Financial Accounting – Concept, requirements and objectives


We explain what financial accounting is, its requirements and objectives. Also, what is fiscal and administrative accounting.

financial Accounting
Financial accounting deals with the financial transactions of a business.

What is financial accounting?

Financial accounting is called a branch of accounting dedicated specifically to the financial transactions of a business. This implies summarizing, analyzing and reporting on the matter to both the general public and the shareholders of a company or government agencies dedicated to fiscal supervision, and based on this information, strategic decisions are usually made within the organization.

Financial accounting is in charge of keeping a record of the economic history of any organization, and together with cost accounting and administrative accounting, makes up the accounting structure of the same. As the consumers of this information are usually entities external to the organization, it is also known as external accounting.

This branch of accounting is governed by national and international standards enshrined in the financial laws of the countries or regions. To that extent, it must meet the following requirements:

  • Relevance. The information gathered must be relevant for decision-making, as there is no other reason to undertake this type of study. The reports are expected to be to the point and as complete as possible.
  • Materiality. The information contained in said reports is considered material when it can substantially influence the benefit or harm of real economic actors of the company.
  • Reliability. Every accounting exercise must be truthful, free of errors or biases that could alter its content.
  • Understandable. Any accounting information must be readable by its target audience and cannot have hermetic keys or languages.
  • Comparable. The accounting reports can be collated to obtain an evaluation of different periods and obtain conclusions regarding the performance of the company.

Objectives of financial accounting

financial Accounting
Financial accounting records the operations of the organization.

Financial accounting pursues the following objectives:

  • Offer truthful and useful information about the financial situation of a company and the profit obtained by it.
  • Create business economic memory by recording the operations carried out by the organization.
  • Provide information regarding the operating results, financial position and cash flows of a company.

Tax accounting

tax accounting
Tax accounting criteria vary depending on where the business operates.

Tax accounting is in charge of supervising and recording the operations of a company with respect to its tax obligations, based on the obligations contracted by every company according to the legal and legal framework in force in a nation.

Thus, the criteria of tax accounting will vary according to the place where the company operates, but it is always of great importance for the preservation of the business heritage as well as its public image, since an irresponsible handling of its taxes could be extremely counterproductive.

Administrative accounting

administrative accounting
Administrative accounting reports the financial situation of the company.

It is a branch of accounting that keeps company administration informed, that is, to its management, regarding the financial situation of the organization and the registration of its economic movements.

That is why it is known as managerial accounting, since it prioritizes the usefulness of your information to allow the most accurate and informed managerial decisions possible.

Along with cost accounting and financial accounting, administrative makes up the accounting structure within any company or organization.