A financial transaction is a type of event that involves at minimum two parties and directly affects their financial situation. It can cause at least one party to alter the amount of money in its accounts (assets and liabilities). The timing of a financial transaction could differ based on whether or not the entity uses accrual or cash accounting guidelines. The use of these techniques affects tax the tax reporting and taxability.
Stakeholders depend on financial statements for assessing the performance of a company and their investments, like shares and loans. Transparent and accurate financial transactions and reporting are a must for all entities.
The main purpose of a financial statement is to provide information that will help stakeholders understand the company’s current situation and long-term goals. Financial statements contain a income statement, cash flow statement and balance sheet. The three are static representations of a company’s financials, and the final one is an estimate of future performance based on current trends and plans.
Making sure that you have accurate and transparent financial transactions and reporting is a complicated process. The most basic method for recording a financial transaction is to record journal entries, which requires accountants to read this manually input debits and credits as well as account numbers for each entry. This can be time-consuming and prone to error.
An alternative to this is to make a unified financial statement, also known as a consolidated financial statement. This report details the entire financial transactions of each institution within an university. By substantiating each transaction at the time of the entry and reviewing material transactions on a quarterly basis the university can prepare the consolidated financial statements which are free of any material misstatements.