The main purpose of financial accounting is to systematically record, summarize, and report a company's financial transactions to provide an accurate and clear picture of its financial performance and position over a specific period. This enables stakeholders such as management, investors, creditors, and regulatory bodies to make informed decisions based on reliable financial information
. Key objectives supporting this main purpose include:
- Recording all financial transactions accurately and chronologically, covering sales, purchases, expenses, and revenues
- Preparing financial statements like the income statement, balance sheet, and cash flow statement, which summarize the financial data and reflect the company’s profitability and financial health
- Providing relevant information for decision-making by various stakeholders to assess profitability, financial stability, and operational efficiency
- Ensuring compliance with legal and regulatory requirements , promoting transparency and accountability in financial reporting
- Facilitating trust and transparency by adhering to standardized accounting principles (such as GAAP), which assures users of the accuracy and integrity of financial reports
In essence, financial accounting serves as the foundation for understanding a business’s economic activities, supporting strategic planning, resource allocation, and maintaining confidence among investors and creditors
