Financial accounting can be broadly divided into two major categories: internal financial accounting and external financial accounting. Internal financial accounting is done on a yearly basis for a company by its accountant or bookkeeper. In this type of accounting, the financial activity of a company is classified into a number of categories that are then compared to previous financial activities. The comparison is done to determine the difference between the current financial data and previous financial data.
External financial accounting is done to provide information for various types of government, business and other bodies that are involved in financial matters. In this kind of accounting, financial data are provided for other people to use in order to do financial planning, investment and so on. This is done mainly for those bodies that are engaged in different aspects of business and planning that may include banking, insurance, business associations, etc. This information may also be provided for the general public, who will then use this information in order to do business related things.
The financial records of a company are maintained in a format known as books of account. These records must contain the total revenue of a company, the expenses incurred, the profit of the company, and any changes that have been made in the records. All these data must be accurate.
Books of account are divided into several sections that include an income statement, balance sheet, statement of cash flow and statement of profits and losses. The income statement shows the flow of money of a company. The statement of cash flow shows all sources of cash for the company. The statement of profits and losses contains all the change in the value of a company. If a change has been recorded, it is reported at the end of the accounting period in which the change has occurred.
The accounting system should be a bookkeeping system that makes use of appropriate techniques. For example, if the balance sheet includes a balance between investments and revenues, then this should be recorded under the category of cash investments. Similarly, if the balance sheet includes a balance between operating expenses and capital investments then it should be included under the category of capital investments. And if the statement of cash flow does not include the correct source of cash flows, then it cannot be used for future decisions.
The accuracy of the books of account is important because errors in these books could result in a company’s books being destroyed or reduced in value. There are also chances of a company being dissolved or its shareholders losing their money. Therefore, it is important to keep accurate records.
Information regarding financial records must also be obtained from external sources. These sources include the Bank of Canada, the Bank of England and so on.
In different companies, records may be different in terms of content and presentation. However, the basic concepts in accounting should be the same.
Books of account are considered complete when they include the information that is needed to give the company an accurate representation of what it has spent. For instance, the information may include the total revenue of a company, the total expenses incurred, the amount of capital invested and the amount of debt and equity that the company possesses. These records help to determine whether a company is running successfully. or is not.
The importance of financial accounting is that it is a guide for management. It tells managers how much money a company is able to invest and what are its assets and liabilities. Financial accounting also helps assess and manage its future requirements and provide projections for achieving such goals. Such information can be used to plan the company’s growth and development. It also provides a better understanding about the future direction of the company.
The bookkeeping service for companies is one of the most crucial services provided by accounting services. It requires certain specialized knowledge and skills for the work. This is done by professionals who work under the guidance of a bookkeeping service.