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What to Know About Financial Accounting

23. 01. 2017
Content financial accounting

To start, let us define first what finance is. Finance is defined as the science of money management. It is a field that deals with the allocation of assets and liabilities over time. It also applies and uses the theories of economics at some level.

More specifically, financial accounting is a specialized branch of accounting that tracks a company’s financial transactions. These transactions are recorded, summarized, and presented in a financial report or financial statement using standardized guidelines.

The purpose of financial accounting is to provide the information needed for sound economic decision making either for personal or commercial reasons. For businesses, the main purpose of financial accounting is to prepare financial reports or financial statements that reflect the firm’s performance to third parties including investors, creditors, and tax authorities.

In the context of education, accounting and finance is generally a specialization selected by students completing a Bachelor’s or a Master’s degree program in accounting. Accounting degree programs including accounting and finance degree prepare students to understand accounting methods, financial statements, and tax documents.

By the end of the course, students who study financial accounting should be able to read the three most common financial statements: the income statement, balance sheet, and statement of cash flows. These are their basic skills that they will have to apply in the real world.

Qualities of A Good Financial Accounting That Students and Professionals Should Take Note Of

Producing financial statements is serious business as these documents are subject to public consumption. In producing these, students and professionals should take note of the following:

  1. Comparability. In order to derive meaningful conclusions about the trends in a company’s financial performance and position over time, financial reports from different periods should be comparable with one another. To ensure comparability, the accountant should apply the same accounting policies over time.
  2. Materiality. An omission or a misstatement of an information can alter and influence economic decisions of users who rely heavily on financial statements. Make sure that every information is precise and complete.
  3. Relevance. Financial statements are used to influence economic decisions. That is the primary objective of financial accounting. If it is not relevant in the business, it loses its point.
  4. Reliability. Financial statements have to be absolutely free of any significant error or bias. Managers and other authorities rely heavily on these statements to make economic decisions for the company.
  5. Understandability. Financial reports should be expressed as clearly as possible. They have to be understood by managers and other authorities who will be interpreting these for the clients, creditors, and tax authorities.

Differentiating an Accounting Degree and A Finance Degree

Most students often find difficulty in choosing between accounting or finance as they are quite similar to each other. First, let us define the terms. Finance is defined as the science of money management while accounting is defined as the measurement, processing, and communication of financial information about economic entities.

Accounting and finance are both in demand courses along with management and economics, and students are often confused on whether to study accounting or finance. The key to choosing which one to take is to first know what the differences are among these courses.

The typical course content of accounting includes auditing, budget analysis, business strategy, financial accounting, financial reporting, forensic accounting, information systems, international accounting, macroeconomics, microeconomics, management accounting, professional standards and ethics, quantitative analysis, risk management, and tax accounting. While finance includes advanced derivatives, asset markets, behavioral finance, corporate finance, economics, econometrics, financial mathematics, financial management, financial markets, financial planning, financial engineering, financial accounting, financial reporting, international finance, private equity, risk management, and venture capital.

As for career potential, students with an accounting degree can be an accountant, actuary, auditor, bookkeeper, budget analyst, credit controller, financial consultant, financial examiner, forensic accountant, payroll administrator, risk assessor, tax advisor, and treasurer. While a student with a finance degree can be a commercial banker, financial consultant, financial manager, financial trader, hedge fund manager, insurance officer, investment banker, and quant specialist.

As for the key skills gained by accounting students, they include quantitative skill, specialized knowledge of varied accounting topics and techniques, awareness of generally accepted accounting principles, knowledge of accounting regulation issues, and a strong understanding of the business industry. While the key skills gained by finance students include an understanding of industry practices and principles, strong theoretical knowledge, research skills, communication skills, knowledge of the stock market, trade, and investment, analytical skills, ability to understand numerical and statistical data, and up-to-date knowledge of correct business practices.

Professional Certification in Accounting 

Finally, the professional accreditations of an accounting graduate include being a Certified Public Accountant (CPA), Chartered Accountant (ACA/CA), and Chartered Certified Accountant (ACCA). While professional accreditations of a finance graduate include being a Chartered Financial Analyst (CFA), Certified Treasury Professional (CTP), Certified Professional Risk Manager (CPRM), Corporate Finance Qualification (CF), Certified Valuation Analyst (CVA), and Certificate in Quantitative Finance (CQF).