Financial accounting is a branch of accounting concerned with the summary, analysis and reporting of financial transactions related to a business.
Financial accounting is the process of recording, summarizing, and reporting a company's business transactions through financial statements.
29 Feb 2024 — 29 Feb 2024Financial accounting is the systematic process of recording, summarizing, and presenting financial transactions of a business entity.
7 Mar 2024 — 7 Mar 2024Financial accounting is the process of recording, analyzing, and summarizing the financial transactions of an organization for an accounting.
9 May 2024 — 9 May 2024Financial accounting is the process of recording, summarizing, and reporting financial transactions of a business. It involves preparing.
Financial Accounting is the process of documenting, analyzing and reporting every transaction of a business or an organization, in order to assess the financial.
Financial statements, such as the income statement, balance sheet, and cash flow statement, provide a comprehensive view of a company's financial health.
Learn the underlying principles and concepts of financial accounting, accounting techniques and the preparation of basic financial statements.
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From Financial Accounting
The accounting equation is:
[\text{Assets} = \text{Liabilities} + \text{Capital}]
It signifies that total resources (assets) of a business are financed either by outsiders (liabilities) or by the owner (capital). The equation is the basis of the double-entry system and ensures that every transaction keeps accounts in balance.
Provision is a charge against profit created to meet a known liability or probable loss and is made before arriving at net profit; it reduces current profit (e.g., provision for doubtful debts). Reserve is an appropriation of profit made after net profit is ascertained to strengthen financial position or meet future needs; it does not affect net profit calculation (e.g., general reserve). Thus, provisions relate to expected losses/obligations, while reserves represent retained profits.
Bad debts are actual losses arising when a debtor fails to pay and the amount becomes definitely irrecoverable. They are written off by passing the entry: Bad Debts A/c Dr. To Debtors A/c. Bad debts are charged to Profit & Loss account as an expense, reducing net profit, and debtors reduce in balance sheet.
Provision for doubtful debts is an estimate of probable future losses from debtors whose recovery is uncertain. It is created as a charge against profit following the prudence concept to prevent overstatement of profit and debtors. If provision is created/increased, entry is: Profit & Loss A/c Dr. To Provision for Doubtful Debts A/c. If provision is reduced, excess is credited back: Provision for Doubtful Debts A/c Dr. To Profit & Loss A/c.
In the balance sheet, debtors are shown at realisable value: Sundry Debtors (Less: bad debts written off / further bad debts, Less: provision for doubtful debts) = Net debtors. This treatment ensures true profit and true financial position.