Define Financial Account

Accountant at work

"Financial account" is technical term largely used in the field of accounting. It can have a more general meaning as a category of accounting data or it can have a couple of different specific meanings depending on context.

General definition of financial account

There are two broad types of accounting information:

(1) Financial Accounts: geared toward external users of accounting information
(2) Management Accounts: aimed more at internal users of accounting information

This definition highlights the distinction between the use of accounting information by supervisory governmental and supra-governmental organizations for data-gathering and analysis and the everyday use of accounting information by managers and accountants.

The national accounts definition of financial account

National Accounts definition: the financial account shows how net lending or borrowing are achieved by financial transactions.

This is a specialized use of the term financial account that is not seen much outside of the United Kingdom.

The balance of payments definition of financial account

Balance of Payments definition: the financial account records transactions in external assets and liabilities of the UK. The financial account consists of direct investment, portfolio investment, other investment and reserve assets.

This definition closely mirrors the definition and use of the term financial account by the International Monetary Fund (IMF) and other supra-governmental agencies, which will be discussed further below.

IMF definition: Financial account used to determine balance of payments

The IMF uses the term financial account as a principal entry in the formula to calculate balance of payments (BOP). BOP is the calculation of the total financial inflows and outflows of a nation.

Overlap in accounting terminology

The term financial account is a good example of how accounting terminology in English often overlaps or has multiple definitions. This is not just because of variations in linguistic usages in different countries but because accounting developed as a profession and academic practice somewhat differently in various parts of the world.

References

• (UK) National Statistics: Glossary - Economic Terms
• IMF: Financial Account
• Tutor2u: Introduction to Accounting