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Financial Accounting Basics – An Introduction to Financial Accounting



Financial is a broad term encompassing several related subjects about financial management, generation, and preservation of monies and assets. In particular, it covers the issues of how and to whom an individual, firm or government acquire the funds required for their continued existence, typically in terms of capital for business purposes-and how they properly spend or allocate that money. Financial science can be seen as a branch of economics that studies the economic processes through the lenses of finance. Several sub-fields of this include financial markets, personal and corporate finance, banking, risk, and fiscal theory. Economics also includes a wide variety of sub-topics such as the Theory of Employment elasticity, precautionary management, financial burden analysis, budgeting, and monetary policy.

As indicated, the field of finance is as broad as it is wide because finance is not just the studying of how money is produced, but also why it is produced, where it goes and how it is spent. Basic financial knowledge is necessary for analyzing the supply side and demand side of any market. The basic financial concept is the law of supply and demand. This means that there are certain quantities of items that are always in demand and always scarce. Finance then works with money to make sure that the quantities of the two kinds of objects are in equilibrium. Some elements that are crucial in any financial system are interest rates, banking, fiscal policy, and central banking.

A basic understanding of how the financial system functions enable an investor to understand the role of the banks in financing and the economy. Bank loans, purchases of assets, investment activities, liabilities, and growth of financial institutions are some of the many fields of the financial system that are covered by the operation of banks. Private banking refers to the banking operations of banks that are not part of the large-scale system of commercial banks. Private banks have less governmental regulation and more freedom in setting their interest rates and other lending practices than do public banks.

Most business people are familiar with traditional banks, such as commercial banks, credit unions, savings and loans, and mortgage banks. These banks provide the majority of the monetary instruments used by businesses to borrow money or to invest in other businesses. The other type of financial institution that most people have heard of is the insurance company. These companies engage in lending and other types of investment, such as stock and bond buying and selling, as well as insurance, investment, and other types of managed accounts. Insurance companies are primarily focused on risk management and making sure that investments are sound and profitable.

A qualified accountant can assist you in formulating and completing your annual financial statements. The accounting records you create will include personal information as well as information about your company. The process of recording personal and business finances involves recording financial transactions in a legal, orderly manner. The preparation of your annual or monthly income tax return is another task that an experienced accountant can assist you with. The preparation of the necessary reports to meet the requirements of your tax return is also part of the accounting process, as is preparing the financial statements (a.k.a. accounting records) that accompany those reports.

International finance, banking, and investing involve activities that require advanced knowledge of the laws and regulations governing foreign banking and investment. Knowledge of international business banking is an additional advantage. Investment banking is the process of borrowing funds from banks to invest. Most private equity transactions involve financing through banks rather than the other common means of private funding.

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