Financial accounting entails the compilation, identification and evaluation of data of financial flows generated by business events, contributing to the result of a period, ie the increase or decrease of the value of a company.
The main function of financial accounting is maintained in the form of economic life history of a business, the records of past figures are used to make decisions that benefit the present or future.
It also provides the financial statements that are subject to analysis and interpretation and reporting to managers, third parties or state bodies as to the status of an entity’s commercial operations.
The techniques, rules and conventions by which figures of financial accounting are collected and reproduced largely reflect the requirements of stakeholders. All accounting systems are expressed in monetary terms and management is responsible for the content of the reports provided by financial accounting.
It is pertinent to clarify that financial accounting is concerned with those facts susceptible to be quantified in monetary terms, ie, does not recognize other qualitative elements as they do other areas or branches of accounting.
Its characteristics and functions include:
– Presentation of reports to third parties on the company’s financial status.
– Covers all business operations in a systematic, historical and chronological fashion.
– Implemented in the company to provide timely information on all the relevant financial transactions.
– Based on rules, principles and accounting procedures for recording financial transactions of a business (IFRS, GAAP).
– Transactions also recorded through double-entry bookkeeping.
Accounting is a management tool as its strong probative data is used for planning purposes. It measures and monitors the company’s performance and compare it with that of similar companies. It allows comparative observation (debts, receivables, cash, volume of business, results generated, dividends paid) and the establishment of different ratios of significant aspects of management.
It also allows consultation on the published details of financial statements of business compatriots. In the business world today, computer systems produce mixed technical, statistical and accounting information which are the real tools of daily management. Their probative value are as a result of the constant application of accounting rules and principles.
The accounting period is a calendar year, and within the year it is possible to establish the provisional results, for example monthly or quarterly. The computer makes it possible through continuous recording of most transactions posted. It remains the attachment of operations for the period and the estimated values of various assets and liabilities.
Many workflows can be saved and recovered continuously (purchasing, sales, payroll, treasury operations, etc). But in numerous cases the flow of time can only appear as the difference between the estimated start time and an estimated end time. This work constitutes the inventory estimate.
It is generally on the values of assets and liabilities. Although in general the movement of values is traced to their historical value (when they occurred), the standards of the company or those which it is subject may require an update of the day’s inventory.