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Definition of financial accounting


Accounting science can be defined as that science that is concerned with the systematic process in which information related to economic events in organizations is studied and analyzed, so that this information is used in an organized manner by the management of these organizations, as this information is useful in the performance evaluation process and determining the foundations for development The future and the measures that can be taken to bring about this development on the relevant departments, and accounting science is useful in determining the tax values ​​due to the organization, and there are many branches of accounting science, most notably financial accounting, and in this article information about financial accounting will be addressed.

Definition of financial accounting

Financial accounting can be defined as the process of recording, classifying and classifying business activities in organizations in order to prepare a specific set of financial statements that represent summaries of everything that was done in them during a specific period of time, and these operations are carried out in accordance with generally accepted accounting principles and financial accounting standards, through which they are The financial information contained in all financial statements of organizations is understandable, measurable and comparable due to the standardization of the way the data is presented in them and the similarity of the items they contain, and the data contained in the financial statements contribute to supporting the financial position of external users according to some items viewed in those statements, and this information is limited Compared to those in the organization who have expanded and actual data on the financial position of the organization, actual documents and invoices under which sales and purchases and other financial operations related to the establishment’s activity were made.
Definition of financial accounting
Definition of financial accounting

Financial accounting is a set of accounting operations, through which all financial transactions that occur in the facility are recorded, and then they are summarized in the lists of financial statements, such as the balance sheet, cash flow statements and income statement, during a specific period of time. It is concerned with compiling financial information for users outside the facility, Such as creditors, lenders and investors, and all these accounting operations occur in accordance with a set of international financial reporting standards, and the financial transactions that occur within the financial entity are represented in the set of daily operations, such as selling goods to customers or purchasing business needs of the facility, which need to be recorded Accounting records, by receiving expense reports from the employee, and invoices for selling goods to the customer.

The importance of financial accounting

The importance of financial accounting is mainly highlighted by controlling the organization’s business financially and recording every stray and incoming in it, in addition to the presence of many parties benefiting from the data that is displayed in the financial statements prepared by the financial accountant, as financial accounting represents the cornerstone on which the preparation of statements is based. The financial resources to be used by these parties are as follows:
  • Investors: Through the information contained in the financial statements, the investment authorities work to assess the general situation of the organization in order to increase investment or reserve and wait for the appropriate time for that.
  • Creditors: Creditors benefit from the data that is presented in the financial statements in order to determine the degree of financial risks resulting from the lending operations, as the ability of the organization to meet its obligations is inferred as a result of the presence of cash that enables it to do so.
  • Suppliers: Suppliers want to determine the organization's ability to increase or decrease the demand for goods that are supplied to the related organization, as well as to determine the approximate volume of demand in the future in order to secure these quantities of supply units.
  • Customers: Customers want to know the general situation of the organization because this is reflected in the purchase operations, as customers do not want to make purchases from an organization that does not have a sound financial position, in addition to determining the organization’s continued presence in the market to form long-term relationships with it or transform into competing companies. Enjoy financial security and permanence in the market.
  • Unions: Unions benefit from the data contained in the financial statements in order to estimate the rate of wages of employees who belong to these unions and to improve their conditions in exchange for their efforts within the organization.

Fundamentals and rules of financial accounting

Financial accounting is a branch of accounting science, and it is one of the most important and largest of these accounting branches, and it has a serious role in disclosing the status of the facility and its financial performance. Therefore, it uses a set of rules that help in preparing financial reports properly, which we will explain in the following points;
  • Financial accounting is concerned with disclosing the company's financial position and performance to parties outside the financial institution and those interested in it, such as investors and creditors, by preparing financial statements and final accounts using financial accounting rules.
  • In its data, it depends on defining a specific period of time, during which the financial statements are prepared, and the performance of the financial entity is evaluated. They are realistic between the beginning and end of this time period, and do not use future forecasts.
  • Financial accounting reports, represented in financial statements such as the income statement and balance sheet, are prepared in accordance with a set of international rules, specified by the Financial Accounting Standards Board.
  • Two methods are used in recording accounting procedures, namely the accrual method, which depends on recording transactions as soon as they occur, even if the entity does not receive revenue, and the cash method, which requires recording transactions when exchanging cash, recording occurs only upon receipt of payment or payment of the obligation.
  • Contribute to the preparation of the financial reports of the facility according to the account of revenues, expenses, assets, liabilities, and equity.
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