Meaning of Financial Accounting Part VI

4.4 Terminology in financial accounting

The following list does not claim to be complete, but explains the most important terms from the world of financial accounting:

  • Depreciation: Losses in the value of fixed assets are spread over several years depending on their useful life and useful life. There is the depreciation table (depreciation for wear and tear), which shows the depreciation. A smartphone, for example, has to be written off for three years if the acquisition value is more than 800 euros net.
  • Assets: They represent the company’s assets in total and show where the money was invested.
  • Expense: An expense relates to the costs incurred, but can also represent a depreciation.
  • Receipt: Any document that proves a business transaction is considered a receipt. This includes invoices, offers and business letters.
  • Balance sheet: It shows where the company’s money was invested and what sources it came from. The division into assets and liabilities is made; both sides must be equal in value.
  • Bookkeeping: Recording of all business transactions of a company, the postings are made on different accounts.
  • Accounting software : software for financial accounting, it creates invoices and reminders, reconciles accounts, compares postings with outstanding payments, is important for the accounting of sales tax and transmits the necessary data to the tax advisor.
  • Debtor : Debtors are customers, to whom the account “Accounts receivable from deliveries and services” belongs
  • Double entry: double entry of each entry . Two accounts are always affected.
  • Success account: This is a sub-account of the equity account and is used to determine the company’s profit.
  • Profit and Loss Account: Mandatory for all companies that are required to keep double-entry bookkeeping. The income statement is created with the balance sheet as annual financial statements and shows the profits and losses after a financial year or after an accounting period.
  • Land register: Chronological management of all business cases in a company.
  • Credit: The right side of the bookkeeping account is described as “credit”, where liabilities are recorded.
  • General ledger: The entries from the land register are transferred to the general ledger, where they are classified in various general ledger accounts. The general ledger consists of the accounts contained in the chart of accounts .
  • Annual accounts: Are the final accounts of a company. The annual financial statements consist of the balance sheet, the income statement or the income and surplus account. It is the basis for taxing the company.
  • Chart of accounts: All accounts of a company are listed here and all deposits and withdrawals can be traced in detail.
  • Accounts Payable: Suppliers to a company
  • Liabilities: Designation of the capital or the origin of the capital of a company. The liabilities side is divided into equity and debt.
  • Debit: The opposite of credit can be found on the left side of the accounting account. Shall describes the assets of a company.

4.5 The most important accounting records in financial accounting

With every booking, two accounts are always affected, regardless of whether it is an incoming or outgoing money. This means that a booking record is always applicable. It reads: Debit to credit and is adapted to the individual business cases. Such a case exists, for example, when goods are purchased. The associated posting record then reads: “Goods to liabilities” (when purchasing on target). In the case of a purchase that is paid for in cash, the booking record is: “Goods at checkout”.

When the company repays a loan to the bank, the posting record would be “Long-term debt to bank”. If a customer buys goods from the company, their claims are increased, but sales also increase at the same time. The booking rate for this is called: “Receivables from sales”.

This way, booking rates can be set for all business cases. It is always important that the posting record must be on the page on which the account can be found in the balance sheet. This always applies when the account increases. However, if it decreases, the booking record must be fetched to the opposite page.

5. Objectives of financial accounting

According to Etaizhou, every company that wants to be successful must have proper bookkeeping. This means that bookkeeping, which is unfortunately all too often neglected, definitely makes sense because it is the only way to make statements about the profitability and efficiency of the company. The objectives of financial accounting are in detail:

  • Documentation: All business transactions of the company must be traceable. In addition, the bookkeeping must not only be able to be presented in full, but must also comply with the applicable laws and regulations.
  • Determination of profits: Financial accounting is involved in determining the profits of a company because it provides the necessary figures and data.
  • Determination of the sales tax burden: The tax office is happy to share in the company’s income – the financial accounting department provides the necessary figures for paying the sales tax collected and for calculating profits. The company’s taxation is based on this in turn.
  • Overview: Only with proper bookkeeping can reliable statements be made about where the company currently stands, what financial difficulties it is experiencing and whether planned investments are feasible.

The objectives of financial accounting are therefore briefly the documentation and the determination of profits. This gives the necessary overview of the company’s current capital situation. Without a functioning general ledger, it would not be possible to attract investors because nobody would know where the company is at the moment.

Financial Accounting 6



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