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Types of Accounting

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. 

 

Importance of Accounting

 

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:

 

  • Availing Bank Loans

    Several types of accounting help in providing the financial reports of a company to banks and other lenders. They assess the credit score and financial stability of the company and sanction a loan accordingly. 

  • Provides Information to Stakeholders

    The different stakeholders of an organization are required to gain knowledge about the financial status of a company. The various types of accounting enable stakeholders to make the right investment decisions. Moreover, employees, customers, and others need to know about business performance to assess the company’s success. 

  • Budget Allocation

    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. 

 

Check Out: Financial Analysis, Valuation, & Risk Management course

 

Different Types of Accounting: Understanding the Various Specializations

 

The different types of accounting integral to businesses are as follows:

 

  1. What Is Management Accounting?

    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 Know

  2. What Is Financial Accounting?

    Financial 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 Accounting

  3. What Is Cost Accounting?

    Cost 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.

    Know more about Finance management

  4. What Is Forensic 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 Management

  5. What Is Tax Accounting?

    It 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 Accounting

  6. What Is Governmental Accounting?

    Governmental 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 Know

  7. What Is Public Accounting?

    Public 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.

 

How Do These Types of Accounting Differ from Each Other?

 

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

 

Common Aspects Between Various Types of Accounting

The various types of accounting handle different business aspects. But a few common things about all types of accounting are as follows:

  • Following specific standard
  • Adhering to facts
  • Using ethical practices

 

The primary characteristic of accountancy is to serve the public interest with accurate reporting of an organization’s financial status. 

 

 

 

FAQ's

Yes, individuals can specialize in specific types of accounting. Specialized accountants acquire knowledge and expertise about particular types of accounting to provide more detailed and accurate services.
You will come across four types of cost accounting. They include standard costing, marginal costing, lean accounting, and activity-based costing.
The different types of accounting include management accounting, financial accounting, cost accounting, public accounting, tax accounting, and more.
Auditing can either be external or internal. External auditing is performed to review the formal financial statements of a company. Internal auditing is performed to analyze the current accounting processes of a business. IRS audits are another type that is useful for checking the compliance of a company's accounting records with tax laws.
The two main types of financial accounting are cash accounting and accrual accounting. The difference between the two types of financial accounting lies in the timing from which the transactions are considered.

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