Financial Accounting Benefits Businesses - Finance - Accounting

Financial accounting is what makes a business successful or not successful. Forensic accounting, is a part of the whole financial accounting. Businesses use an accounting method to help them stay organized and in control of their business. All businesses need to have clear and concise and recent financial records so that they can see how their business is doing.

Some businesses will have times when people outside of their business will need to see financial records, such as banks. These financial records will need to be up to date and quite thorough, especially if the bank is deciding on whether to give the business a loan. With financial accounting, the records should always be current and thorough. The definition of financial accounting basically means that the business prepares financial records that will be shown to anyone outside of the business that is going to make a decision based on what they see in these records.

Financial reports are prepared so that they show all business transactions, monthly and annually and there are specific rules that business owners or accountants need to follow when they prepare these records. These rules are called generally accepted accounting principles. These rules were made by government organizations such as The Accounting Standards Board, and the rules were made to help businesses keep thorough paperwork. If these rules are not followed, it could only lead to confusion and disorder for businesses in regards to their financial reports. Other government organizations help to decide what rules should apply to accounting, as well.

Generally, financial accounting is done by preparing certain forms or statements that show every process of their business.

First, an income statement is prepared, which shows what the company spends and earns during certain periods, usually per month. A business can see what net income losses or gains they have by preparing an income statement.

Second, a statement of owner's equity worksheet is prepared, which shows what happens with the equity in the business. The equity in a business can change if the net income has changed, and a business can use the statement of income to fill out the statement of owner's equity.

Third, a business will prepare a balance sheet. This worksheet will show the business information about all assets, liabilities, and the equity. Let's say that these records are prepared on the last day of each month. When the equity is recorded on the statement of owner's equity, for the end of the month, this information will then be placed on the balance sheet for that same time frame.

Finally, the fourth worksheet that is prepared is the statement of cash flows, which shows all the businesses' transactions for a certain time frame. It will show every transaction, gains, losses, assets, liabilities, owner's equity, investments, and expenses. Each form that is prepared shows the name of the business, the name of the worksheet, and the date at the top of it, centered on the page.

If a business uses the accounting equation while filling out paperwork, and follows rules for financial accounting, their business will remain organized. The accounting equation can help someone to remember what is debited or credited. The accounting equation is like doing math. Assets equal Liabilities plus Owner's Equity.

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