Understanding Financial Accounting According to Experts, Functions, & Types

Understanding Financial Accounting According to Experts, Functions, & Types

Nikereact.org – Financial accounting has an important role that is needed in every company. Financial accounting can assist in the decision-making process related to the economy and company finances. In relation to management tasks, accounting plays a particular role in the oversight and planning functions.

Finance is the heart of the company so that every transaction that occurs must be clear and transparent. This will make it easier for the company to know the exact amount of turnover. That is why financial accounting is very necessary for the survival of the company.

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So that you understand it better, here is a little discussion about financial accounting and some things related to it.

Understanding Financial Accounting

Understanding Financial Accounting According to Experts, Functions, & Types

Financial accounting is a part of accounting related to the preparation of reports for outside parties such as shareholders. Financial accounting is closely related to the problem of recording company transactions and preparing periodic reports from the recording results. The main principle used is the equation for accounting for assets equal to liabilities plus equity.

Currently accounting is an important reason many are studying it, especially for entrepreneurs. Of course this will be very profitable for their business. In addition, there are many students, especially students who take this major because the job opportunities in this field are very wide open and have a promising future.

Understanding Financial Accounting According to Experts

  • Kieso & Weygant (2000)

Financial accounting is the process of compiling the company’s overall financial statements that will be used by users of financial statements from internal and external parties of the company.

  • Sugiarto (2002)

Financial accounting is a field of accounting that focuses on the preparation of financial statements that are carried out in stages in each company. This report is a form of accountability from the management to shareholders and investors. The accounting equation applied refers to the Financial Accounting Standards (SAK), namely Assets = Equity + Liabilities.

  • Martini (2012)

Financial accounting has an orientation on reporting from external parties. With many external parties who have detailed objectives for each party, the parties making financial statements rely on the principles and assumptions in the process of preparing financial statements.

  • Warren Reeve Fees (2008)

Financial accounting is the process of recording and reporting data as well as the company’s economic activities. The report will produce a master report for owners, creditors, government agencies and the general public even though the report information is very useful for managers.

  • Jogianto (1997)

Financial accounting is to provide relevant information related to periodic reports in the form of income statements, balance sheets, retained earnings, reports of changes in capital from internal and external parties of the company as consideration in making management decisions.

Main Functions of Financial Accounting

Financial accounting has the main function of providing information related to the financial condition of a company. The company’s financial condition can be seen through the financial statements that are made so that it will bring up any changes from every transaction that occurs within the company.

Thus the financial information of a company will be very useful as a management decision that can affect the state of the company going forward.

In addition to companies, financial accounting can also be used for micro, small and medium enterprises such as MSMEs through practical and theoretical approaches described in the book Financial Accounting MSMEs Practical Approaches.

Some General Accounting Functions

Here are some general accounting functions that you need to know:

  • Provide a series of useful information for the company.
  • Knowing and calculating the amount of profit and loss obtained by the company.
  • Assist in determining the rights of each party, both internal and external parties with an interest in the company.
  • Supervise and control all activities related to the company.
  • Help achieve company targets as determined.

Types of Financial Statements

In a company, financial statements are important information about the financial condition that is used to see the company’s performance in a certain period.

The following are the types of financial statements that can be studied and applied to companies.

1. Income Statement

The income statement is part of the financial statements of a company within a certain accounting period. This report will describe the elements of the company’s income and expenses which will later generate profits and losses.

In addition, the income statement aims to determine the amount of profit and loss generated by a company. The income statement is also used to calculate the estimated tax that must be paid by the company.

As well as being used as an evaluation reference for the company’s management and providing information about the appropriate steps that need to be taken if the burden incurred by the company is greater.

The income statement consists of two forms, namely:

  • Single Step

In the single step form, the application of flow and account grouping is easier to do. This is because on the income statement the placement of income and profit is at the beginning of the report. Then proceed with the expenses and expenses borne by the company. Furthermore, what determines the company’s profits or losses lies in the difference between total revenues and total expenses.

  • Multiple Step

Meanwhile, in the multi-step income statement, operational and non-operational transactions must be separated while at the same time comparing costs and expenses with related revenues. The form of the report also shows the difference between ordinary activities and incidental activities in operating income.

2. Balance

This type of balance sheet consists of a systematic list of assets (assets), liabilities (liabilities) and capital (equity) in a certain period of time. The balance sheet usually consists of two forms, namely skontro/horizontal (account form) and staff/vertical (report form).

In general, the balance sheet financial report aims to show the condition, position and financial information for a certain period. This financial report will describe the company’s financial position in a certain period of time.

At the end of this report will show the position of assets, debt and capital that creates a balance or balance.

By knowing what the types of financial statements are, it will make it easier for companies to draw up the right steps in financial statements. The three main elements in the balance sheet are as follows:

  • Asset

Assets are assets owned by the company and are usually used in the company’s operations. Assets will provide value to the company’s future benefits. An example of an asset is a building used in company operations.

  • Liability

Liabilities are debts that must be repaid over a certain period. This debt consists of Current Liabilities and Long Term Liabilities. Liabilities are also referred to as the inverse of assets. If assets are ownership of assets while liabilities are liabilities.

  • Equity

Equity or capital is the assets owned by the company. Equity is also ownership of the company’s asset rights where net worth is obtained from total assets minus liabilities. All three can be related through the equation Assets equals Liabilities plus Equity.

Learn more about conceptual financial reporting, corporate assets, liabilities, equity, and much more in the book Financial Accounting, Theory and Concepts by Tmbooks.

3. Capital Change Report

The statement of changes in capital is a financial report that is made to show changes in the increase and decrease in assets within a certain period of time. This change can occur because the capital used continues to experience turnover, as well as the addition of profits and the use of capital for the benefit of the company.

The elements of the statement of changes in capital are:

  1. Initial capital
  2. Profit and loss
  3. private
  4. Capital increase

4. Cash Flow Statement

Cash flow statement or also called cash flow which serves to find out the circulation of the flow of funds of a company. It aims to provide information as well as control the company’s funds or cash going and cash in for a certain period.

The cash inflow report can be seen from the results of operational activities and cash obtained from funding or loans.

Meanwhile, cash outflow is seen from the total expenses incurred for certain operational and investment activities.

Based on the explanation above, we can conclude that financial statements can be useful and affect the company’s financial performance. Learn how to manage and analyze the data contained in financial reports in the Brief Lecture Series: Financial Statement Analysis.

Stages in Learning Financial Accounting

  • Identify Transactions
    Identify transactions that can be recorded and which are not. Transactions that can be recorded have evidence such as receipts, notes, invoices, proof of cash outflows, and so on.
  • Analyzing Transactions
    Transaction analysis aims to determine its effect on the financial position. Usually use the equation assets = liabilities + equity.
  • Recording Transactions in the Journal
    Journals are records that contain chronological transactions in the accounting period. This process is called journalizing which consists of general and special journals.
  • Transferring Journal to Ledger
    Transactions that have been recorded in the journal are then transferred to the general ledger. The general ledger is a collection of accounting accounts used to record asset information.
  • Prepare a Trial Balance
    The trial balance is carried out to ensure the number of debit transactions and credit transactions must be the same. If the amount between the two is not the same, it can be said that the trial balance is not balanced.
  • Making Adjusting Journal
    Making adjusting journals serves to achieve balance in the financial statements. If there are several transactions that have not been entered or an error occurs when calculating there will be an imbalance.
  • Creating a Trial After Adjustment
    Trial balance that has been adjusted in the general ledger into a new trial balance. This process must show the balance in the group of assets and liabilities must be balanced.
  • Preparing financial statements
    After the balance reaches balance, the next step is to prepare financial statements. Financial statements can be prepared as follows:
  1. Income statement
  2. Statement of changes in capital
  3. balance report
  4. Cash flow statement
  • Prepare Closing Journal
    Closing entries are only prepared at the end of the accounting period. Accumulated revenues and expenses are reported at the end of the period. This is so that the revenue and expense accounts are not mixed in the next period.
  • Making Adjustments
    By making adjustments, it aims to ensure that all income and expense accounts have been closed and ensure that the balance sheet is balanced to continue opening the books for the new period.

Introduction to Basic Accounting

A Brief History of Accounting

Accounting was born through the figure of Luca Patiolo who was later dubbed the father of accounting in 1494. Then accounting was further clarified through a book that discussed recording and bookkeeping, known as the double entry system, debit-credit in a book entitled Summa De Aritmatica, Geometrica, Proporpioni et Proportionalita .

The development of accounting is more rapid in European countries until it is known as the Conventional Book Order, which was inspired by the book by Luca Paliolo. At first there was only one bookkeeping, namely a single bookkeeping. However, due to the emergence of complex needs emerged bookkeeping in pairs.

Basic Accounting Equations

The basic accounting equation is the relationship between assets, capital and debt of a company. This basic accounting equation aims as the basis for recording the accounting system.

What is meant is that every transaction process occurs, it must be recorded in accordance with two aspects, namely assets and liabilities.

Therefore, the understanding of the basic accounting equation is a balance between the assets and liabilities side which must always be maintained as a result of changes in financial transactions. The forms of the basic accounting equations in general are:

Assets = Debt + Capital

Debt = Assets – Capital

Capital = Assets – Debt

Assets + Expenses = Debt + Debt + Income

Intermediate financial Accounting

Intermediate financial accounting is a continuation of the introduction to basic accounting. In intermediate accounting, you will learn about cash/cash equivalents, bank reconciliation, short-term investments, accounts receivable, inventories, tangible and intangible fixed assets, long-term investments, short-term debt and equity accounting and retained earnings.

Advanced Financial Accounting

Advanced financial accounting is accounting that discusses the preparation of consolidated financial statements, as the implications of ownership and control of company investments.

Advanced financial accounting provides an understanding of the concept of business combinations, accounting treatment for investments in equity instruments, making elimination journals and preparing consolidated reports based on financial accounting standards.

Example of Advanced Financial Accounting Book

For those of you who want to learn more complete accounting material, then you can read the book Advanced Accounting IFRS Edition. The detailed discussion is summarized in light and interesting language, so that it is easily understood by the reader. Suitable for students and prospective accountants for beginners so that they can quickly master and apply SAK in Indonesia.

Financial Accounting and Institutions

Financial and institutional accounting is a competency skill or major that is interconnected with numbers and counting. Accounting expertise competency will study manual accounting and computer accounting in spreadsheets. Accounting and institutions will create an accountant who will carry out the process of financial recording and financial reports in a company.

Regional Financial Accounting

Regional financial accounting is an accounting process that occurs in a local government agency such as a district, city or province which includes the process of identification, measurement, recording and reporting aimed at making economic policies by internal and external parties.

Regional Financial Accounting Output

In carrying out the identification process, the measurement of economic transactions must be stated in the rupiah currency value. Recording transactions and processing data certainly requires a variety of important information.

This information will later be used as a reference for the preparation of local government financial reports. Outputs used in local government financial reports include Budget Realization Reports, Balance Sheet Reports, Cash Flow Reports, and Financial Records and Reports.

Regional Financial Accounting Cycle

The regional financial accounting cycle is almost the same as the accounting cycle in general. The only difference is in the flow.

The flow in regional financial accounting after the preparation of the Trial Balance After Adjustment can be directly made a APBD Calculation Report. After that, the Journal Closure will be carried out and a Cash Flow Statement will be made immediately, a Report on Changes in Regional Government Profit and Loss Capital, and a Balance Sheet.

Financial Accounting Standardization

The preparation of financial statements in accounting should use the basic accounting principles that apply or in accordance with the Statement of Financial Accounting Standards (PSAK).

The regulation contains standards for recording, compiling and presenting financial statements with reference to the in-depth theory of the Indonesian Institute of Accountants (IAI).

PSAK has been implemented in Indonesia since 1994. In the development of accounting standardization, Indonesia cooperates with the development of international accounting standard preparation by the International Accounting Standards Board (IASB).

For you to better understand the concepts and application of PSAK needed in applying financial accounting to the world of practice, the Financial Accounting book below can be used as a reference.

The IASB then issued international financial accounting standards in the process of conversion to International Finance Reporting Standards (IFRS).

Thus a little discussion about financial accounting and some other things related to it. Hopefully useful for all readers.

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