by Michael Nnopu

Created on: June 22, 2010

From the early days of 1494 when Luca Pacioli published the first known accounting text explaining the double entry system till date, scholars have always endeavoured to provide a definition for accounting. The scholars are not alone, as all over the world, several professional accounting association and bodies have also provided their own definition of financial accounting. Suffice to say that there are as many definitions of accounting as there are scholars who have attempted to define it. Though there are various fields of accounting, financial accounting is usually referred to whenever mention is made of accounting.

Financial accounting is defined as the process of obtaining, recording and presenting financial information in a manner that would facilitate informed decision by the users of the information. This working definition explains the process involved in accounting. From the beginning, the information needed will have to be obtained. This information can be obtained from source documents which include invoices, receipts and others. Next, the information will have to be recorded, classified, and summarized into meaningful groups or accounts. Finally, the information would be presented or communicated to those who need them. The accountant usually would analyze and interpret the information in a manner that would make them comprehensible for the users so that the users can in turn make appropriate and informed decisions.

Usually, in defining financial accounting, it should be contrasted with managerial accounting. Though both are fields of accounting, their differences are more marked than their similarities. Contrasting managerial accounting with financial accounting provides a better way to understand and define financial accounting. In financial accounting, accurate records of transactions must be kept to assist in the preparation of final books of accounts such as the income statement, trading, profit and loss account, and even the balance sheet as the case may be; besides, all these accounts must be prepared according to the Generally Accepted Accounting Principles (GAAP), which is the world standard in financial accounting. Also, financial accounting statements are usually prepared for external users more than internal users; external users include government through various bodies such tax authorities, and other regulatory agencies. Other external users include creditors and lenders who extend credit facilities and advances to the organization;

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