Method

• Accounting methods provide building blocks for a company's finances. Small companies needing to track cash can use the cash basis method. This only records transactions when cash changes hands. Accrual accounting provides a more accurate picture of business activity. Recording transactions are necessary whenever they occur. As no cash changes hands, companies lose their cash reporting capability but have better historical information relating to sales and other business activities.
  
  

Types

• Financial information management often falls under one of two accounting forms: financial or managerial. Financial accounting provides information on the company's profitability and wealth. External stakeholders -- such as creditors, investors or government agencies -- often review this information. Managerial accounting is an internal business process. Owners, executives and managers use this information for making decisions. Accountants can prepare the data in a format best suited to inform internal stakeholders about financial information.
  
  

Financial Statements

• The end result of financial accounting is the preparation of financial statements. The income statement reports net profit, which is total sales revenue less cost of goods sold and expenses. A balance sheet shows the economic wealth of a firm for a given time period. Assets, liabilities and owner's equity comprise this figure. The statement of cash flows is necessary to identify cash movements within a company's operations, which is necessary under accrual accounting.
  
  

Financial Ratios

• Another purpose of accounting is to provide comparable information to other businesses. Financial ratios are a primary tool for this comparison. Ratios test a company's liquidity, profitability, financial leverage and asset use. Owners and managers use the ratios to determine the strength of business operations compared to previous periods or the industry standard. Insufficient ratio results can help a company focus on an area to improve operations.