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What is Financial Accounting?

❶These include identification of financial transactions, recording them, classifying under relevant heads and finally summarising the transactional data.

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The main objectives of financial accounting include:. Two types of methods are approached for financial accounting. These are cash and accrual. These both are distinct, from each other. But generally they both rely on the same double — entry accounting for all financial transactions recording, analyzing and reporting.

Cash Accounting is the accounting method which involves the recording of receipts during the period in which they are received. And the expenses are recorded in the period when they are paid. Cash accounting fails to provide the accurate picture of liabilities which have been paid for but not yet incurred.

Another method used is Accrual Accounting. For example, Electem is a company which sells laptops. It sells a laptop to a customer who uses a credit card. Now the cash methods and accrual methods will recognize the events differently. Cash method will only recognize the revenue, which is generated by the sale of the laptop when the company receives the money.

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