The importance of financial accounting

Financial Accounting

Financial accounting (in English: Financial Accounting) is a set of operations that include recording and summarizing many accounting transactions that result from commercial operations that occur during a specific period of time, and all financial accounting operations are summarized by relying on the preparation of financial statements; It is the cash flow statement, the income statement, and the balance sheet list, and these lists help clarify the operating performance of the facility during a specific period of time.

The importance of financial accounting

Financial accounting is one of the most important branches of accounting in general. As it provides a lot of very important information for the work environment, and helps the establishments to take various decisions, and it is possible to summarize the importance of financial accounting according to the following points:

Recording financial transactions: Where the basic function of financial accounting is to write and record financial transactions, and this function is called bookkeeping in accounting language, and it forms part of the importance of financial accounting in establishments; Where the owners of small business companies depend on financial accounting; In order to record all commercial activities that occur within their companies in the accounting ledger, and financial accounting relies on the use of double entries in recording all financial transactions; Therefore, every accounting process has two aspects, one of which is a creditor and the other a debtor. Financial accounting is important for business owners. Because it provides them with a systematic system that helps provide a description of their work.
Communication of information to third parties: It is the role of financial accounting in helping the owners of commercial companies to communicate accounting information to external parties, and they include both individuals and other establishments that deal financially with these companies, but they do not form part of their parts, and they are also called external users of financial data and information, and these financial statements represent The final results appearing on the financial accounting operations, and it is considered a means of evaluating those external users of the work of companies, and examples of them are suppliers and banks.
Communication of information to internal parties: It is the role of financial accounting in taking care of the internal users, who make up the financial department and all the individuals whose tasks depend on the distribution of profits according to the shares, and it is possible for the owners of companies to use this financial information in order to determine the weaknesses and strengths of the employees, and this information also contributes to supporting employee productivity by Offer them rewards.
Comparison and analysis: They are two means that help owners of commercial companies to benefit from financial accounting information. In order to analyze and study competitors, and opportunities for investment. Financial accounting is governed by the general principles of accounting; Therefore, a similarity appears in the method of preparing financial data and information for the various companies. This accounting also helps to calculate the financial ratios based on the company's data, and then compare them with competing companies or standard ratios.

Financial accounting goals

Financial accounting seeks to achieve many goals in all types of establishments, but its main goal is to contribute to providing accounting and financial information to its beneficiaries, whether inside or outside the establishment. Therefore, financial accounting is keen to achieve its goals through the implementation of a set of important functions, including: analysis, identification, classification, measurement, and summarization; Which contributes to clarifying the circumstances of the financial position of the facility and the results of its work; Therefore, it is possible to classify financial accounting as one of the service tools that aim to produce information and communicate it in order to make appropriate decisions.

The beneficiaries of the financial information

There are several categories of individuals or establishments who benefit from accounting financial information, and this thing depends on the diversity of parties associated with the company, whether through relying on direct or indirect contact, so these parties use accounting information for various purposes, but they share together with a main goal, which is access To take an appropriate decision, the following are the most important types of beneficiaries of the accounting financial information:

All levels of management of the institution: It is the first beneficiary of the financial and accounting information of the institution; Where this information is used for the purpose of evaluating private performance in the institution, and applying planning and control; in order to make appropriate decisions.
Existing and potential investors: They are the main stakeholders in the organization who need to know the accounting financial information; In order to identify the institution’s performance periodically, and the current investors are interested in assessing the use of capital, and choosing the appropriate position to reach a decision about continuing their investment in the institution or not, while the expected investors are interested in obtaining this information in order to determine the feasibility of their investment in the shares of the institution .
Current and prospective creditors: They are the ones who benefit from accounting financial information to study the financial position of the institution, and the current creditors are the individuals who have medium and long-term debts, such as bond holders, while the expected creditors are interested in this information in order to determine the ability of the institution to pay the debts incurred by it.
Clients: They are the individuals who deal with the institution, and are interested in its accounting information to determine its financial position and its ability to pay its obligations.
Governmental entities: They are the ministries responsible for the institution's work sector, and include planning and statistics agencies, agencies in charge of oversight, tax administration, and other entities that are concerned with the institution's accounting information.