Financial Accounting

Financial Accounting

We explain what financial accounting is, its requirements and objectives. Also, what is fiscal and administrative accounting.

Financial accounting is dedicated to the financial transactions of a business.

1. What is financial accounting?

Financial accounting is a branch of accounting specifically dedicated to the financial transactions of a business . This involves summarizing, analyzing and reporting on the matter to both the general public and the shareholders of a company or government agencies dedicated to fiscal supervision, and strategic decisions are usually made within the organization from said information .

Financial accounting  is responsible for keeping track of the economic history of any organization , and along with cost accounting and administrative accounting, forms the accounting structure of it. As the consumers of this information are usually entities external to the organization, it is also known as  external accounting .

This branch of accounting is governed by national and international standards enshrined in the financial laws of the countries or regions. To that extent, you must meet the following requirements:

• Relevance . The information gathered must be relevant for decision making, because there is no other reason to undertake this type of study. It is hoped that the reports will go to the point and be as complete as possible.
• Materiality . The information contained in said reports is considered material when it can substantially influence the benefit or harm of real economic actors of the company .
• Reliability . Every accounting exercise must be true, free of errors or biases that may alter its content.
• Understandable . Any accounting information must be legible by its target audience and can not count with keys or airtight languages.
• Comparable . The accounting reports can be collated to obtain an evaluation of different periods and obtain conclusions regarding the performance of the company.

See also: Inventory .

2. Objectives of financial accounting

Financial accounting records the operations of the organization.

Financial accounting pursues the following objectives:

• Offer truthful and useful information about the financial situation of a company and the profit obtained by it.
• Create a business economic memory by recording the operations carried out by the organization.
• Provide information regarding the operational results, financial position and cash flows of a company.

3. Tax accounting

The criteria of fiscal accounting vary according to the place where the company operates.

Fiscal accounting is responsible for monitoring and recording the operations of a company with respect to its tax obligations , based on the obligations contracted by any company according to the legal and legal framework in force in a nation.

Thus, the criteria of tax accounting will vary depending on the place where the company operates, but it is always of great importance for the preservation of business assets as well as its public image, since an irresponsible handling of their taxes could be highly counterproductive.

4. Administrative accounting

Administrative accounting reports the financial situation of the company.

It is a branch of accounting that keeps the administration of the company informed , that is, its management, regarding the financial situation of the organization and the recording of its economic movements.

That is why it is known as managerial accounting, since it prioritizes the usefulness of its information to allow management decisions that are as accurate and informed as possible.

Along with cost accounting and financial accounting, the administrative forms the accounting structure within any company or organization.

In all periods of the history of mankind, accountingwas used in different ways, but always with the same general objective and despite the fact that times changed at a hasty pace the fundamental purpose of Accounting remains the same, let's see what they are. the objectives .

General Purpose of Accounting .-

Provide information on economic, financial and social events in a company or organization; continuously, orderly and systematic, on the progress and / or development of the same, in relation to its goals and objectives, in order to keep ACCOUNT AND REASON of the movement of public and private wealth in order to know their results, for a successful decision making.

Obojetivos Specifics of Accounting .-

The purpose of accounting is to provide the following reports:

1. Obtain at any time orderly and systematic information on the economic and financial movement of the business.
2. Establish in monetary terms, historical or predictive information, the amount of assets, debts and assets available to the company.
3. Record clearly and accurately all income and expenses operations.
4. Provide, at any time, a clear picture of the financial situation of the business.
5. Anticipate the future business odds in advance.
6. Determine the profits or losses obtained at the end of the economic cycle.
7. Serve as reliable proof before third parties of all those acts of a legal nature in which accounting may have probative force in accordance with the Law.
8. Provide timely information in terms of monetary units, referring to the situation of the accounts that have had movement until the date of issue.
9. Provide information required for planning, evaluation and control operations, safeguard the assets of the institution and communicate with interested parties and outside the company.
10. Participate in making strategic, tactical and operational decisions, and help coordinate the effects throughout the organization.

The fundamental purpose of accounting is to provide information related to an economic entity, so accounting refers to the measurement, registration and presentation of this type of information to various types of users.

The accounting provides data to turn them into action indicators, in a certain way helps to evaluate the trajectory of the organization, gives a general parameter of the value of the same in the time that information is required, by which records are kept (annotations) of the operations that arise during a certain time of work, whether daily, weekly or yearly, of money, merchandise and / or services, however small or bulky these may be.