What is Financial Accounting?

Financial accounting is a specialized branch of accounting that deals with the preparation and reporting of financial statements for external users, such as investors, creditors, regulators, and tax authorities. Its primary objective is to provide relevant and reliable financial information about a business entity's performance, financial position, and cash flows. This information helps stakeholders make informed decisions about investing in or lending to the business.

In financial accounting, transactions are recorded and summarized in accordance with generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS). The key financial statements produced through this process include the income statement, balance sheet, statement of cash flows, and statement of changes in equity. These statements are prepared periodically (usually quarterly and annually) and are audited by external auditors to ensure accuracy and compliance with accounting standards.