INTRODUCTION TO FINANCIAL ACCOUNTING

The purpose of financial accounting

Financial accounting is a term that describes:

• maintaining a system of accounting records for business transactions and other items of a financial nature; and
• reporting the financial position and the financial performance of an entity in a set of financial statements.

The term entity is used to describe any type of organisation. Business entities include companies, business partnerships and the businesses of ‘sole traders’

Accounting systems

Business entities operate a system to record business transactions in accounting records. This system is called a book-keeping system. All large businesses(and many small ones) have a book-keeping system for recording the financial details of their business transactions on a regular basis. The bookkeeping records of a business are often referred to as the accounts of the business.
The content of financial statements might vary depending on whether a business is a sole trader, partnership of company. However, the basic process used to record transactions is similar for all types of entity. The techniques used is called double entry bookkeeping.

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