Accounting refers to the recording, analysis and synthesis of the work or operations of the organization. However, accounting is divided into two categories, financial accounting and management accounting. The distinctive characteristics of financial accounting is a number depending on its scope, framework, and the particular period.
The financial accounts can be useful for internal and external, but the records of financial accounts with external information consumers or shareholders of the mind. Although the data used for the management and financial accounts are the same, the differences arising from the impact, the accuracy and presentation of information.
The financial statements represent the financial position of an organization for a defined period. In the area of financial accounting, there is a beginning and an end, which is usually stated in the financial report. The financial accounts also mention the financial situation of the organization, at the end of the period.
Management accounting and management information is optional and not required by law. However, it is mandatory for all limited companies preparing financial accounts so that they face severe penalties. This does not mean that individuals, for example, do not need accounts. Lenders still have the financial accounts of organizations to determine the risk of credit and financial strength. However, the law requires companies with limited liability.
Financial reports are not necessarily formal, compared to annual reports, which can be formal or informal. Consequently, financial reports must be submitted in a certain way. The standards are the International Accounting Standards and International Financial Reporting Standards. Accountants also produce financial statements according to generally accepted accounting principles (GAAP). This makes it easier to understand and compare financial accounts in time and organizations.
The scope of financial accounting is the entity as a whole. A joint venture has been added financial reports based on reports of its subsidiaries, for example. Mix of income and expenditure accounts of various departments, institutions and activities. The financial report monetary measures. A value or cost attached to everything over a financial account, while the accounts may be treated with non-monetary measures, the inventory.
The period covered by the financial accounting is historical. He is the past performance of the organization without giving shots in the medium and long term. Financial reports are based on the principle of going concern, suggesting that the organization intends to remain a viable institution for at least one year after the end of the financial period of reference. If this principle, it can and should be reflected in the financial report.
It can be characterized as formal financial records, mandatory (for companies with limited liability), the very brief and external stakeholders in a company or organization. Financial accounting is useful for all organizations, including individual entrepreneurs, because it helps establish the financial position and profitability of their operations.
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