability and leverage.

In other words, Financial Accounting is the type of accounting that focuses on the process of producing information for external use, primarily financial accounting is usually presented in the form of financial statements. The Financial Statements reflect the entity's current performance and current condition based on a set of standards and guidelines known as GAAP (Generally Accepted Accounting Principles) . GAAP refers to the regulatory frame of reference for financial accounting used in any jurisdiction which differentiates it from all other types of accounting. Financial accounting generally includes accounting standards (for example, International Financial Reporting Standards), accounting conventions, standards and rules that financial accountants must adhere to in order to correctly write the financial statements.