What is Corporate Accounting?

In the world of accounting, you may encounter complex problems and essential questions that cannot be solved through any of the known scientific solutions. Therefore, corporate accounting aims to provide clear answers to these questions and focuses on the systems of different companies, regardless of their type, defining the characteristics and features of each type.

For example, financial accounting in its raw form will not help you answer questions such as:  

• How can profits and losses be divided?
• If there are multiple partners, are profits divided equally among them?
• What is the required capital that each person must contribute to be considered a partner?

  Management accounting will not be sufficient to answer questions such as:  

• What is the legal level of authority for each partner? And on what basis does he speak?
• What is the organizational structure, and what does the board of directors look like?

• What responsibility falls on each partner if the company becomes involved in debts it cannot repay?

  Therefore, corporate accounting emerged to provide clear answers to these questions and focuses on the systems of different companies, regardless of their type, defining the characteristics and features of each type among the various company types, as well as the responsibility of the corporate accountant in any institution. For this reason, in this article, we will explore accounting in different companies, the characteristics of each, and the responsibilities of the corporate accountant in any institution.  

   

What is corporate accounting?
 

Corporate accounting is responsible for determining the company's profits and losses and identifying all revenues and expenses that occur during the financial period. In turn, it distributes profit and loss ratios among partners. 

Corporate accounting is the only one capable of distributing profits due to the nature of the company and the number of partners and shareholders. Considering this characteristic is sufficient to make it a distinct type from other known accounting types, it is not much different from having a type of accounting called government accounting, which takes into consideration the specificity of government entities and their difference from other institutions.

In the context of discussing corporate accounting, one must understand the concept of a "company," which is an institution registered under company law and must have no fewer than two partners. The company's capital can be shares issued to investors in exchange for obtaining a stake in the company's ownership.

The purpose of issuing these shares is to raise more funds and invest them for expansion and growth purposes. Ultimately, a comparison is made between cost and revenue accounts to arrive at the company's profits and divide them among partners.

The main objective of a company is to achieve profit and revenue by providing products or services that meet society's needs. In this context, companies should adopt the concept of social responsibility by providing job opportunities and participating in various community projects.  
 

Basic Standards for Companies:
 

There are a number of standards that must be available in any company or institution, such as:  

• The company must fulfill certain documents that prove it has shareholders, directors, and capital.
   
• The company is treated as a legal entity with a separate personality from the company owners and is dealt with independently, where if there are obligations on the company, they are not on its owners.
   
• The company must have a common seal, and any document or paper must bear this seal.
   
• Financial and economic standards that an expert financial accountant must consider to ensure the company's success and sustainability. These standards include profitability, liquidity, financial solvency, operational efficiency, growth and economic diversification, competitiveness, and awareness of economic changes and understanding their effects on the labor market.
   
• Corporate accounting compliance with Islamic accounting standards, especially for Islamic countries that care about these standards, so that the company does not fall into prohibited practices such as issuing bonds that are considered part of usury and other Islamic prohibitions that are not taken into consideration economically and legally.

What is the Importance of Corporate Accounting?
 

Corporate accounting represents paramount importance in business management and enhancing compliance with accounting standards. The following are the most prominent factors that illustrate the importance of corporate accounting: 
 

1/ Providing Financial Information

Corporate accounting provides the necessary financial data about the company's expenses, revenues, assets, and liabilities, thus presenting a comprehensive picture to relevant parties about the company's financial position and performance.

This helps them make sound decisions in favor of expansion, growth, and maintaining the company's success and sustainability, in addition to enhancing its competitiveness in the job market, by comparing performance results with set objectives and budgets.

Additionally, the accounting data resulting from corporate accounting helps inform investors and financiers with the necessary information that supports confidence and credibility in the company, thereby facilitating access to necessary funding.  
 

2/ Financial Planning

Corporate accounting can be utilized in financial planning and budget preparation, as well as in monitoring and analyzing costs and profits, which helps rationalize expenses, efficiently distribute resources, and improve production and operations.  
 

3/ Legal Compliance

Corporate accounting helps in complying with financial laws and adhering to accounting standards, thereby avoiding consequences associated with legal violations and reducing potential risks and financial crises.  

 

How Does Corporate Accounting Differ from Other Types of Accounting?
 

There are different types of companies, and each company has its own accounting rules, methods, advantages, and disadvantages. The most prominent of these types are partnerships, corporations, and mixed companies, with other subcategories falling under each of the three main categories.  
 

1- Partnership Accounting

Partnerships are owned by more than one person, and the formation constraints of the company are viewed from the perspective of shares, which have several types that we will learn about in the following lines. Each person participates with a share in the capital through the following methods:  

• Cash payment, where each person provides their cash share according to the amount imposed on them.
• In-kind payment, where individuals provide an asset for their share in the capital to one of the partners, and all assets and liabilities of the company are included as part of the capital, not just the assets.

Partnership Accounting Entries

A/ Cash Entry

When each partner pays the cash amount, the cash in the company increases, so the accounting entry is written this way since cash is an asset to express the increase of this amount as cash for the company after the cash was zero:

100,000 Dr. Cash Account

B/ Capital Entry

The capital amount is added, and considering capital as equity, the entry is written this way:

100,000 Cr. Capital Account 

The entry is detailed and divided into the proportions of each partner's amount in that partner's account, for example:

50,000 Cr. Ahmed's Account 50,000 Cr. Mohammed's Account

If one of the partners owns an asset such as a piece of land and wants to enter with it as a partner, and let's assume that the value of this land is 50,000 pounds, which equals the same value as the cash amount that was supposed to be his share in the capital, the asset and its value are added. The entry is written as follows because land is an asset:

50,000 Dr. Land Account  
 

2/ Corporation Accounting

Corporations may be entirely private sector, or the state may own 51% or more of the shares, in which case the company follows the public sector. A corporation is divided into nominal shares, with each share corresponding to a specific monetary value. Anyone capable of bearing this cost can purchase shares. The paid capital for purchasing corporation shares is in cash form for any person or in-kind for founders only.  
 

Partnership Accounting Entries

The entry for collecting share value from founders or other individuals - called subscribers - in corporations is as follows:

A/ Entry for Collecting Share Value

Dr. Bank Account Cr. Founders' (Subscribers') Account

B/ Entry for Collecting Share Issuance and Requesting Share Value

Dr. Founders' (Subscribers') Account Cr. Capital Account  
 

3/ Mixed Company Accounting

Mixed companies are a combination of characteristics between corporations and partnerships. The nature and form of accounting entries in mixed companies are as follows:

Mixed companies follow the same accounting entry methods as partnerships if they are in the form of shares, such as limited liability companies, where up to 50 partners participate but are not listed on the stock exchange.

Mixed companies follow the same accounting entry methods as corporations, such as those in the form of partnerships limited by shares.  

 

What is the Purpose of Accounting for Companies with Branches?
 

If companies have only one branch, it's natural that transactions involving goods and money transfers are limited to external parties. However, in companies with branches, goods, money, and assets can also be exchanged between internal and external branches, which requires a new type of accounting that considers the nature of these internal transactions and their difference from external ones.

To handle accounting transactions in companies with branches, there are two methods that we will briefly learn about:  
 

The Centralized Method:

According to this type, each branch of a company with branches has its own independent accounting ledger, accounting operations, and financial statements. However, these financial statements are compiled into one booklet that brings all branches together.

Advantages:

• Economy in business costs
• Unification of accounting treatment across all branches

  Disadvantages:

• Somewhat delayed data, which is bad from the perspective of managerial accounting that relies on speed of decision-making.

What are the Accounts Related to Corporate Accounting?
 

There is a group of accounts known to be related to corporate accounting. These accounts are numbered using a fixed numbering system, as is common in accounting treatments for entries and other purposes. Each account refers to a different function. Among the most prominent of these accounts are:  

• Account 101, known as the "Individual Contributions" account, forms the company's capital. This account is credited with the nominal values of shares that have been subscribed by the company.
   
• Account 108 which is the account used to record withdrawal and payment transactions that occur between the company and its owner. At the end of the year, if withdrawals exceed payments, Account 108 is debited and recorded on the credit side against Account 101. In this case, Account 101 decreases. Conversely, if payments are greater than withdrawals, Account 108 is credited and recorded on the debit side against Account 101, and accordingly, Account 101 increases.
   
• Account 103, which refers to premium differences related to the company's capital increase. Premium differences appear between the nominal value of shares and the actual or real value.
   
• Account 11, known in corporate accounting as the "Retained Earnings" account. This account is used to record part of the profits or losses that the institution has acknowledged, but will make a decision about at a later time, not at the time of acknowledging them.

What are the Difficulties Related to Corporate Accounting and Ways to Overcome Them?

Corporate accounting faces some challenges in management, laws, and falling behind technological developments that may affect the accuracy and efficiency of its information. Learn about the most important accounting challenges and the most prominent tips to overcome them:  
 

1/ Complexity of Corporate Accounting Operations

Complex accounting operations related to processing corporate accounting entries, capital formation accounts, as well as profit and loss distribution calculations among partners, and determining share values and returns. This challenge can be overcome by hiring experienced accountants and financial advisors to accomplish these tasks accurately.  
 

2/ Lack of Integration of Corporate Accounting Software and Its High Prices

The lack of integration between cloud accounting programs and systems that automate corporate accounting operations through smart solutions, combined with the high costs of purchasing accounting software and the additional expenses required to obtain extra or customized features, is a problem.

This challenge can be controlled by using an integrated accounting program for company management that offers solutions at reasonable prices, with integrated internal modules that are also easy to integrate and use with other company systems.  

 

What are the Differences Between Corporate Accounting and General Accounting?
 

Corporate accounting does not differ from general accounting in terms of the steps of the accounting cycle; however, differences can be observed in the scope of work and responsibilities. Learn about the differences between corporate accounting and general accounting in the following points:  

• Distribution of profits and losses among partners.
• Determining share value for shareholders.
• Accounting treatment for capital formation and determining the percentage of all partners, whether general or limited partners.
• Opening different closing accounts, such as the profit and loss distribution account and the partners' current account.

What are the Duties of Corporate Accountants?
 

Corporate accountants in various companies perform several tasks to determine profits and losses, and distribute them by preparing financial reports and analyzing the financial position. Learn about corporate accountant duties in the following points:  

• Mastering the use of cloud accounting software to help control the accounting aspects of the company.
• Documenting daily entries, including partner current accounts and profit and loss distribution accounts.
• Opening and closing accounts for profit and loss distribution and partner current accounts.
• Processing capital formation.
• Determining partner percentages and their shares in capital.
• Determining profits and losses at the end of the period.
• Distributing profits and losses among partners and determining each one's share.
• Preventing manipulation in company accounts, such as using creative accounting methods to achieve personal gains for any party.

How Does Daftra's Accounting Software Help You Manage Your Company's Accounts?
 

Regardless of the most suitable accounting treatment for your company according to the type of company you belong to, Daftra's accounting software provides you with ready-to-use accounting transactions, with flexibility for modification. It will only cost you a quick look at the system's features and divisions to learn how to manage your company's accounting operations through Daftra's electronic accounting software.

Most deeply specialized accounting matters fall under the "General Accounting" section, taking into consideration that all accounting entries and transactions you perform result in automatic entries that are handled accordingly. Inventory is subject to your accounting transactions in the program, and purchases are linked to accounting in Daftra, until you eventually reach comprehensive management that is interconnected with each other.

The software offers an integrated approach, where all modules work together seamlessly, ensuring that your financial data flows smoothly across various business functions, from inventory management to purchasing, all unified under one comprehensive accounting system that maintains accuracy and consistency throughout your business operations.

In conclusion, it must be noted that corporate accounting is specialized due to the diverse nature of companies, which necessitates determining each partner's share of profits and losses for each fiscal year. This makes the accountant's work easier than trying to apply general accounting rules to companies without having a reference for that.

The matter even extends to the existence of accounting types related to activities of specific company sectors and commercial activities, such as the construction accounting sector. This supports the existence of unified accounting references for addressing similar accounting purposes, which differ somewhat from general fields.

This specialization ensures that each type of business entity receives the appropriate accounting treatment, reflecting its unique characteristics and operational requirements, ultimately leading to more accurate financial reporting and informed decision-making for all stakeholders involved.