We explain what financial accounting is, its requirements and objectives. Also, what is tax and administrative accounting.
What is financial accounting?
Financial accounting is called branch of accounting dedicated specifically to the financial transactions of a business. This involves summarizing, analyzing and reporting to both the general public and shareholders of a company or government agencies dedicated to fiscal oversight, and from this information strategic decisions are often made within the organization.
financial accounting is responsible for keeping records of the economic history of any organization and together with cost accounting and administrative accounting, it makes up its accounting structure. Since the consumers of this information are usually entities external to the organization, it is also known as external accounting.
This branch of accounting is governed by national and international standards enshrined in the financial laws of countries or regions. To that extent, it must meet the following requirements:
- Relevance The information gathered must be relevant for decision making, as there is no other reason to undertake this type of study. Reports are expected to be to the point and as complete as possible.
- Materiality The information contained in said reports is considered material when it can substantially influence the benefit or harm of real economic actors of the company.
- Reliability Every accounting exercise must be truthful, free of errors or biases that could alter its content.
- Understandable Any accounting report must be readable by its target audience and cannot rely on codes or hermetic languages.
- Comparable Accounting reports can be compared to obtain an evaluation of different periods and draw conclusions regarding the company's performance.
See also: Inventory
Objectives of financial accounting
Financial accounting pursues the following objectives:
- Offer true and useful information about the financial situation of a company and the profit obtained by it.
- Create business economic memory by recording the operations carried out by the organization.
- Provide information regarding the operating results, financial position and cash flows of a company.
Tax accounting
tax accounting is responsible for supervising and recording the operations of a company with respect to its tax obligations basing this on the obligations contracted by every company according to the legal and legal framework in force in a nation.
Thus, the tax accounting criteria will vary depending on the place where the company operates, but it is always of great importance for the preservation of business assets as well as its public image, since irresponsible management of its taxes could be extremely counterproductive.
Management accounting
It is a branch of accounting that keeps company management informed that is, to its management, regarding the financial situation of the organization and the registration of its economic movements.
That is why it is known as managerial accounting, since it prioritizes the usefulness of its information to allow management decisions that are as accurate and informed as possible.
Along with cost accounting and financial accounting, administrative accounting makes up the accounting structure within any company or organization.
