Financial accounting is the accounting activity performed from business operations. It includes recording, reporting, and summarizing the transactions of a business at specific times and across periods of time. Specifically, financial accounting requires the preparation of the income statement, cash flow statement, and balance sheet. Financial accounting follows the accrual basis accounting system rather than the “cash basis.” In the U.S., financial accounting follows the Generally Accepted Accounting Principles (GAAP). Internationally, it follows International Financial Reporting Standards (IFRS). GAAP and IFRS are compatible, which allows financial accounting between companies in different countries to be compared.
