Financial Accounting

The Accounting Financial is a discipline that is to collect, organize and record information of economic activity of a company.

Financial Accounting is a branch of the area of ​​accounting that deals with systematizing information on the activities and economic situation of a company at a time in time and throughout its development.

Financial Accounting allows you to have a historical and quantifiable record of the activities performed by a company and of the economic events that affect it.

Objective of Financial Accounting

Financial Accounting has two main objectives, depending on the user of the information:

  • Internal: provides valuable information about the financial position of the company, which allows evaluating the results of decisions that have been taken in the past, introducing changes and / or proposing new strategies and planning for the future.
  • External: Inform about the financial situation of a company, which makes it easier to make comparisons and attract potential investors . Financial accounting also facilitates control and supervision by the relevant authorities.

Characteristics of Financial Accounting

Financial accounting has the following essential characteristics:

  • Record the activities of the company in an orderly manner
  • It allows to have a historical record of the evolution of the company
  • It is a language of common understanding in the area of ​​business and investment
  • It is based on commonly accepted rules, norms and principles
  • In most countries it is mandatory (at least for companies that reach a certain minimum size)

Basic elements of financial accounting

Financial Accounting is based on an orderly system where the basic unit is an account. This presents a T-shape, with two columns where the movements (income and expenses) of the period under analysis are recorded.

The column on the right is called “Credit” and the column on the left is called “Must.” The same transaction can be recorded on both Debt and Credit depending on what exactly it represents in the account we are observing.

Annotations should be made as follows: (i) debits and income are recorded on debit and, (ii) credits or expenses are recorded on credit.

At the time of the entry, the following simplified rule should be taken into account: the assets and negative results accounts are added by the Debt and subtracted by the Credit, while the liabilities, net worth and positive results accounts are added by the Haber and subtract for the Debit.

Types of Financial Accounting accounts

There are two basic types of accounts for the financial accounting of a company:

  • The balance sheet accounts that reflect: equity, equity and debts
  • Income and expense accounts

Then, at the end of the accounting period these accounts are sorted and closed to produce the company’s Annual Accounts that include:

  • The Profit and Loss Account
  • The Balance Sheet
  • The Accounting Report
  • The State of Changes in Net Equity
  • The Cash Flow Statement

Regulations in Spain

Financial Accounting in Spain is governed by the General Accounting Plan (PGC). The PGC was created in 1973 and updated in 2007.

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