Accounting & Finance
Financial accounting is a field of accounting that focuses on recording, analysing and reporting on a company’s business transactions in order to generate statements that are used by internal and external shareholders to assess a company’s financial stability. Outsource other processes to a professional team with systematic approach.
Financial statements can allow investors and organizational leaders to assess the financial health of a company and examine its overall performance. This means that financial accounting and the statements it creates are essential in setting business goals, reviewing financial progress and allocating resources to internal departments and professionals. Statements follow requirements and guidelines set by the International Financial Reporting Standards (IFRS).
There are two different ways a company can record its transactions, and a company may use one of the two methods or a combination of both. Here are the two primary methods:
1. Cash accounting
Cash accounting records solely cash transactions made by employees of an organization. For example, if an employee is traveling on a business trip, they can make cash transactions on meals and lodging and incidental expenses. After they make a cash transaction, they hold onto a receipt and report all transactions made to their manager. These are logged in once they're approved.
Cash transactions usually don't appear on financial statements but they can still be logged to show proof that a transaction occurred.
2. Accrual accounting
Accrual accounting is when a bookkeeper records all data from transactions. Thus, it's an expansion of cash accounting because it incorporates credit, debit and other forms of payment for transactions made by employees, with cash included. Accounts payable and accounts receivable also fall under this category, which can represent capital owed to or by a customer.