Financial accounting

Financial accounting is the branch of accounting that measures, records, and reports a business's financial position for specific periods. It is primarily aimed at external users of the business, such as banks, suppliers, partners, and government institutions.

Internal managers read them too, but for day-to-day decisions they rely more on managerial accounting, which isn't subject to the same standards. The practical difference lies with the user, not the numbers. This type of accounting produces official reports that are comparable year over year and business to business because it follows the same rules for everyone.

Read also: How to read the balance sheet, the income statement, and the cash flow statement..

What does financial accounting include?

It includes four main functions that together build the data for official reports.

• Bookkeeping, that is, recording every transaction with supporting documentation.
• Accounting planning, that is, the organization of accounts according to the applicable accounting plan.
• Reviewing the records, that is, verifying that every figure is accurate and supported.
• Analysis of assets, liabilities, and equity that yields the period's financial result.

What are the key financial statements?

Financial statements are summarized into five types of reports, each with its own purpose.

• The balance sheet, that is, the state of assets, liabilities, and equity at a given date.
• Income statement, that is, the result of operations over a period.
• Cash flow statement, that is, the actual movement of money in the bank and in the cash drawer.
• Statement of changes in equity, that is, how owners' equity changes during the period.
• Explanatory notes, i.e., supplementary analyses such as liquidity and profitability.

How is financial accounting standardized in Albania?

Without common standards, the reports of two different businesses would be difficult to compare. In Albania, the framework is regulated by Law No. 25/2018 “On Accounting and Financial Statements.” The law charges the National Accounting Council with approving the National Accounting Standards, a total of 15 standards.

Larger businesses, or those with foreign ownership or that are publicly listed, may report in accordance with the International Financial Reporting Standards (IFRS). Most Albanian SMEs apply the national standards, which are based on IFRS for SMEs.

Frequently asked questions

What is financial accounting?

It is the branch of accounting that measures and reports a business's financial condition to external users, in accordance with approved standards.

How does it differ from managerial accounting?

Managerial accounting serves internal managers for day-to-day decisions and is not subject to mandatory standards. It is directed at external parties and follows the same rules for everyone.

Who prepares a business's financial statement?

The financial statements are prepared by the business's accountant or by an external accounting firm when the business has no in-house staff. Legal responsibility for their accuracy always rests with the administrator.

Is financial accounting mandatory for every business?

Yes, every registered economic unit in Albania maintains accounting records and prepares at least the balance sheet and the income statement, depending on its size.

How often are financial statements prepared?

Annual financial statements are prepared once a year at the close of the financial year. Internal reports are prepared monthly or quarterly, as management requires.

If you want your financial statements to always be in order and on time, our accounting team handles this every month.