Financial Accounting
Scope
General Ledger, Accounts Payable, Accounts Receivable, Asset Management, and Cash Management.
Basic Workflow
Transaction Entry → General Ledger Posting → Trial Balance → Financial Reporting → Auditing
Key Concepts
1. Transactions Entry
- Why: To keep track of all financial activities and ensure accurate financial records.
- How: Transactions are entered manually by accountants or automatically through integrated systems.
- What: Recording purchases, sales, receipts, and payments.
Example: Like saving receipts to track personal spending, a company records transactions to manage its budget.
| Type | Amount | Date | Description |
|---|---|---|---|
| Receipts | $100 | 01/07/2023 | Office supplies purchased |
| Sales | $500 | 02/07/2023 | Services rendered to client |
| Payments | $300 | 03/07/2023 | Payment made to supplier |
2. Posting
- Why: To consolidate transactions in the general ledger for financial reporting.
- How: Batch processing or real-time posting in the general ledger.
- What: Finalizing transactions in the accounting records.
Example: Like updating a checkbook when checks are cashed or deposits are made.
| Date | Transaction | Debit | Credit | Balance |
|---|---|---|---|---|
| 01/07/2023 | Office Supplies Purchase | $100 | $100 | |
| 02/07/2023 | Client Payment Received | $500 | $400 | |
| 03/07/2023 | Supplier Payment | $300 | $100 |
3. Trial Balance
- Why: To ensure that the ledger accounts are accurately balanced for reporting.
- How: Tallying all debits and credits to see if they match.
- What: Checking for discrepancies in the financial entries.
Example: Like making sure money spent plus money saved equals your total initial budget.
| Account | Debit | Credit |
|---|---|---|
| Cash | $1,000 | |
| Office Supplies | $100 | |
| Services Revenue | $500 | |
| Accounts Payable | $300 | |
| Total | $1,100 | $800 |
4. Financial Reporting
- Why: To provide stakeholders with a snapshot of financial health.
- How: Generating balance sheets, income statements, and cash flow statements.
- What: Creating official documents that show financial performance.
Example: Like summarizing your monthly spending and savings to see your financial status.
| Report Type | Description | Date |
|---|---|---|
| Balance Sheet | Shows company's assets, liabilities, and equity | End of Fiscal Year |
| Income Statement | Shows company's revenues and expenses over a specific period | Quarterly |
| Cash Flow Statement | Shows the cash inflows and outflows | Monthly |