How a Chartered Accountant can assist with important aspects of financial accounting
Financial accounting is a specialised branch of accounting with the primary purpose to keep track of a company’s financial transactions. With the use of standardised guidelines, the transactions are recorded, summarised and presented in reports, such as income statements, balance sheets and cash flow statements.
A Chartered Accountant is often highly sought after to provide these vital financial accounting services to accurately investigate the financial position of a business. Here are the different aspects of financial accounting that a Chartered Accountant can provide expert assistance with.
Double-entry accounting is at the heart of financial accounting. Every transaction a business makes affects at least two accounts – double-entry accounting is a format that records both effects of that transaction. In one account, the transaction will be recorded as a debit while in another it is a credit.
Debit entries will account for an increase in assets and expenses, and a decrease in liability, equity and income. Conversely, credit entries account for a decrease in assets and expenses and an increase in liability, equity and income. A benefit to double-entry accounting is that at any given time, the balance of a company’s asset accounts will equal the balance of its liability and stockholders’ equity accounts.
Accrual accounting refers to the recording of revenues that a company has earned but has not received payment for and the expenses that have been incurred but that the company has yet to pay. Typically, the affected accounts include accounts payable, accounts receivable, future tax liabilities and future interest expenses, among others.
In financial accounting, accruals in a broad sense fall under either accounts receivable (revenue) or accounts payable (expenses):
- Accrued revenues are either income or assets that are yet to be received.
- Accrued expenses refer to when a company makes purchases on credit and enters liabilities in its general ledger, acknowledging its obligations to its creditors.
Statements involved with financial accounting
Companies will typically put together quarterly and annual financial statements, which that make available to shareholders and the investing public. There are four basic financial statements used in the corporate world to show a company’s financial performance:
- An income statement (also called the profit and loss statement), which shows the profit and losses of a company for a given period.
- A balance sheet, which is a statement of assets and liabilities at the end of an accounting period.
- A cash flow statement, which shows the actual flow of cash from operating activities, investing activities and financing activities.
- The statement of retained earnings, which covers a specific period and shows the dividends paid from earnings to shareholders and the earnings kept by the company.
BMR Business Solutions are a team of Chartered Accountants, assisting Brisbane businesses with a range of specialised services, including financial accounting. Contact us today on 07 3353 7111 to discuss how we can assist with the operations and growth of your business.