Accounting is utilised as a business language. Accounting is the process of recording financial transactions in books of account so that the user may analyse and comprehend the financial soundness of a business.

The process of "Financial Accounting" entails the presentation and analysis of a company's financial results in order to make an assessment of its financial success. Financial accounting provides the information needed to make investment decisions.

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Accounting Definition

According to American Institute of Certified Public Accountants (AICPA): "Accounting is the art of recording, classifying and summarising in a significant manner and in terms of money transaction and events which are in part at least of a financial character and analysing the consequence there of".

Accounting Characteristics

The following quiet features distinguish financial accounting:

1) Monetary Transactions

Only company transactions that can be stated in monetary terms are considered in Financial Accounting. Financial accounting excludes transactions of critical importance from a business standpoint that cannot be stated in monetary terms.

2) Historical Nature

Transactions that are anticipated to occur in the future cannot be captured and recorded under the financial accounting system. As a result, only transactions that have already occurred in the past are considered in financial accounting.

3) Legal Requirement

Financial accounting is a statutory requirement for a monetary company to keep a proper record of all monetary transactions that occur during the course of its business and to prepare financial statements such as "profit and loss account" and "balance sheet" at the end of the fiscal year. These financial statements are susceptible to audit if a company's revenue exceeds a predetermined threshold limit.

4) External Use

Financial statements created on the basis of financial accounting are useful even for those stakeholder who are external to the company organisation, such as customers, suppliers, lenders, investors, regulators, and so on. They can examine the financial health of the organisation using financial statements and hence make sound investment decisions.

5) Interim Report

Financial statements are the end product of the financial accounting procedure. But, because they are interior in nature, they are not regarded final reports.

6) Financial Status Disclosure

A company's financial statement displays its success during a specific time period as well as its financial health as of a specific date.

7) Financial Accounting Process

The many processes involved in the financial accounting process differ depending on the accounting policies used by the various companies. Such accounting standards generally concern the valuation of inventory and the calculation of depreciation on assets, for which corporations have a variety of options.