What is financial Accounting and its primary concern ?

Financial accounts provide information to inside users i.e, management of accounting entity and to outside users like shareholders, investors, bankers, government departments, trade unions and general public. The information provided by financial accounting is presed in the form of profit and loss account/income statement and balance sheet.

Main purpose for which this information is needed by the external users is to make decisions regarding their relationship with the organization. Shareholders need this information to evaluate performance of directors elected by them, investors need this information for making investment decisions, the same information is put to use by bankers for evaluating feasibility of advances, government agencies like taxation department requires this information for making assessment of tax, trade unions use this information to verify amount of bonus declared by the management under workers participation fund.

This information assists the internal users, i.e. the management, in comparing results of whole business unit with the results of previous years, for ascertaining trend of business and for making judgments about financial position of the enterprise. But utility of information provided by financial accounting is limited for the management as this information does not assist the management in internal planning and control.The Committee on Terminology of American Institute of Certified Public Accountants defines financial accounting in the -following words:

Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character and interpreting the results thereof.

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