Financial Accounting
The process of recording, summarizing, and reporting a company's financial transactions to external stakeholders using standardized GAAP or IFRS rules.
What is Financial Accounting?
Financial accounting is the systematic process of recording all of a company's financial transactions and summarizing them into standardized financial statements — the income statement, balance sheet, cash flow statement, and statement of stockholders' equity — for use by external stakeholders including investors, creditors, regulators, and the public. In the United States, financial accounting follows Generally Accepted Accounting Principles (GAAP) set by the FASB; internationally, International Financial Reporting Standards (IFRS) issued by the IASB apply. Public companies must file audited financial statements with the SEC annually (10-K) and quarterly (10-Q). Financial accounting is distinct from management accounting, which produces internal reports not governed by standardized rules.
Example
Each quarter, Apple Inc.'s financial accounting team compiles transaction data from thousands of subsidiaries worldwide, applies GAAP consolidation and revenue recognition rules, and produces audited financial statements filed with the SEC on Form 10-Q. The income statement, balance sheet, and cash flow statement are then scrutinized by analysts, fund managers, and individual investors to assess Apple's profitability, liquidity, and financial health — illustrating how financial accounting bridges the information gap between a company and the capital markets.