Every business owner needs to keep track of company finances. Accounting is essential for organizations to get an overview of financial stability, simplify annual tax filing, and more. Businesses need to focus on multiple types of accounting to deal with different aspects of financial management. Scroll through this article to explore the different types of accounting, their purpose, and more.
The different types of accounting have benefits beyond exploring a company’s financial records. Some of the other benefits of various types of accounting are as follows:
Strategic types of accounting can help a business with budget allocation. Accounting is necessary for obtaining real-time financial data about a business. The various types of accounting can help with assessing financial stability, which leads to accurate budget creation, including all income and expenses.
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The different types of accounting integral to businesses are as follows:
Management accounting helps businesses acquire in-depth insights into organizational operations. It is one of the types of accounting meant for internal use. Therefore, it does not have to strictly adhere to GAAP guidelines. Unlike the different types of financial accounting, management accounting focuses on budgeting, financial analysis, and cost analysis.
Check out: Top 20 Financial Accounting Terms That You Should KnowFinancial accounting helps with collecting and summarizing the financial transactions of a business to create detailed reports. It is one of the types of accounting which help generate financial records like cash flow statements and balance sheets to provide in-depth insights about an organization’s fiscal health. Unlike other types of accounting focused on the future, financial accounting focuses on the past.
The different types of financial accounting include cost accounting and accrual accounting. Cash accounting revolves around corporate transactions involving cash. Meanwhile, accrual accounting takes into account all types of transactional data, irrespective of monetary outflow or inflow. Therefore, it is one of the types of financial accounting that goes beyond cash accounting.
Understand: Financial Accounting vs. Management AccountingCost accounting can help industries manage high resource management costs. It is one of the types of accounting used by businesses to strategically examine their internal operations. Cost accounting takes into account a company’s variable and fixed costs for recording and evaluating production costs.
You will come across different types of cost accounting. For instance, activity-based cost accounting is for evaluating activities required to produce company goods or services. On the other hand, lean accounting helps with preventing wastage. The other two types of cost accounting include standard cost accounting and marginal cost accounting.It is one of the types of accounting associated with legal fields. Forensic accounting helps determine whether a company has been involved in any financial crime. Moreover, forensic accounting has importance beyond industries. For instance, it is often done in divorce cases to expose the hidden assets of a spouse.
Find out: 8 Key Scope of Financial ManagementIt is one of the types of accounting to determine the payable income tax and other tax amounts. Tax accounting also helps with finding legal ways of reducing payable taxes. Additionally, it is one of the types of accounting focused on helping organizations with tax compliance.
Learn: Financial Accounting vs Management AccountingGovernmental accounting involves the financial planning of different departments within a local, state, or federal government. It is one of the types of accounting that need to strictly comply with government rules and regulations. It is also one of the types of accounting to allocate proper funds and resources accurately.
Explore: Top 20 Financial Accounting Terms That You Should KnowPublic accounting businesses offer accounting advice to clients as per their needs. It is one of the types of accounting that can help with auditing, tax returns, and more.
Check out this table to familiarize yourself more with the different types of accounting.
Types of Accounting | Purpose | Sub-divisions |
---|---|---|
Management Accounting | Collecting financial data, analyzing it, creating reports, and presenting it to management | Capital budgeting, margin analysis, cash flow analysis, trend analysis, constraint analysis, and more |
Financial Accounting | Tracking, recording, and organizing financial transactions | Cash accounting and accrual accounting |
Cost Accounting | Useful in manufacturing environments for analyzing different expenditures | Standard costing, marginal costing, lean accounting, and activity-based costing |
Forensic Accounting | Useful for legal purposes to identify criminal activities like fraud, embezzlement, and more | Financial theft, bankruptcy, defaulting on debt, securities fraud, professional negligence claim, and more |
Tax Accounting or Auditing | Checking compliance of a business to tax laws and regulations | IRS audit |
Governmental Accounting | Useful for financial planning and resource allocation to different departments | Fund accounting, budgetary accounting, and proprietary accounting |
Public Accounting | Involves offering accounting advice to clients | Auditing, tax return assistance, and more |
The various types of accounting handle different business aspects. But a few common things about all types of accounting are as follows:
The primary characteristic of accountancy is to serve the public interest with accurate reporting of an organization’s financial status.
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