Financial Accounts, Financial Accounting, Financial Accountancy Statements
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Financial Accounting
Financial Accounting or Financial accountancy is the field of accountancy
concerned with the preparation of financial statements for decision makers,
such as stockholders, suppliers, banks, government agencies, owners, and other stakeholders.
Financial accountancy is used to prepare accounting information for
people outside the organization or not involved in the day to day running of the
company.
The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.
Financial accountancy is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company.
Managerial accounting provides accounting information to help managers
make decisions to manage the business.
Financial accountancy is governed by both local and international accounting
standards.
Basic Accounting Concepts
Financial accountants produce financial statements based on Generally Accepted
Accounting Principles (GAAP) of a respective country.
Financial accounting serves following purposes:
-
Producing general purpose financial statements.
-
Provision of information used by management of a business entity for decision
making, planning and performance evaluation.
- For meeting regulatory requirements.
Graphic Definition
The accounting equation (Assets = Liabilities + Owners' Equity) and financial
statements are the main topics of financial accounting.
The trial balance which is usually prepared using the Double-entry accounting system
forms the basis for preparing the financial statements. All the figures in
the trial balance are rearranged to prepare a profit & loss statement and balance
sheet.
There are certain accounting standards that determine the format for these
accounts (SSAP, FRS, IFS). The financial statements will display the income and
expenditure for the company and a summary of the assets, liabilities, and shareholders
or owners' equity of the company on the date the accounts were prepared to.
Assets, Expenses, and Withdrawals have normal debit balances (when you debit these
types of accounts you add to them)...remember the word AWED which represents the
first letter of each type of account.
Liabilities, Revenues, and Capital have normal credit balances (when you credit
these you add to them).
When you do the same thing to an account as its normal balance it increases; when
you do the opposite, it will decrease. Much like signs in math: two positive numbers
are added and two negative numbers are also added. It is only when you have one
positive and one negative (opposites) that you will subtract.
Meaning of Accounting Equation
The value of a company can be understood simply as the useful assets that ownership
of a company entitles one to claim. This value is known as Owners' Equity. Some
assets of a company, however, cannot be claimed as equity by the owners of a company
because other people have legal claim to them - for example if the company has borrowed
money from the bank.
The value of a resource claimable by a non-owner is called a liability. All of the
Assets of a company can be claimed by someone, whether owner or not, so the sum
of a company's equity and its liabilities must equal the value of its Assets. Thus
the accounting equation describes what portion of a company's assets can be claimed
by the owners.
Various account types are classified as 'credit' or 'debit' depending on the role
they play in the accounting equation.
Assets = Liabilities + Equity or Assets - Liabilities - Equity = 0
Another way of stating it is:
Equity = Assets - Liabilities
which can be interpreted as: "Equity is what is left if all assets have been sold
and all liabilities have been paid".
Business Tips
Some tips on how to avoid business failure:
-
Don't underestimate the capital you need to start up the business.
-
Understand and keep control of your finances - income earned is not the same as
cash in hand.
-
More volume does not automatically mean more profit - you need to get your pricing
right.
- Make sure you have good software for your business, software that provides you with a good reporting picture of all aspects of your business operations.
See More Information On:
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ShopMateWeb Online Cloud Based Business Database Application
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ShopMate Desktop Automotive Database Software
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ShopMate Desktop Modules Explained - Screen Shots
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AzureMate Desktop Cloud Data Storage Explorer Software
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Software Downloads and Installations
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MotoShop Automotive Database Software
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Ideas for Business - Business Tips
- Automobile History - Automotive Fuels
Important Note
Because the material covered here and other pages is considered an introduction
to the topic of Accountancy and Accounting, there are many complexities not presented.
You should always consult with a business accounting professional for assistance
with your own specific circumstances.