The concept of accounting refers to a science whose objective is to provide useful information for decision-making economic, for this it analyzes the patrimony and its movements, obtaining accounting results, which summarize the economic situation. Financial accounting is the branch of accounting in charge of collecting, classifying, recording, summarizing and reporting on the operations in money carried out by a company, taking in a historical way the economic life of the same.
In short the financial Accounting produces and delivers information on the economic status of the company to interested entities (investors, clients, banks, creditors, etc.).
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It is also known as external accounting and together with administrative accounting and cost accounting they form the accounting structure of any organization.
In this article you will find:
Characteristics of financial accounting
- Reports to third parties on the financial movement of the company.
- It covers the totality of the economic operations of the company in a systematic, historical and chronological way.
- It is used as a common language in companies due to its mandatory nature.
- Its implementation in the company is necessary for the recording of financial operations and to adequately report the events developed.
- It is based on accounting principles, rules and procedures.
- Describes operations analytically, according to double entry bookkeeping.
- The preparation of financial statements must be done with prudence, due to the uncertainty surrounding economic transactions.
Principles of financial accounting
They are comprised of the qualitative characteristics or attributes that make the information in the financial statements useful for users. Mainly they are:
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Understandability:
It is an essential quality of the information provided in financial statements, it is very important that it be easily understood by users. Although it is assumed that these users have a certain level of knowledge of accounting, from the economic activities and the business world, to study the information with reasonable diligence.
Similarly, complex or relevant information should not be excluded due to its need or usefulness in decision-making.
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Relevance:
It must be adapted to the need for decision-making by users. Information possesses this quality of relevance when it helps to evaluate present, past or future events, or allows confirm or correct evaluations carried out, which influence users when making decisions economic.
Reliability:
To be useful, it must be reliable. Users need to trust that the information provided is the true image of what it is intended to represent. The quality of reliability is credited to information free of material error, bias or prejudice.
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Comparability:
It allows comparing the financial statements of the company over time, in order to measure performance and identify trends in the financial situation. In addition, users should be able to use this to compare the financial statements of other companies, in order to evaluate their performance, financial position and changes in financial position.
Importance of financial accounting
The financial Accounting it emphasizes the economic plane of operations and transactions, even when the legal form differs and requires a different treatment.
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Money is a fundamental element for economic activity and this accounting branch allows us to measure and analyze the use of this money and effectively express the material exchanges and services.
The data that is quantified in this accounting activity represents an important aid for conscious decision making.
In recent years, accounting has assumed an important role, directly and indirectly improving financial information, for different purposes and depending on who uses or needs it.
- Investors: They rely on financial accounting to minimize the inherent risks of their They need timely and reliable information to help them determine the viability of their investment.
- Employees: They are interested in information about the stability and financial performance of their employers that allows them evaluate the ability you have to meet the remuneration, benefits after retirement and other employment benefits obtained in the business.
- Lenders, banks, creditors and commercial suppliers: Those institutions that provide funds and material to the company need information that allows determining the payment capacity of the same, to ensure compliance with the total payment or the installments established in the financing agreements and commercialization.
- The government and public bodies: They collect financial information to regulate the activity of companies and ensure that they comply with established fiscal policies. In addition, the financial information of companies is used by the government as a basis for the statistical construction of national income.
Basic elements of financial accounting
The elements related to the measurement of the financial situation are:
- An asset: Resource controlled by the entity, as a result of past events, from which the company expects to obtain beneficial economic results.
- A liability: It refers to the obligation that arises as a result of past events, where to cancel it it is necessary to relinquish other economic resources.
- Net worth: It is the residual or remaining part of the assets of the company, once all its liabilities have been deducted.
Accounting performance
This discipline considers the company as a continuous business that operates over time, does not anticipate its eventual liquidation or substantial reduction of the scale of its operation.
Quantifies the operations that are carried out by a company with any other member of economic activity and takes into account the events that could affect it, all this is done in terms monetary.
The information faithfully represents the transactions and other events that are intended to reflect, therefore, it is It is necessary that these be accounted for and presented according to their essence and economic reality and not according to their form legal.
Some of the operations and events that are taken into account are economic transactions, internal changes that alter the structure of the resources and any external event that could have a monetary impact on the business.
