Different Types of Accounting

Different Types of Accounting

One of the most important functions of a business is its accounting aspect. Accounting can be held and handled by a bookkeeper or an accountant at a small firm or by sizable finance departments with dozens of employees at larger companies. Various streams of accounting, such as cost accounting and managerial accounting, are invaluable in helping management make informed business decisions and help produce reports, which prove to be valuable in helping management informed business decisions.

There are also financial statements that summarize the operations, financial position, and cash flows over a period of time. They must also be concise and consolidated reports based on thousands of individual financial transactions. This has led to all professional accounting designations culminating in years of study, rigorous examinations, and a minimum number of years of practical accounting experience.

In the field of accountancy, accountants may be tasked with recording specific transactions or working with specific sets of information. As such, some groups classify these things.

What are the types of accounting, though? In this article, we will tackle them. They are the following:

Financial Accounting

Financial accounting refers to the process of generating interim and annual financial statements.

In financial accounting, you summarize all the results of all financial transactions in a balance sheet or income statement. They are also summarized in a cash flow statement. Most companies' financial statements are audited annually by an external CPA firm. This is not always applicable to all companies, though. It may be on a case-to-case basis.

On the other hand, Audits are a legal requirement for some companies, but the leaders of these companies also need the results of an external audit. This is because they are annually a part of their debt covenants. As a result, most companies have annual audits.

There are lots of great accounting services in the Philippines.

Managerial Accounting

In managerial accounting, you use the same and as much data as financial accounting. One difference it has from earlier is that it organizes and uses information in different methods and manners. An accountant produces monthly or quarterly reports that a business's management team can use to decide how the business operates in managerial accounting. Other facets of accounting, such as budgeting, forecasting, and various financial analysis tools, make up part of managerial accounting.

In essence, any information that may be useful to management falls under this umbrella.

Cost Accounting

If managerial accounting helps businesses make managerial decisions, then cost accounting is all about cost. Cost accounting takes into mind all of the costs that are associated with and linked to the production of a product or service. Analysts, managers, business owners, and accountants use this information to determine their products' costs.

Money is an economic actor and factor in the means of production; this principle fuels cost accounting. In comparison, analysts, managers, business owners, and accountants take this information into consideration and use it to decide the cost of their products and services.

Tax Accounting

Financial accountants define one set of rules of accounting. Meanwhile, tax accounts often use different rules to do so, and these rules are set at the federal, state, or local level based on what return is being filed. The nature of tax accounts is that they balance compliance with reporting rules alongside attempting to minimize a company's tax liability through thoughtful strategic decision-making. Tax accounts also oversee the tax process of a company.

Wrapping Up

These classifications help accounting work better. In addition, they are tailored for different purposes.

Author Angelo Castelda

Author's Bio:

Angelo Castelda works as a contributor for a news magazine in Asia. He loves to learn and understand diverse cultures and aims to share through his writing his experiences around the world.


Image Credits: Freepik

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