Financial accounting is the process of bookkeeping and reporting your business transactions via financial statements.
Financial accounting is a specific part of accounting: Getting the financial statements ready and submitting them to the tax authorities as part of your annual report.
Limited liability companies have to do this once a year.
Financial accounting is also called annual accounts.
What are the financial statements in financial accounting?
There are three financial statements: balance sheet, income statement, and cash flow statement.
They have to be submitted once a year, and should be made in accordance with the accounting principles. Usually companies generate and submit them via their accounting system, or with help from an accountant.
Balance sheet
The balance sheet shows what your business owns and owes at the time the report is generated. It shows the financial health of the business Read more about the balance sheet.
Income statement
The income statement gathers revenue and expenses for the past fiscal year. It shows whether your business is profitable or not. Read more about the income statement.
Cash flow statement
The cash flow statement shows how much money went into your business and came out of your business in the past fiscal year. Read more about the cash flow statement.
Why is financial accounting important?
First of all, it’s important because it’s required by law. Secondly, it’s extremely important for your financial planning. You can see where you’re having issues—such as high costs or low revenue—and you can use these reports to set up budgets and plan for the future.Lastly, it others insight into the financial situation of your company. These statements can be requested by suppliers, clients, auditors, business partners, stakeholders and so on, so that they can get an overview of the financial health of the company before, for example, entering into an agreement.