Financial Accounting
Financial Accounting (in English: Financial Accounting) is a type of accounting that relies on the use of money as a means to evaluate and measure economic performance, instead of relying on production. Financial accounting is concerned with implementing a system to monitor funds as they arrive at the facility or are issued outside it, as part of the assets. Revenues, liabilities, and expenses.
Financial accounting is defined as the process through which a group of financial transactions that result from business operations over a period of time are summarized and recorded. These transactions are summarized based on preparing financial statements for them, and include the use of financial statements, such as the income statement and the balance sheet. Another definition of financial accounting is accounting that is concerned with providing financial reports about profits, cash flows, and private debts in companies. Which contributes to providing a measurement tool for investors and banks. In order to follow up on companies' performance.
The development of financial accounting
Many private accounting organizations and federations were interested in following up on the development of financial accounting, which contributed to the issuance of many research and studies that led to the formation of the theoretical framework for the development of financial accounting. Since its emergence, financial accounting has been affected by a group of factors that contributed to influencing its development, and these factors have also developed. Over time, the most important of which are:
- Educational and technical factors: They are the influences resulting from technical and scientific progress in all societies, and they have played an important and influential role in the accounting system in various establishments. A direct relationship has emerged between the educational level, vocational training, and the level of application of accounting systems in establishments. The presence of specialists in various fields of accounting has led to the development of accounting work, made it affect the management of various establishments, and also contributed to providing the possibility of using economic resources in the best possible ways. By setting estimated financial budgets to be used as a control tool, and ensuring the application of financial analysis methods with the participation of financial accounting.
- Social factors: It is a set of social relationships and customs that influenced the form of accounting systems prevailing in societies. In terms of the level of caution and caution within society, and the nature of social feeling towards the field of accounting work, in addition to sharing the influence of a group of other factors on accounting, which are political, economic, and legal factors.
The importance of financial accounting
Financial accounting is characterized by great importance in enterprises of all types. Because it contributes to achieving many benefits, the most important of which are:
Read also:The global financial crisis on the UAE- Helping measure the possibility of providing jobs for individuals, and evaluating the wages offered to them.
- Participating in empowering individuals in general to evaluate the financial condition of establishments.
- Promoting investments in light of the political, social, and environmental conditions surrounding the facilities.
- Providing assistance to governments in calculating the value of the added tax, taxes on various companies, and other financial matters.
- Contributing to the analysis of private investment in institutions and individuals; In order to make a comparison between past and future performance.
- Providing supporting information for the decision-making process for all operations.
- Preventing fraudulent activities; By providing all information related to assets, revenues, and liabilities.
Beneficiaries of financial accounting
A group of individuals benefit from financial accounting within enterprises, including:
- Investors, whether current or new, and financial accounting helps them evaluate the risks of the investments that they associate with enterprises.
- Loan owners within the capital who follow the mechanism of obtaining their money on the due dates.
- Customers and suppliers; So that they can determine the expected time period for the facility to continue operating.
- Governmental institutions; Such as the tax authority, which follows up on the tax status of the establishment.
- Employees in establishments; In order to predict the length of time they will continue their work.
Financial accounting statements
Accounting generally depends on the presence of financial statements that contribute to the preparation of financial reports, and is divided into three basic financial statements:
Read also:What are the taxes- Balance Sheet It is one of the main financial statements, also called the financial position statement. It contains information about the company’s financial wealth, the value of assets, liabilities, and shareholders’ private property rights. The balance sheet depends on achieving a main accounting equation that is (assets = liabilities + shareholders’ property rights). ); The value of the company's assets cannot be known except when determining the ownership rights and obligations arising from them. Thus, the balance sheet contributes to reflecting the direct relationship between these operations. It is also a summary of the company's accounts at the end of the financial accounting period.
- Income Statement It is the list that provides information about the percentage of the company’s private financial revenues during a specific period of time, while specifying the amount of expenses and expenditures directly related to the financial revenues. The list contains the private revenues in sales, and then subtract from it any financial values that are not expected to be collected from sales. Due to the reduction in its value, the value of expenses resulting from the cost of sales is also deducted from net revenues. Which leads to arriving at the total profit, after which the operating expenses are subtracted, resulting in obtaining the value of the operating profits and the expenses resulting from the income tax, and the net profit or loss is included as a special basic point in the income statement, after deducting the expenses resulting from taxes and interest.
- Cash Flow Statement It is the list that is concerned with monitoring cash flows during the accounting time period, and contributes to highlighting the financial data related to the net increase and decrease in the total cash values available during the accounting time period. The cash flow statement is divided into a group of various sections, including operational activities, financing, and investment. The information within this list explains all the details related to changes at the level of special operations in achieving net profits or losses, as contained in the income statement.
