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What is financial accounting – its requirements and objectives

What is financial accounting?

Financial accounting is a branch of accounting that specifically dedicates to a company’s financial transactions. This includes summarizing, analyzing, and reporting on the matter to both the public and shareholders of any company or government agency dedicated to tax oversight, and this information typically uses to make strategic decisions within the organization.

Financial accounting is responsible for recording the economic history of an organization and, together with cost accounting and administrative accounting, forms the accounting structure of the same. Because the consumers of this information outside the company, this is known as external accounting.

This branch of accounting is subject to national and international standards anchored in the countries’ financial laws or regions. In this respect, you must meet the following requirements:

Relevance. The information collected must be relevant to the decision, as there is no other reason to conduct such a study. Reports expect to be accurate and as complete as possible.

Materiality. The information contains in these reports considers material if it could materially affect the benefits or harm to the real economic actors of the company.

Comparable. The accounting reports can merge to obtain an evaluation of different time periods and draw conclusions about the company’s performance.

Financial accounting goals

Financial accounting pursues the following goals

Provide truthful and useful information about a company’s financial health and the benefits it can bring.

Build a business memory by recording the operations performed by the organization.

Provide information about a company’s operating results, financial condition, and cash flows.

Tax accounting

Tax accounting is concerned with monitoring and recording a company’s business in relation to its tax obligations

Based on the obligations that each company has made in accordance with the legal and legal framework in force in a country.

Therefore, the tax accounting criteria vary depending on where the company operates. Even so, it is always important to preserve the company’s heritage and its public image, as irresponsible handling of your taxes can be highly counterproductive.

Administrative accounting

It is a branch of accounting that informs the management of the company.

That is its management, the financial situation of the organization, and the records of its economic movements.

This is why it is known as management accounting as it prioritizes the usefulness of your information in order to enable the most accurate and inform management decisions possible.

Together with cost accounting and financial accounting, management forms the accounting structure within a company or organization.

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