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Financial accounting: just about the complex + examples

On Jul 2, 2022

Even if numbers and calculations are not your forte, you will have to figure them out if you want your business to grow and prosper. To monitor the movement of enterprise funds, draw conclusions about the results of work and plan future activities, smart heads came up with financial accounting. This is a long established and well established system. You just need to tighten up and figure it out – and you are “on horseback”!

Why count money?

What worries business owners:

1 Sales are down

2 Employees work poorly

3 The state strains with taxes

4 …

5 …

When there are a lot of tasks, you have to do a lot yourself, and there is no time to deal with finances … There is no time ((

Another problem is that there is no specialized education, it is not clear what and how to count.

BUT!

The idea that your super-accountant will do all the bookkeeping is bad from the start.

Finances need to be understood by both the head and managers, and of course employees of the financial department and accounting department. Only in this case it is possible to organize the effective work of the company and its cooperation in the business world.

Speaking in bookish terms,

financial accounting is a set of procedures and regulations for the preparation and provision of information on the financial condition and performance of the company in accordance with the laws and accounting standards.

And now it's simple:

Financial accounting is all operations of the company recorded in monetary terms.

Financial accounting is the lion's share of accounting.

It collects information about the property and liabilities of the organization – intangible assets, fixed assets, leased property, financial investments, current assets and liabilities of the organization, cash, capital, funds and reserves, profit and loss, etc.

Sad statistics show that 24% of companies do not count money.

What sad consequences can this lead to:

– cash gaps. This is when there is not enough money to pay suppliers or employees.

– falling profits. If you do not analyze the profit in parts. That unprofitable directions go unnoticed for years.

– business closure. Chronic cash gaps lead to a catastrophic drop in profits and the closure of the company.

The purpose of financial accounting is to give analysts the information they need to make decisions.

These are decisions about money, labor and property of the company. The use and distribution of these resources affects everything: production, employee salaries, product prices and, in general, whether your company will be at the head or at the tail of the industry.

Tasks solved by financial accounting

Thanks to financial accounting at the company:

continuous and complete fixation of households. operations

reports are generated for internal and external use. Internal – this is management and departments. External – these are investors, creditors, clients, banks, tax inspectorate, statistical authorities

the cost and price are formed

determine the financial results of the company

negative results of work are prevented and reserves are identified to create the financial stability of the enterprise.

EXAMPLE 1

McDolds Corporation has oriented several of its annual reports around the interest in the state of the environment.

The company printed out its development programs, the focus on reducing the administrative apparatus and the resource saving programs due to waste recycling completely on recycled paper. These reports are available to any user and have significantly increased the rating of the company.

Decisions made in the firm are largely based on data from continuous financial accounting. Therefore, all data must be reliable.

EXAMPLE 2

Use of consecutive numbers of the issued cash vouchers. If the sequence of numbers is not violated, then there is a guarantee that all checks have been registered.

What does financial accounting take into account

Everything that can be expressed in money falls under accounting:

1 Property

2 Capital

3 Commitments

4 Business operations.

Properly organized accounting helps to rationally use the company's funds and pay taxes on time.

Financial accounting takes into account TRANSACTIONS. This means that those transactions that have a monetary value are recorded.

There are aspects of the company's activities that are not included in the financial reports, despite their importance. They are NOT DEALS.

EXAMPLE 3

The death of an executive, a technological breakthrough, a discovery made by a firm's research department, or the release of a new rival product.

All this cannot be recorded in the financial statements. Because it's not a deal. Such events can have a strong impact on the company's activities, but do not have immediate consequences. Moreover, they cannot be objectively assessed.

This important “non-financial” information is reflected in other non-financial reports and is available to users through press conferences and the media.

At the same time, the weeklies Barrorns, Forbes and Bisness Week regularly publish reports on the financial activities of various companies.

Principles on which financial accounting is based

Principles are fundamental laws, basic rules.

It can be said that this is the foundation on which the “building” of our financial accounting should be built. So here they are:

State regulation + direct accounting by the company. Financial accounting standards contribute to the fact that all enterprises keep accounting and reporting according to the same rules.

The basics of accounting are prescribed in the Federal Law of the Russian Federation “On Accounting” No. 129-FZ of November 21, 1996.

The chart of accounts was approved by order of the Ministry of Finance of the Russian Federation of October 31, 2000 N 94n (as amended on November 8, 2010)

double entry method. Each transaction (the same amount) is carried out simultaneously on two different accounts, using analytical and synthetic accounts.

All transactions are accounted for in the period in which they took place. Even if the money for them arrived earlier or later than this period.

All property and financial assets must undergo a periodic inventory.

A single monetary expression of all indicators.

Information must be material, complete, reliable, objective, timely, comparable, neutral. Must have predictive value and be understandable to all those who make decisions based on it.

Based on the results of financial accounting, it is possible to analyze the financial condition of the company: the liquidity of assets and liabilities, the calculation of inventories and the determination of a number of coefficients.

The real value of assets and liabilities should be determined taking into account inflation.

All reporting is subject to audit in the manner prescribed by law.

Financial and management accounting goes through the following stages

1 Self-accounting. We need to start counting money. As soon as you start counting something, in the future you begin to control and manage it.

2 After you have calculated, you need to analyze and draw some conclusions: “Aha!.. The change in this indicator has affected the activity of the enterprise in this way.” That is, to conduct a causal relationship. And make reports based on accounting.

3 Planning. We think: “Which point B should we go to. To change the current situation for the better?

one

Account itself. We need to start counting money. As soon as you start counting something, in the future you begin to control and manage it.

After you have calculated, you need to analyze and draw some conclusions: “Aha! ..

The change in this indicator has had such an impact on the activities of the enterprise.” That is, to conduct a causal relationship. And make reports based on accounting.

Planning. We think: “Which point B should we go to. To change the current situation for the better?

The cyclic repetition of these three phases is financial accounting. There is nothing difficult in this. The main thing is to do it systematically.

Responsibility for financial accounting and analysis lies with the manager. This is his pillar of torment – to create the right conditions for proper accounting and to ensure that all relevant employees conscientiously and efficiently do their job.

Financial accounting is maintained by the accounting department. Its activities are coordinated by the chief accountant.

Accounting is an independent structural division of the company. If you do not have your own accountant, you can use the services of a hired specialist or an audit firm.

Audits conducted by auditors examine a firm's financial statements for their “fairness” and “truthfulness”.

Auditors do not thoroughly check the accuracy of the reports, but express an expert opinion on the completeness and reliability of the reporting.

Audited documents retain a trace of reliability for many years.

Financial statements

The formation of the financial report is carried out on the basis of the results of financial accounting. It displays the financial condition of the company. Here are the documents that are being reported:

Balance sheet

It helps to understand how money is distributed throughout the company, in what forms it is distributed at any given time.

For example, in the form of live money in accounts; or in the form of debts owed to you by clients; or in the form of debts that you owe to suppliers; or is it a coffee machine that brews coffee for your customers if you have a cafe; or a printing press, if you have a printing house. All this is called the terrible words “assets” or “liabilities”

Cash flow statement

Accounts for income and expenses. A very helpful report.

For example, according to it, you saw that after 3 weeks you have a shortage of money, you have 3 more weeks for that. To correct their actions and see how this cash gap can be reduced. Thus, protecting your business from major troubles.

Profits and Losses Report

It takes into account not money, but debts.

According to this report, you can judge whether the company is profitable or unprofitable. It is especially important that it shows by segments which activities are profitable and which are not. Because in general the business can be profitable. But one area of activity is very profitable, there are areas that are self-sufficient, and there are, unfortunately, unprofitable ones. By closing the latter, you will immediately increase the overall profit of the company.

Where to count?

1 Excel – time

2 Personal Finance Apps – Limitations

Online services for business – a choice of opportunities and price.

What to count?

1 Money – preferably every day.

2 Profit – at least once a month.

Now let's look at the ingredients of the “financial accounting” dish.

Chart of Accounts

I have already mentioned above that the Government of the Russian Federation approved a single Chart of Accounts for all many enterprises. It lists all accounts reflecting all the necessary information about business activities.

There are about 100 accounts. Businesses use about 70.

The instruction defines the content and purpose of each account, prescribes the procedure for maintaining synthetic accounting and provides a typical scheme for the correspondence of accounts with each other.

All synthetic accounts are numbered with a two-digit number (from 01 to 99). Sub-accounts in them are numbered in order within each account. Off-balance accounts have three-digit numbering (001-011).

All accounts are divided into 8 sections:

1 Non-current assets

2 Manufacturing stocks

3 Production costs

4 Finished products and goods

5 Cash

6 Calculations

7 Capital

8 Financial results.

Balance sheet and accounts

Each type of economic assets and their sources is recorded in a specific account.

Accounts are active and passive.

Active ones show the composition and placement of funds.

Passive – their sources and purpose.

Accounts are combined into groups, groups – into sections.

All accounts are built in the same way. These are 2 columns of the table – debit and credit. Typically, accounts have a balance (balance) at the beginning and end of the month. The table reflects the income and expenditure of funds in the reporting period.

IMPORTANT !

Although the structure of passive and active accounts is the same, credit and debit for both have a different purpose.

A famous feature of the balance sheet is the equality of the two columns of its table. That is, as a result, the asset and liability should be equal.

Why is this happening?

This is because the same property is reflected there and there, only grouped according to different criteria:

– the asset shows what function the property performs;

– in liabilities – from what sources it comes from.

According to the time of compilation, the balance sheets are divided into:

– Current (for each reporting period)

– Annual (of course – at the end of the year)

Introductory (when organizing or reorganizing an enterprise):

– Liquidation (upon liquidation of the enterprise)

– Separation (in case of division of the enterprise into several separate ones)

– Unifying (in case of merging several organizations into one).

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Briefly about the main

Financial accounting is a mandatory matter and you cannot be uneducated here. And the head, and managers and, of course, the accountant, need to know:

financial accounting tasks

financial accounting principles

reporting requirements

legislation related to accounting

possess the skills of applying the chart of accounts of accounting and compiling accounting entries.

Financial accounting is maintained to summarize information about the company's activities: expenses and income, accounts payable and receivable, the presence and movement of assets, financial performance and payments to the budget.

Financial accounting data is reflected in the relevant reports and provided to internal and external users (manager, statistics authorities, creditors, investors, banks, tax authorities).

Finally

This information is not a commercial secret, as it provides only general information about the activities of the enterprise.