Understanding
Financial Accounting

By Docelf | Published November 20, 2024

Est. reading time: 7 min

Financial accounting is all about tracking and reporting a business's financial performance. It uses reports like balance sheets and income statements to give a clear picture of how a company is doing. Below, we’ll cover what financial accounting is, its principles, and the reports it produces.

What Is Financial Accounting?

Financial accounting focuses on recording, summarizing, and reporting a business's financial transactions. It helps business owners, investors, and lenders understand a company's financial health. Unlike managerial accounting, which focuses on internal decision-making, financial accounting provides information to external stakeholders.

Key Principles

Financial accounting follows strict rules to ensure reports are accurate and consistent. Here are the main principles:

• Accrual Basis: Transactions are recorded when they happen, not when cash is exchanged.
• Consistency: The same methods are used over time to ensure reports can be compared easily.
• Materiality: All significant information must be included in the reports.
• Going Concern: Assumes the business will continue operating in the foreseeable future.

Why Is It Important?

Financial accounting is essential for running a business. It helps you:

• Track Performance: Understand how your business is doing over time.
• Make Better Decisions: Use accurate financial data to guide decisions.
• Build Trust: Show investors, lenders, and partners that your business is financially healthy.
• Stay Compliant: Meet legal and tax reporting requirements.

Main Reports in Financial Accounting

Financial accounting produces three key reports that show your business's financial position and performance:

• Balance Sheet: A snapshot of your assets, liabilities, and equity at a specific point in time.
• Income Statement: Also called a profit and loss statement, it shows your revenue and expenses over a period.
• Cash Flow Statement: Tracks cash coming in and going out of your business.

These reports are essential for understanding your financial health and planning for the future.

The Docelf Advantage

Clear financial records are the foundation of a successful business. Docelf makes it easy to manage the basics, like invoicing and payment tracking, so you can focus on what matters most. With Docelf, you can:

• Track Payments: See which invoices are paid or overdue at a glance.
• Save Time: Create professional invoices quickly and stay organized.

Want to simplify your financial management? Start your free trial with Docelf today!