FINANCIAL ACCOUNTING

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The financial accounting, also known as general ledger or external accounting is a crucial instrument to interpret and analyze the financial situation of a company or organization. In addition, it is also a legal obligation imposed on companies. In this article you will be able to learn everything about financial accounting.

CONCEPT ABOUT ACCOUNTING

Accounting finance concept is a science that monitors changes in equity, since the formation of the company, and that can be used to monitor the financial health of the business. With this, accounting works from the collection and processing of financial information, while the company carries out its billing operations with sales, or spending on raw materials. Accounting aims is to extract relevant information to control the company’s operations, facilitate strategic planning and support decision making. All transactions in Equity (cash flow inflows and outflows, for example) are recorded by Accounting through reports.

According to Law, Accounting is mandatory for legal entities, and a business makes use of this science to determine future operational plans, review past performance and verify current functions. The financial statements analyzed by the accounting therefore serve internal and external purposes. Therefore, we say that it has two ramifications: 

It is important to highlight that Financial Accounting is not only important to the external public, as it also provides internal management with information for forecasting, planning and decision making. Many say it is the purest form of accounting, as proper record keeping and financial reporting provides relevant information to third parties.

As Financial Accounting emphasizes providing a correct view of the company’s financial position, it is mainly based on analyzes of:

  • Balance Sheet
  •  Income Statement
  • Cash Flow Statement

WHAT IS IT FOR?

Financial accounting mainly serves to provide accurate information abroad about the company’s financial situation and results. The interpretation of data and the respective comparison with other entities is called equity and exercise comparability between companies, and complies with legal rules, transversal to all entities. In Portugal, these rules are defined through the Accounting Standardization System (SNC). Thus, as a legal obligation, financial accounting serves to tax the profit of organizations and companies in an objective and equitable manner, as well as a guarantee for creditors and investors, ensuring the correct treatment of the assets of organizations and companies.

Financial accounting identifies, measures, analyzes and interprets financial information related to the entity’s activity. It ensures the proper planning of the business budget, the assessment of resources and answers several questions, of which they are an example:

  • What is the value of sales in a certain period of time;
  • What is the existing stock ;
  • What is the profit obtained;
  • What is the amount of taxes to be paid;
  • Which product or service is the most sold or which guarantees the highest profitability;
  • How many customers have purchased or used our services;

Examples of financial accounting are cash flows, the current account and daily records of transactions, the financial statements of a company or organization and its assets and liabilities and possible assets, internal and external audits, analysis, balance sheet and statement of accounts.

CHARACTERISTICS OF FINANCIAL ACCOUNTING

Following with the understanding of what Financial Accounting is, we will observe its main characteristics:

  • It serves for external purposes: Financial Accounting is for those people who are not part of the decision-making process, such as investors, customers, suppliers, financial institutions, etc.
  • Historical nature: Financial Accounting considers only transactions of a historical nature, that is, those that have already occurred.
  • Monetary Transactions: only transactions in monetary terms are considered. Transactions not expressed in monetary terms are not reported in Financial Accounting, regardless of the importance of their commercial point of view.
  • Legal requirement: Financial Accounting is a legal requirement. Not only that! Financial statements need to be audited, as they serve external purposes.
  • Report preparation: the same types of accounting reports are prepared, independent of the public: shareholders, creditors, financial analysts, government authorities, stock exchanges, unions, etc. (unlike Managerial Accounting, which produces reports according to the objectives of managers). In addition, in Financial Accounting, reports are presented at regular intervals.
  • Use of historical costs: historical costs and past transactions are mainly necessary for Financial Accounting.

CONCLUSION:

Accounting is essential to analyze the performance of the organization, develop a strategy, make decisions effective and direct the company for further action. Already the Financial Accounting x is essential for proper maintenance of accounting and management statements. Although we have differences between them, both are used as an internal management tool, to assess the company’s performance and to present the organization’s position. We hope this article has been beneficial to you. Leave a comment telling us what you think and share with us any other knowledge that may contribute to the topic.

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Irma Terry

Irma Terry loves To talk about Finance, Scientific works in the theories of finances and credit, according to the specification of the research object, are characterized to be many-sided and many-leveled.