Accounting principles report

 (financing operations)



Introduction

The project owner may find a need to expand the company’s activities and develop its activities, but money may not be available for those expansions, or the project owner may want to expand the company’s activities without wanting to increase its capital. In return, the company bears debit banks in the form of interest expenses to be paid on the due date. Financing Provide the funds necessary for the establishment and continuation of the activities of the facility and these operations represent the starting point for the formation of the facility as well as the source for the emergence of the rest of the other financial operations. Another financing is represented in increasing the capital upon the formation of the project and opening a special account for it in accordance with the imposition of the economic unit, which is based on the personality of the project owner over the personality of the project


types of loans

There are three types of loans:

1- Short-term loans: The duration of this type of loans is less than one year, and these loans are usually used to provide liquidity to purchase goods or pay short-term obligations.

2- Medium-term loans: The duration of this type of loan is between one and five years, and these loans are usually used to purchase some types of assets such as cars or furniture.

3- Long-term loans: The duration of this type of loan is usually more than five years, and these loans are used in the expansion operations of the project, such as adding a new production line, meaning that they are used to finance assets.


External financing:

It means obtaining money through borrowing from others, i.e. from persons other than the owner. The loans represent an obligation of the facility towards others and are classified within the obligations.


Accounting treatments may be:


capital :-

The capital represents the rights of the owner or owners over the facility and the nature varies according to the type of facility. In the individual facility, the investment represents the owner of the facility, which is shares in which a group of shareholders participate. What concerns us in this decision is the capital in the individual facility and the following paragraphs review the capital when it is presented for the first time For the establishment of the facility in addition to the changes that occur thereafter, whether by increase or decrease

Formation of the facility The owner of the facility provides the necessary funds for its formation, whether these funds are cash or non-cash. These funds represent the capital and are recorded in an opening entry in the accounting records of the facility. The establishment can start and the facility owner can provide the capital

with more than one picture


Capital increase

The role of the owner of the facility is not limited to providing funds to the facility at the stage of formation only, because there are reasons for him to provide more funds in the stages of formation. The additional is either internal or external financing, how much in the case of the establishment of the facility, then the owner of the facility decides to move towards internal financing, then the need to increase the capital appears at the end of the financial period and the increase in the capital is considered one of the financing operations, so it entails an accounting treatment

Calculate the capital in one of the following pictures

A- Providing cash or in-kind assets, or both

b- Paying some obligations on behalf of the establishment

C- Closing all or part of the profits achieved by the facility during the financial period


Capital reduction:

When the owner of the facility finds in a certain period that there is a state of stagnation prevailing in the market, that is, there is an economic depression, or that his facilities for some reason are exposed to losses, or that the amount of money he previously provided when forming the facility exceeds its need so that there are idle funds represented in that part of the business. Capital that is not invested properly, it is often resorted to at the end of that period to reduce the capital, and the reduction is another type of

Financing operations, but it is a case completely opposite to the case of increasing the capital, and the owner of the facility can reduce the capital in one of the following ways

A- Withdrawing cash, either from the fund or from the establishment’s current account in the bank

b- Withdrawing some non-essential assets

C- Closing the losses incurred by the entity during the financial period

D- Cancellation of previous withdrawals and closing their account in the capital account


Sources

1- Book of Financial Accounting, Part One (Dr. Basma Faleh Al-Nuaimi) University of Science

Technogba 2012

2- The book Principles of Financial Accounting, Assistant Professor Safaa Ahmed Muhammad Al-Ani

And assistant teacher Hakim Hammoud Falih Al-Saadi, first edition 2014 University of Baghdad