The purpose of Financial Accounting is to prepare financial statements that ascertain the performance of the business enterprise. It prepares financial reports for external users of information like investors, creditors, government, etc. Management accounting is carried out for making decisions internally in an organization. However, financial accounting is performed according to the guidelines of Generally Accepted Accounting Principles (GAAP). GAAP includes the standards, rules and conventions that are followed by accountants for creating financial statements. Financial accounting gives information about the working of the business and its profit and loss position. The financial statements that are prepared are Balance Sheet, Profit and Loss Statement and Cash Flow Statement that indicate the financial position of the business over a period of time. Financial accounting helps in systematic recording of business transactions. It provides information which helps in making long term decisions and assists in knowing the solvency position of the firm.
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