What is the function of accounting

Financial accounting
easily explained

This page was last updated on 05/19/2021

Defnition: what is financial accounting?

Financial accounting, in short Financial accounting, is a Part of corporate accounting. It records all business processes that can be expressed in numbers, i.e. all Expenses and Income.

In large companies, financial accounting is split up into accounts payable and accounts receivable.

  • Accounts Payable includes the company's payment obligations. So it is for them Incoming invoices responsible.
  • Accounts receivable accounting includes the outstanding amounts, i.e. the company's receivables. Here are the Outgoing invoices managed.

Purpose of financial accounting

The goal of financial accounting is to do that To determine the overall results of a companyin order to document the financial circumstances and changes in stocks. How much Profit or loss was done in the accounting period? Information about this is not only important for your own company, but also for shareholders or creditors. Through the Preparation of an income statement (P&L) and a balance sheet a statement can be made about how well a company is doing.

Continue to the tasks of financial accounting

Financial accounting basics

The basis of the income statement and balance sheet are the Postings of all financial flows to the appropriate accounts. All business transactions are recorded according to the following criteria:

  • chronological sequence
  • factual Order according to the type of business process

The factual order is ensured through the use of defined accounts. Special accounts are possible for different branches of the economy. These are listed in so-called chart of accounts.

The result of the general ledger

The result of the financial accounting is the annual financial statement:

Components of the annual financial statements

At the end of a specified accounting period, the accounts are closed and a Balance sheet as Profit and Loss Account created.

The financial statements of all accounts are posted. The overall economic situation and the company's tax burden emerge from the annual financial statements.

Who is obliged to do financial accounting?

Financial accounting is common to most businesses required by law (§ 238 HGB).

Only freelancers and traders who make less than 60,000 euros in profit or 600,000 euros in sales (up to 2015: 50,000 euros and 500,000 euros) are exempt from the accounting obligation.

Freelancers and small businesses also need to determine profit

However, since every entrepreneur is subject to tax, freelancers and small business owners must of course also determine their profit. They are allowed to use the simplified income-surplus-calculation (EÜR).

Financial accounting tasks

1. Documentation of all business transactions

In accordance with Section 239 of the German Commercial Code, financial accounting fulfills a document function. All business transactions must be fully documented. Receipts serve as evidence of individual business transactions and postings.

2. The determination of the stocks (preparation of the balance sheet)

In the course of this financial accounting task, the current debts and assets are documented. The comparison is made on the balance sheet date. The balance sheet is an important source of information for shareholders, creditors and other outsiders.

3. The determination of the inventory changes

How have assets and own or third-party receivables changed? These questions are raised in the course of the Inventory change determination clarified.

4. The determination of the success (P&L)

This task is closely linked to the determination of the stocks (point 2). As soon as all Expenses compared to income success can be determined using the income statement. In this case, success is not necessarily to be understood positively. In the case of losses, one often speaks of negative success.

5. Tax base

The comparison of expenses and income in the income statement creates the basis for taxing the company's success. Depending on the type of company, different income taxes apply to taxable income:

What is the difference between financial accounting and operational accounting?

Both the Financial accounting as well as the Operations accounting are pillars of corporate accounting. Financial accounting and operational accounting are the basis for internal or cross-company statistical comparisons as well as for future planning. But what is the difference between financial accounting and operational accounting?

Financial accounting: external accounting

Financial accounting is that financial accounting. It deals with the company's financial position and its changes. Different stakeholder groups such as investors are interested in this. The financial accounting is directed so first and foremost outward. This is why one also speaks of "external accounting". The design of the financial accounting is subject to certain legal requirements. All business transactions in the company, i.e. all income and expenses, must be recorded seamlessly. The recording of business transactions always relates to an accounting period. After the end of the financial year, the financial position is determined using the annual balance sheet. This is subject to publication.

Operational accounting: internal accounting

In contrast to financial accounting, operational accounting primarily has one internal information function. It is aimed primarily at company management and other internal departmentshence the term "Internal accounting". For this reason, the operational accounting is hardly subject to legal requirements and can basically be designed completely freely. An important sub-area of ​​business accounting is cost and performance accounting (KLR). Here, costs and services incurred in the context of the provision of services are compared with one another. Business accounting is one important decision-making aid for price calculations and the basis for strategic decisions. In addition, the profitability of certain measures can be checked with the help of the operating accounting. The bookkeeping postings are not included in the financial accounting. They are also not required to be published.

What is a billing period?

The accounting period is an accounting term. It denotes the Period between two degrees. With regard to the length of the period, a distinction is made between different degrees. On the one hand, there is the annual financial statement, which is carried out at the end of a financial year. On the other hand there is Quarterly and monthly financial statementswhose billing period is three or only one month long.

Does the fiscal year have to be the same as the calendar year?

A fiscal year does not necessarily have to coincide with a calendar year, but can also start in the middle of the year. However, it usually lasts for 12 months.

What should be considered in accounting with regard to the accounting period?

The accounting period plays an important role in financial accounting. Because according to the GoB, some rules must be observed.

  1. Each business transaction is to be assigned to an accounting period
    Be within a billing period all business transactions in the accounting detected. A business transaction is a booking, for example an income or an expense that affects the company's budget. The complete recording of all business transactions is not only stipulated by law, it also serves primarily to determine the financial success of a company and to classify it correctly. The business transactions are recorded in different accounts.
  2. Postings in a closed billing period may no longer be changed
    After each billing period - for example after a month or a quarter - all accounts are closed. This also means that the postings made in the accounts can no longer be changed. As long as a billing period has not yet been closed, all postings can be adjusted if necessary. It is also possible to post in two different billing periods in parallel, for example in the second and third quarter.
  3. Deadlines must be observed when submitting the information to the tax office
    As soon as a Billing period closed she can be transmitted to the tax office or the tax office. In doing so, certain deadlines must be observed. For example, the bookkeeping must be submitted to the tax office by the 10th of the following month at the latest. For the first quarter (e.g. January 1st to March 31st), all bookings must be submitted by April 10th at the latest, unless you have applied for a permanent extension of one month.

Financial accounting summarized

  • As a sub-area of ​​accounting, financial accounting covers all of them A company's expenses and income.
  • In large companies, financial accounting is divided into accounts payable and accounts receivable.
  • The goal is that Overall result of the company within an accounting period (period between two financial statements) and thus to document its financial position. This takes place in the form of an income statement and balance sheet.
  • The structure of the financial accounting is prescribed by law.