What is Financial Accounting?
Financial accounting is a specific branch of accounting, which is the process of recording, summarizing, and reporting the transactions from business operations over a period of time. The business transactions are summarized and utilized in the preparation of financial statements, including the balance sheet, income statements, and cash flow statements. These statements record the company’s operating expenses and performance over a period.
Financial Accounting follows two different methods: Accrual v/s cash method
In the accrual basis of accounting, the transactions are recorded as soon as they have occurred and the revenue is recognizable.
In the cash basis of accounting, the transactions are recorded only upon the exchange of cash. The revenue is recorded only upon the receipt of payment and expenses are recorded only upon the payment.
Role of Financial Accountant
A financial accountant may get job opportunities in both the public and private sectors. The role of a financial accountant may vary from the general accountant’s role. The general accountant works for himself rather than working for a firm or organization directly.
Let us know what the various duties of financial accountant are.
How Indian Accounting Standards are different from U.S Accounting Standards?
Accounting procedure and methods are just like mathematical calculations having various rules and procedures. Similarly, accounting standards are the written code of conduct issued by the expert institutes and other regulatory bodies covering various aspects of measurement, treatment, presentation, and disclosure of accounting transactions.
Indian Accounting follows Generally Accepted Accounting Principles (GAAP) whereas U.S Accounting follows International Financial Reporting Standards (IFRS). There are certain differences between both the standards:
1. Legal Authority: The legal authority for GAAP ids Ministry of Corporate Affairs (MCA) and for IFRS it is the International Accounting Standards Board (IASB).
2. Historical Cost: GAAP uses historical cost but while valuing the property, plant, and equipment, it uses fair valuation. In case of IFRS, it uses historical cost but intangible assets are valued as per fair value method.
3. Countries: GAAP is used in India whereas IFRS is used in USA along with many other countries.
4. Exemptions in Cash Flow: Under GAAP, there is an exemption in cash flow in case of small and medium enterprises, whereas in case of IFRS, there is no exemption.
5. Revenue: In GAAP, revenue should be measured at fair value of the amount received or receivable. Whereas in case of IFRS, revenue is measured by the charges made to the customers for goods or services provided by them.
Wrapping up
The study of financial accounting is important because has a major role in analyzing the financial data including income, expenditures, assets, liabilities, and equity. Also, the financial accountants must adhere to use the financial accounting standards that provide the complete financial status of the company.
Powered by Froala Editor
