Definition of financial accounting and the most important 8 principles

This article includes an explanation of the meaning of the word accounting, the definition of financial accounting,

the most important 8 principles of financial accounting adopted

by accountants today in Saudi Arabia and the Arab countries in general,

the types of accounting and everything related to financial accounting and how to be a professional financial accountant.

Accounting

Accounting is the science that studies the measurement, communication and interpretation of financial activities through recording,

tabulating and summarizing financial operations and displaying and disclosing financial information through financial statements prepared

for specific periods of time (often quarterly).

accounting branches

Accounting branches vary for several branches, and each branch has its importance in the establishment.

Usually, the specificity of the establishment (industrial, governmental, banking, etc.)

necessitates focusing on one of these branches. Among the most important branches of accounting are the following:

1. Financial Accounting
2. accounting administration
3. Cost accounting
4. Tax accounting
5. government accounting

In our article today, the definition of financial accounting and the 8 most important accounting principles,

in which we will study financial accounting in detail.

Definition of financial accounting

Financial accounting is a specific branch of accounting that involves the process of recording,

summarizing and reporting countless transactions resulting from business operations over a period of time.

These transactions are summarized in the preparation of financial statements, including the balance sheet,

income statement, and statement of cash flows, which record a company’s operating performance over a specified period.

Job opportunities for a financial accountant can be found in both the public and private sectors.

The duties of a financial accountant may differ from those of a public accountant,

who works for his or her own account and not directly for a company or organization.

In our article, the definition of financial accounting and its 8 most important principles, we must know the financial accountant.

What is a financial accountant?

He is responsible for managing the accounting and financial activities of the organization.

They analyze the economic stability of the company and provide financial information to other departments.

This enables these departments to make budget and investment decisions,

and the financial accountant prepares reports on costs, productivity, margins, and company expenses.

Duties of the financial accountant

The duties of the financial accountant are:

• Preparing financial reports in order to evaluate the financial performance of the business
• The Financial Accountant will also be responsible for implementing financial controls and processes and ensuring the business remains compliant.
• As a financial accountant, your job is to collect, record, and extract financial information before summarizing it in the form of periodic profit and loss accounts, balance sheet, and cash flow statement.
• You will also be responsible for producing the Statement of Accounts and have a key role in the interim and year end reporting process.
• Liaising with external auditors to ensure smooth and efficient running of the audit process and to improve tax effectiveness will also be part of this role.

We, the CFOONLINE team, will present to you the accredited financial office in Saudi Arabia, in our article,

the definition of financial accounting and its 8 most important principles,

the answer to your question about how to become a professional financial accountant.

How to be a professional financial accountant?

Here are some of the strengths and attributes that accountants need to excel in their work:

Strong Math: While you don’t need to be an expert in math, it is important to have strong math skills.

Knowledge of Business Principles: You will need to understand how companies operate, in general and specific operations of your company.

Knowledge of Business Principles: You will need to understand how companies operate, in general and specific operations of your company.

Tech expert: Accounting uses many advanced software, and you’ll need to understand how technology works and how to keep data secure.

Good oral and written communication: Successful accountants can communicate comfortably with both clients and stakeholders and explain information in terms of their understanding.

What are the principles of financial accounting?

There are 8 basic principles in financial accounting that every accountant must know.

1. Cost principle:

It includes the amounts that are spent in cash within the list of accounting assets and is not subject to modification to the value of the amount.

2. Accrual Principle and Revenue Recognition:

Revenues are recognized and recorded in the accounting books and records when they are realized, and revenues are recognized with their recording in the accounting books and records when they are realized,

and the same is the case with expenses.

3. Principle of conservatism:

It includes a list of losses and profits, whether realized or expected.

4. Disclosure Principle:

Through it, all the financial information of the institution related to a specific period of time is identified and disclosed.

5. Continuity Principle:

This principle includes the payment of all financial obligations of the company or institution in order to achieve commercial goals and ensure that the company is not exposed to bankruptcy or settlement.

6. Principle of Monetary Unit Imposition:

It includes the principle of determining the measurement of the economic activity of the institution or company by defining a specific currency.

7. Principle of Matching:

This principle is concerned with matching received or due revenues and expenses according to the accrual basis used.

8. Accounting Period Principle:

Through it, the commercial activities that occur in the company during the specified time period are determined in order to facilitate accounting operations.

You can download the Financial Accounting Book Pdf from here

What are the accounting financial statements?

The financial statements are called the financial statement:

It is a set of financial statements that are displayed within the company’s custom lists.

These lists contain data on the financial operations related to the company,

such as: the balance sheet, the company’s income and profits, cash flows, types of expenses, and all information related to the movement of funds.

In conclusion: these lists contribute to clarifying the financial situation or the financial position of the institution at a specific time.

We complete our article with the definition of financial accounting and the 8 most important principles of financial accounting with the types of financial statements.

Related articles: Majoring in accounting in Saudi Arabia 2023

Types of financial statements

The types of financial statements in the science of accounting are those that are prepared by the financial accountant in accordance

with the accounting principles applied in the company or institution,

so that the various parties can benefit from them later.

Types of financial accounting

In the context of defining financial accounting and its 8 most important principles, financial accounting is divided into two types:

cash accounting and accrual accounting.

1. cash accounting

It is through which cash is received in order to record financial transactions and records every addition or deduction made by the creditor in each transaction.

It is either done in economic events that do not have monetary inputs that are considered unimportant.

This type of accounting is carried out by the Internal Revenue Service in the company or institution.

2. Accrual accounting

It includes all operating activities within the company that are recorded,

and this includes cash accounting and all transactions that do not have cash flows, which is known as accumulation.

It is used by publicly traded companies where this method gets market attention and these accounts are divided into:

• Accounts Payable: It is the accumulation of money that the company owes the vendors until they are settled and these are accounts payable.
• The second section is the accounts receivable: it is all the money of the customers who owe the company or the institution and it is known as the customers’ receivables.

Read also: The most important 7 differences between books and accounting records

Definition of financial accounting and the most important 8 principles of the difference between cash accounting and accrual accounting:

cash method	accrual method
Records transactions when cash is received or distributed	Records transactions when a benefit is received or an obligation is incurred
It is often an easier accounting method that simplifies the company to what actually happened	It is often a more accurate accounting method that depicts more realistic business operations
Primarily used by smaller private companies that require low or no reporting requirements	Required for larger public companies as part of external reporting

Explanation video: Definition of financial accounting

What is the importance of financial accounting?

Find out what happened in the company during the past periods, analyze the current situation, and predict the next accounting periods:

• Issuing accounting reports and financial statements.
• Estimating the profit and loss resulting from the company’s main activity.
• Anticipate the company’s investment range and identify its obstacles.
• Insight in making calculated financial decisions and avoiding risk.
• Estimating the company’s liquidity and its non-fixed assets.
• Know the company’s assets and compare them with liabilities.
• Access to the foundation’s sources of funds and sources of profits, and the extent of the percentage of its profits to the basic activity of the company.
• Dividend distribution to the board of directors and shareholders.
• Recording, tabulating, and summarizing financial transactions on a daily basis, with posting them to more sustainable entries, ensuring that they are referred to at any time.
• Transferring information to those who need it to make decisions or to understand, whether they are inside or outside the organization.
• Understanding the causes of financial problems and accessing the cause of crises, in a neutral manner based on unbiased data.

You may also be interested in: Ready-made Financial Statements Templates | All you need to know about financial statements

Financial accounting goals

1. Determine the result of the activity, whether profit or loss.
2. Determine the financial position at a particular moment.
3. Provide data on the timing of cash flows.
4. Providing the necessary data for financial planning.
5. Providing the necessary data to maintain the assets.
6. Maintain complete and regular records.
7. Clarify the relationship with others in terms of indebtedness and credit.

Corporate financial accounting

Financial accounting for companies is considered one of the most important parts of the work within the company or financial institution,

and it is a statement of profit and loss for companies during a certain period of time in which the financial information is determined

, with how it is recorded, measured, knowing the correct information,

verifying and analyzing it, and how the departments in the company deal with it.

Financial Accounting Exercises Solved Pdf

What are the functions of financial accounting?

At the end of our article, the definition of financial accounting and the most important 8 accounting principles

, we will mention the functions of the financial calculator.

1. Keeping financial records:

Accounting helps businesses maintain an accurate and up-to-date record of an entity’s daily financial transactions,

such as purchases, product sales, receipts, and payments.

2. Monitoring Financial Transactions:

Accountants can track and record multiple financial transactions related to payments owed to the company and receipts obtained by

the company to ensure that it receives revenue and remains profitable.

3. Preparing Financial Reports:

In the growth of any business, the accountant or any other person authorized on behalf of this may need to prepare different types of financial reports.

Which can be done after completing the accounting. Accounting includes preparing detailed monthly, quarterly and annual financial reports about the company’s assets,

outstanding debts, profits and losses for internal and external stakeholders and for legal compliance, etc.

4. Determination of Employee Payments Due:

An entity can use accounting to make payroll payments each month,

administer employee benefits and issue bonuses or performance bonuses related to the employee’s work.

Accounting also helps in keeping a clear record of Employee Welfare Fund, Statutory PF, Employee Provident Fund, etc.

5. Maintaining Digital Records:

Accounting may involve creating, maintaining, and updating digital accounting systems that can be stored digitally to maintain a company’s financial data.

6. Bill Payment:

Accounting functions also include checking invoices to ensure that invoices are properly disbursed,

determining dates for payments, and paying invoices that the company owes to various vendors and suppliers on a given date.

7. Preparing Forecasts/Budgets:

The accounts department may need to prepare forecasts/budgets for the entity’s financial statements to check the future profitability of the company.

These forecasts/budgets can be the overall company budget, departmental/internal budgets, and project budgets.

8. Make financial projections:

Accounting functions may include preparing financial projections by analyzing the company’s available financial resources,

projected revenues, future expenses, etc.

Using this information entity, it can forecast the project’s viability, future business expansion, and growth.

9. Availability of records for audit:

It is the accountant’s responsibility to make all relevant financial records available from which

the company’s auditor can perform financial audits of the company, identify accounting discrepancies and provide corrective solutions.

10. Keeping Finances Updated:

Accounting functions can also be used to check the organization’s financial strengths and weaknesses,

and provide solutions and strategies to align with weaknesses and improve strengths.

11. Review of Offers:

Accounting also includes conducting regular financial reviews and defining

some performance evaluation criteria for each of the company’s various departments to verify their performance

and granting rewards to one of the departments that meet the performance evaluation criteria, as it motivates them,

which leads to increased productivity and simplification of expenses.

12. Compliance with legal and legislative requirements:

The accounting department ensures that the entity adheres to all statutory and statutory obligations that are applicable to the entity

and also checks all industry and government rules applicable to the entity,

regulations and policies related to taxation, financial reporting, employee wages and related compliance to save the entity from any penalties for non-compliance.

In this article, we, the CFOONLINE team, the accredited financial office, have collected for you everything related to financial accounting

, including the definition of accounting in general and its branches.

And the definition of financial accounting, its principles, types and importance, and financial accounting for companies.

We are ready to provide all kinds of financial and accounting advice to all companies, large and small, in various fields.

This is because we have the strongest team of economic and financial experts,

and we have successful experiences that make us one of the strongest offices in Saudi Arabia.

Sources: en.wikipedia.org