Bookkeeping plays an important role in all companies that are obliged to keep double-entry bookkeeping . An important area of bookkeeping is financial bookkeeping, it provides information about the overall result of the company and records all income and expenses to determine the company result.
Definition of financial accounting
According to Foodanddrinkjournal, the financial accounting is the value recording of the external relations of a company. The company represents a legal entity. Legal transactions associated with income and expenses are recorded . Financial accounting concerns financial claims and obligations that arise from commercial transactions. Financial accounting includes all company-related processes that can be expressed in numerical values and records them in a factual and chronological order. The processes are posted to accounts and documented, the accounts are closed at the end of an accounting period and recorded in a balance sheet and income statement. The billing period can be months, quarters or years. The income statement proves the profit or loss of a company to internal and external bodies. Financial accounting is required by law for various types of company.
Financial accounting requirements
Transparency is required in financial accounting, the documents must be able to be presented to the tax authorities even years later. Tax audits take place at irregular intervals, the controls can now be carried out within programs as well as by exporting bookings and importing control programs, since the data is electronically recorded and evaluated. Financial accounting is different from business accounting and cost accounting, as it is mandatory. In larger companies, bookkeeping is divided into accounts receivable, accounts payable and financial bookkeeping. The aim of financial accounting is to determine the overall result of a company.
Financial accounting tasks
One of the tasks of financial accounting is to provide external information on the basis of legal regulations. It comprises the inventory accounting for assets and debts as well as the income statement in the form of an expense and income statement. The expense and income statement is also known as the profit and loss account and is the settlement of changes in equity from business activities within a period. The double entry system serves as an organizational model for billing. The periodic results of the financial accounting must be adjusted to the inventory results via reconciliation postings. The financial accounting provides the basis for the annual financial statements, as it includes the profit and loss account and the closing balance sheet. The operating bookkeeping , also known as cost and performance accounting, differs from the financial bookkeeping, as it only serves internal information purposes and determines costs and services in an economically, but not legally delimited, coverage area. The financial accounting is part of the operational accounting and is used for
- Determination of the annual success of a company by drawing up the profit and loss account
- Determination of assets and debts by drawing up a balance sheet
- Provision of numbers for dispositive purposes.
The financial accounting as a representation of the operational value transactions
In contrast to operating bookkeeping, financial accounting is external accounting and relates to the company’s business transactions with the environment in the form of customers and suppliers, Creditors and debtors. In financial accounting, business transactions with the environment are recorded through booking processes. The financial accounting can thus provide figures for the balance sheet and the profit and loss account. In the financial accounting, incurred expenses and income as well as changes in inventory are determined and compared in the income statement. The difference in the income statement is a gain or loss. The financial bookkeeping provides figures for the operating bookkeeping and has a supplementary function for cost accounting.
Financial accounting as a branch of corporate accounting
In addition to business accounting, planning accounting and business statistics, financial accounting is part of business accounting. The financial accounting records business transactions in chronological order in the land register and sub-ledgers. An inventory is carried out at the end of the financial year, it determines the inventory of assets and liabilities, and the result is shown in the inventory. Assets and liabilities are compared in the balance sheet and in the income statement. The financial bookkeeping must be carried out according to commercial and tax law standards, every businessman is obliged to keep financial books.