Principles and Fundamentals of Financial Accounting

            Financial accounting is one of the most important areas in the business world, as it is used to record and analyze financial operations and prepare financial statements that help in making economic decisions. Financial accounting is based on a set of principles and foundations that ensure the accuracy and transparency of financial reports. In this article, we will review the basic principles of financial accounting, its most important objectives, components and functions.

First: Definition of Financial Accounting Financial accounting is one of the branches of accounting that aims to record, classify, summarize and analyze the financial operations of companies and institutions, with the aim of preparing financial statements that reflect the financial performance and financial position of the entity. Financial accounting is based on international accounting standards such as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP).

Second: Basic Principles of Financial Accounting Financial accounting is based on a set of principles that ensure accuracy and objectivity in the preparation of financial reports, the most prominent of which are:

1.  Historical cost principle: Assets and liabilities are recorded based on their original cost and not their current market value.

2.  Accrual principle: Revenues and expenses are recognized when they are realized, not when cash is received or paid.

3.  The principle of conservatism: requires recording expected expenses and losses as soon as they are realized, while revenues are recognized when they are confirmed.

4.  Full Disclosure Principle: All relevant financial information must be provided to users of the financial statements.

5.  Principle of continuity: It is assumed that the enterprise will continue its business for the foreseeable future.

6.  The principle of monetary unit: all financial operations are expressed in a single currency.

7.  The principle of conformity: requires that expenses be charged to the period in which the associated revenues are realized.

8.  The principle of the accounting period: the life of the enterprise is divided into regular time intervals for financial reporting.

Third: The importance of financial accounting and its objectives Financial  accounting contributes to achieving several objectives, including:

1.  Provide accurate financial information to make strategic decisions.

2.  Determine the financial position of the entity at the end of each financial period.

3.  Profit and loss estimation and financial performance evaluation.

4.  Provide investors, shareholders and creditors with reliable financial information.

5.  Compliance with legal and tax requirements.

Fourth: Components of Financial Accounting Financial accounting consists of several basic elements, including:

1.  Financial Statements:

1.  Balance Sheet: Displays assets, liabilities and equity.

2.  Income Statement: Defines income, expenses, and net profit or loss.

3.  Statement of cash flows: Shows the movement of cash in and out of the facility.

4.  Statement of changes in equity: reflects changes in shareholders' equity during the financial period.

2.  Financial Transactions: Recording all financial operations that affect assets, liabilities, revenues and expenses.

3.  Accounting records: include journal and general ledger, where financial transactions are recorded and posted.

4.  Accounting documents: includes invoices, receipts, statements of accounts and other documents that support financial operations.

5.  Financial Audit and Analysis: To ensure the accuracy of data and detect any errors or financial manipulation.

Fifth: Financial Accounting as an Information System Financial accounting works as a system for collecting, processing and presenting financial data to assist management and decision-makers in planning and making decisions based on accurate information.

Sixth: Beneficiaries of Financial Accounting There are many entities that rely on financial accounting to make their decisions, including:

1.  Internal users: such as management, shareholders and employees, who need to evaluate the company's performance.

2.  External users: such as investors, creditors, regulators and customers, who rely on financial statements to make their decisions.

Seventh: Financial Accounting Jobs Financial  accounting includes a set of basic functions, including:

1.  Record and summarize financial transactions.

2.  Preparing periodic financial reports.

3.  Analyze financial statements and draw financial conclusions.

4.  Ensure compliance with accounting standards and legal regulations.

5.  Support financial planning, control and decision-making processes.

Eighth: The difference between financial accounting and other types of accounting Although financial accounting is the basis for many branches of accounting, there are differences between it and other branches, such as:

1.  Management Accounting: Focuses on internal information to support planning and management decision-making.

2.  Government Accounting: aims to ensure transparency and the management of public funds in accordance with government regulations.

3.  Cost Accounting: It is concerned with analyzing production costs and making operating decisions.

Ninth: Types of Financial Accounting Financial  accounting is divided into two main types:

1.  Cash accounting: Financial operations are recorded when cash is actually received or paid.

2.  Accrual accounting: Transactions are recorded when they are realized, regardless of the timing of receipt or payment of cash.

Financial accounting is an essential element for the success of any organization, as it provides financial information that enables decision-makers to evaluate financial performance and make sound decisions. Understanding the basic principles of financial accounting contributes to improving the financial management of companies and ensuring compliance with accounting standards, which enhances transparency and credibility in financial reporting.