Every business requires a reliable internal system of accountability. An accounting system provides this accountability by recording the inflow of income and the outflow of expenses in an organization. Companies can use this information to evaluate the effectiveness of their past and current operations and plan for the future.
Financial accounting focuses on how general purpose financial statements such as balance sheets, income statements, cash statements, and other financial statements communicate information about a company's performance. People outside the company such as investors, creditors, and even customers, can use this information to make decisions. For example, if a company approaches a bank to secure a loan, the bank will most likely want to see a copy of the company's financial statements. Potential investors may want to review the financial statements to make a decision on the risk involved in investing in a company. Customers and employees may review the statements presented in the company's annual report to determine the stability of the company.
Throughout this course you will examine how company events are translated into financial statements, and how the Generally Accepted Accounting Principles (GAAP) standards are applied in order to assess the financial health and prospect of an organization. As you review the information, consider the possible benefits that can be gained from acquiring a strong knowledge of financial accounting.
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