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Simple English definitions for legal terms
financial accounting
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A quick definition of financial accounting:
Financial accounting is the process of keeping track of all the money that comes in and goes out of a business. This includes recording transactions and summarizing them to create financial records. These records help businesses understand how much money they have, how much they owe, and how much they are making. Financial accounting can also refer to a report of all the money and property that someone has, which is given to heirs or the court. It can also be used in legal actions to recover money owed or settle partnership affairs.
A more thorough explanation:
Financial accounting is the process of recording and summarizing financial transactions of a business to produce a set of financial records. This includes establishing and settling financial accounts, recording transactions, and periodically extracting, sorting, and summarizing the recorded transactions.
Examples of financial accounting include:
- Preparing financial statements such as balance sheets, income statements, and cash flow statements
- Recording transactions such as sales, purchases, and expenses
- Calculating and reporting taxes owed
These examples illustrate how financial accounting is used to keep track of a business's financial health and to provide information to stakeholders such as investors, creditors, and government agencies.