Meaning of Financial Accounting Part IV
3.3.5 Customers, suppliers, cash books, etc.
Financial accounting differs depending on the size of the company and so it can also be divided into individual customers and suppliers. The breakdown into individual areas becomes deeper, the larger the company is and the more detailed the bookkeeping has to be done. The booking of the cash books can also become a separate subject. Incoming and outgoing payments are monitored here and the corresponding postings are made. In addition, a comparison with the other accounting areas is necessary.
3.4 The tasks of the operational accounting
Everything comes together in operational accounting: booking incoming and outgoing invoices, creating overviews of profitability and presenting options for financing planned investments. Without a functioning accounting system, no company could be profitable and would operate more or less “in the dark”.
3.4.1 Outgoing invoices and incoming payments
In the past, invoices had to be created by hand, the amounts were determined on the basis of previous offers and services actually to be billed. Today, invoicing is usually done by an invoice software or an invoice program that is embedded in the accounting software . The invoices are posted there and sent automatically, and direct debit is also possible automatically from here. However, founders or entrepreneurs in the initial phase can also use a free invoice template.
According to Acronymmonster, the accounting department records the incoming payments from customers on the bank account, the offsetting entry is initiated. Many companies read the electronic account statements into the program and the software reconciles the postings. Dunning also falls into this area. The individual dunning process is initiated when the program determines that a payment term has been exceeded.
But even if you still post manually, the processes are similar. First the invoice is created for the customer, then the sales are posted. The account of the customer, the debtor, is debited, the posting record to be created is divided into sales tax and net revenue. When the payment is received, the customer’s account is cleared again.
3.4.2 Incoming invoices and outgoing payments
Of course, the accounting department also has to deal with the incoming invoices that come in from the company’s suppliers. The invoice is checked first, which is usually done by the respective specialist department of the company. If the result is positive, this check leads to payment approval.
Important: All formal components of the invoice must be included, otherwise it may not be possible to deduct the input tax . The booking is made separately for input tax and outgoing payment. Here, too, an accounting program is used, which takes care of all the work that has to be done automatically, making the work safer on the one hand and simpler on the other. The bookings are only associated with a minimum of effort. After posting, the account is balanced with the liabilities and the invoice is ready to be filed. The software also takes care of the offsetting of sales tax and input tax in the background, so that the next sales tax return can be sent later simply at the push of a button.
3.4.3 Electronic invoices
Today, far more invoices are created electronically than by hand, which has the advantage that they are more forgery-proof and in a machine-readable format. The “Central User Guide Forum for Electronic Invoicing Germany” (ZUGFeRD) standard applies to electronic invoices. Those who follow this standard can be sure that they have created a legally secure invoice. But a financial accounting program can also work with a scanned manual invoice or with an invoice that has been created as a normal PDF. Good programs recognize all points on the invoice independently and simply fill in any gaps. For financial accounting, the software saves a lot of time and effort, as well as the security that all the necessary components of the invoice are available.
4. Carry out financial accounting correctly
There is more to financial accounting than just posting receipts and monitoring incoming payments. Accountants are true financial geniuses and are very familiar with all the conditions in the company. They know how the company is financially and can give advice on the sensibility and profitability of acquisitions and investments. However, the prerequisite is that the financial accounting is running and that all legal requirements are complied with.
4.1 The starting point: manage receipts effectively
Receipts are documents that prove payment. This can be a receipt that was issued after receiving the cash. Receipts are also invoices and dunning letters, account statements and all the other documents from which payments can be derived. Documents include both incoming and outgoing documents.
Attention: Always keep receipts! The legally prescribed retention periods must be observed, which are periods of six or sometimes even ten years.
Previously, paper receipts had to be managed, which was usually associated with a considerable amount of work. Today, electronic receipts are becoming more and more common. These are still subject to the usual retention periods, but can, for example, be stored via the software on the computer or in the cloud. An accounting program is recommended for the administration of the documents, which takes over many of the arising activities automatically and has a certain control function. The most important accounting principle applies to administration: