Financial Accounting: how it can leverage your company in Brazil?

Financial accounting is an essential strategic tool for business, as it reveals to external users the current business situation in a safe and reliable way. To know more about it and how this tool can help your business to grow in Brazil, check this article ahead:

What is financial accounting in Brazil?

Financial accounting in Brazil is an administrative and strategic tool for foreing companies, generating relevant information for owners, shareholders, managers and investors.

In addition, financial accounting summarizes all financial information and reports the company’s economic and financial situation in reports.

Financial accounting is totally focused on the preparation of the financial statements, which are the reports that evidence the company’s situation.

At the end of each fiscal year, the financial statements are prepared with the objective of providing information to external users. They present in a structured way the equity and financial situation, the economic result and the company’s cash flow.

Main financial statements in Brazil

Balance Sheet

The Balance Sheet (BP) presents an organized description of the assets and rights, the obligations assumed and the net worth of an entity on a given date.

Statement of Income for the Year

The Statement of Income for the Year (DRE) is a report that shows the comparison between income and expenses in a given period to arrive at the company’s profit or loss.

Statement of Changes in Shareholders’ Equity

The Statement of Changes in Shareholders’ Equity shows a part of the Balance Sheet, details the shareholders’ equity and shows the movement of own resources between two moments, showing the variation of each account that comprises it.

Statement of Cash Flows

The Statement of Cash Flows (DFC) presents the inflows and outflows of cash that occurred during a period, separated by type of activities: operating, investing and financing.

Statement of Added Value

The Statement of Added Value (DVA) shows the added value to the organization and its distribution among government, employees, third parties and shareholders.

Areas that use financial accounting the most

Investment: If the company is looking for investment to grow and become stronger in the market, the financial statements are the tools that will be used to convince them to invest in the business.

In order for the investment to be carried out, the investor needs to have certainty regarding the profitability and return of the invested capital, therefore, the income statement in conjunction with the other reports encourages decision making, showing whether the business is profitable or not.

Financing: In case of seeking financing or loan, financial institutions evaluate all the data presented by the Balance Sheet and Income Statement for the Year to analyze the credit to be approved and the ability to pay their obligations.

In this way, obtaining credit will be more accessible with the company’s financial representation through external accounting, explaining how the resources are being acquired and applied.

Suppliers: In the case of suppliers, it works basically as with financial institutions. Suppliers negotiate with their customers based on their debt settlement capacity, represented in their statements.

In these cases, bank statements or billing and payment reports from previous months can be ordered, all to prove the payment capacity and to ensure that the supplier is confident in offering his products in a certain amount or longer payment period.

Tax authorities: Regarding the tax area, the delivery of accessory obligations, in addition to being important, are mandatory. On-time delivery ensures that the company is up to date with the IRS, which avoids the collection of penalties and fines.

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