Financial Accounting – Definition, Purpose & Uses

Tally Solutions | Updated on: December 13, 2021

• What is Financial Accounting?
• What are financial statements?
• How Financial Accounting Works?
• Where do we find these financial statements in TallyPrime and what are the shortcut keys to assess them?
• What purpose does financial accounting serve?
• Financial Accounting with Tally Accounting Software
• FAQs

What is Financial Accounting?

Statement of final accounts or financial accounting is the process of preparing financial statements that companies use to show their financial performance and position to people outside the company, including investors, creditors, suppliers, and customers.

What are financial statements?

The preparer of financial statements generally put together a quarterly and annual financial statement, which they make available to shareholders and the investing public. There are four basic financial statements used in the accounting world to show a company’s financial performance:

How Financial Accounting Works?

Financial accounts give a clear picture of your company's financial stability. Different financial statements provide different insights, based on which a business owner can make informed decisions about his future investments. For example: Based on the payment performance of your debtors, you can define or modify your credit policies, etc. Your balance sheet will tell you the current working capital ratio, which will help you assess your liabilities and take actions, accordingly.

Find out more about Financial Statements – Meaning and Types Financial Statements

Where Do We Find These Financial Statements in TallyPrime and What are the Shortcut Keys to Assess them?

What Purpose Does Financial Accounting Serve?

The main objectives of financial accounting could be

• To ascertain the operating results of the enterprise
• To exhibit the financial position of the business; and
• To thrust control over the operation as well as the resources of the business

Apart from the above there are some objectives of financial accounting which could be derived from the above and they are:

Systematic Record maintenance

Financial Accounting is to report the results of most business events. Hence, it becomes important to keep a systematic record of these events. This function embraces recording transactions in the journal and subsidiary books like cashbook, sales book etc., posting them to ledger accounts and ultimately preparing the financial statements [final accounts].

Communicating the Results

The other main function of financial accounting is to communicate the financial facts of the enterprise to the various interested parties like owners, investors, creditors, employees, government, and research scholars, etc.
The cause of this function is to enable these parties to have a better understanding of the business and make sound and realistic economic decisions.

Meeting the Legal Requirements

Financial accounting aims at fulfilling the legal requirements, especially of the tax authorities and regulators of the business by discharging this function in accordance with certain fundamental truths and uniform enforcement of generally accepted accounting principles.

Financial Accounting with Tally Accounting Software

Tally Accounting is software used for financial accounting purposes. It is provided by Tally Solutions and is a standard business accounting software. TallyPrime is a very robust ERP product and is a complete business management solution.

All the accounting activities, such as financial records of a business, the generation of statements concerning the liabilities and assets of a business, all are easily managed with the Tally solution.

The name of the business solution, Tally, is inspired by the meaning of the word "tally", which is to count, to keep the record.

Accounting is the activity or the system of keeping records of transactions of a business or any other organizations in monetary terms. It records the money or value for money received by or given to different persons or entities from time to time. It enables an organization to ascertain facts such as money owed to or by different entities, the assets and liabilities of the organization in different forms and the profit or loss made by it during specified periods.

Tally is a trading name of accounting software maintaining accounts, and for performing additional accounting and other analytical operations helpful in the management of an organization.

FAQs

What are the types of financial accounting?

There are primarily two types of financial accounting: cash and accrual accounting. Both methods use double-entry accounting to accurately record financial transactions.

What is the main purpose of financial accounting?

The main purpose or use of preparing financial statements of a business organisation is to understand its financial position. For any business to have constant growth, a careful and periodic check on its cash inflow and outflow is crucial. Thus, with financial accounting, a business owner can keep a tab on how much his revenue is against his expenses, to ensure positive working capital.

Who uses financial accounting?

Financial statements can be used by several stakeholders who are involved in critical decision-making. From business owners, managers, and employees to external users like; suppliers, banks, customers, investors, potential investors, and tax authorities, use financial statements to arrive at major business decisions.

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