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Financial accounting is the process of recording, summarizing, and reporting a firm's or a business's transactions through financial statements. These financial statements include;

1. Income statement: An income statement is also called the profit and loss statement. In an income statement, Revenues- Expenses = Net income.
2. Balance sheet: A balance sheet is a statement that shows a firm's assets and liabilities as of a particular date as well as its shareholder's equity. In a balance sheet, assets include cash, prepaid expenses, inventory, investments, accounts receivables, vehicles, machinery, etc. On the other hand, liabilities include accounts payable, loans payable, deferred tax, payroll, mortgages, etc. Shareholders equity include;
   • Stocks
   • Retained earnings
   • Comprehensive income

   In a nutshell, Assets= Liabilities + Shareholders Equity.

3. Cash flow statements: A cash flow statement is the actual flow of cash in and out of a firm or a company over a specific period. It shows the flow of cash from investing activities, operating activities, and financing activities. A cash flow statement is used to reflect on the short-term viability of a company by showing whether it has enough working capital and whether it can pay its employees and its debts.
4. Statement of retained earnings: This is the amount of income left after shareholders receive their dividends.

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Principles of financial accounting

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Importance of financial accounting