Meaning of Financial Accounting Part III
3.1.1 The role of financial accounting in the financial statements and balance sheet
In order to be able to draw up a balance sheet, the existing stocks must be determined beforehand . This goes through the inventory, in which all assets of the company are recorded and numerically determined. In addition, the current debt levels are documented. Closely related to this is the determination of success as a further task of financial accounting. All expenses incurred by the company are compared with the income. This results in a profit or a loss, although losses are often referred to as negative profits.
Important: Traders and those who are required to keep accounts, who are not considered to be small businesses , are obliged to keep double bookkeeping, which means that an account and a contra account must always be kept.
The financial accounting determines the prime costs , which means that all costs must be broken down that have been incurred in the company for internal services.
Without the financial accounting, the calculation of prices would not be possible, because the accounting and the determination of costs informs the company which expenses have to be recovered from the sale of services and products. Since every company is profit-oriented, it not only needs its expenses, but also the profit margin, which is also derived from the financial accounting data. In this context, it is also possible to set up provisions for future investments , for example. Only if the company works economically and is profit-oriented is it possible to put funds aside and to allow accruals to run up.
According to Usvsukenglish, the financial accounting creates statistics and evaluations, which are also important for the internal controlling, which also falls within the scope of the financial accounting. In addition, advance sales tax returns are made available for the tax office, which are based on the income generated and own liabilities or on input tax and sales tax.
Overall, financial accounting is the point of contact for the tax office as well as for investors, shareholders and creditors, because this is where all the relevant figures and data relating to financial decisions come together.
3.2 The processes of financial accounting
Various processes run in financial accounting that are there to make operational processes and decisions transparent and understandable at all times. Business letters are written and contracts are drawn up, time recording systems and cash registers are involved, whereby all processes are important for the desired traceability in addition to the accounting documents. The financial accounting must be integrated into the existing processes of a company so that access to the data and figures is possible at any time and for all authorized persons. At this point, a financial accounting program comes into play, which should include an invoicing program and a solution for archiving the data.
Financial accounting process description
Every process in the company should be based on a process description, this also applies to financial accounting. An example of such a process description can be shown by keeping the books:
- Is there an order? If so, the receipts need to be processed. If not, an order must be obtained.
- To process the receipts: make postings, consider checklists for special accounts!
- Checking the entries, checking the plausibility, if necessary correcting the entries
- Creation of evaluations, sending of evaluations, filing of receipts
Of course, this is only a greatly simplified and abbreviated form of the process description, as many other factors are included. Such a factor can result from internal company guidelines, which in turn are based on procedures that have been defined for other processes.
3.3 Differentiation from other bookkeeping
In accounting, there is the main accounting, which is represented by the financial accounting, and various sub-ledgers. These and their results also flow into the financial accounting and are related to customers and suppliers. Financial accounting is responsible for external accounting and is the contact for investors and tax authorities. Cost and performance accounting, on the other hand, has an internal reporting function.
3.3.1 Asset accounting
The assets that belong to the long-term business assets are counted as fixed assets . There is a separate bookkeeping system for this, which deals with land and buildings, systems and machines as well as the vehicle fleet. Long-term investments also count as fixed assets and are managed within the framework of asset accounting. At the end of each financial year, an asset schedule is drawn up that reports on the development of fixed assets and gives an overview of additions and disposals as well as depreciation. Furthermore, the acquisition costs of the individual assets can be read from this overview.
3.3.2 Payroll accounting
The wage and salary accounting is also known as personnel accounting and takes over the booking of all wage and salary services as well as the associated payments, which are to be directed, for example, to the health insurance companies or to the pension insurance provider. There is an interface for posting that leads to the associated financial accounting accounts. The wage and salary posting also takes over the reporting of the employees to the associated bodies such as the health insurance, the pension insurance or the mini-job center.
3.3.3 Material accounting and warehouse management
The material accounting records all processes that are related to the material of a company. The costs that arise here are posted to the corresponding cost centers or assigned to the cost object. On the one hand, it is about the recording of incoming materials according to their value, and on the other hand, the quantity of materials to be recorded. They are divided into incoming and intermediate storage as well as outgoing materials. The material issue takes place via material withdrawal slips.
3.3.4 Current account accounting
The current account accounting records all incoming and outgoing invoices of a company and thus both liabilities and receivables. The accountants create master data for personal accounts and monitor payment transactions. Incoming payments are assigned to the open customer items, so that open invoices are cleared. In addition, the dunning system belongs to the area of current account accounting, in addition there is the task of reporting to the company management.
