What is Accouting?
Accounting is the process of recording, classifying, summarizing and reporting the financial transaction pertaining to a business to the interested parties including internal and external groups. It describes the financial information in a clear and precise manner making it easily understandable for all the shareholders and stakeholders.
TYPES OF ACCOUNTING
In this article we will study the 8 types of accounting.
1.Financial Accounting
It is the branch of accounting concerned with the process of recording, summarizing, analyzing and reporting financial transaction through financial statements including Balance Sheet, Cash flow statement, Income statement and Statement of Owner’s equity.
The primary account includes assets, liabilities, equity, expenses and income (revenue). The objectives of financial accounting are to determine the financial position and profit and loss of the company. Recording is done only on quantitative aspect and not the qualitative aspects.
This accounting is governed by GAAP (Generally Accepted Accounting Principles) and are set by the FASB (Financial Accounting Standard Board).
2. Managerial Accounting
It refers to the type of accounting that focuses on internal reporting to aid decision making. They assist the management in decision making and policy formation by creating statements, reports and documents related to the business. Managerial accounting aims at minimizing losses and improving business outcomes by ramping up profits.
It is futuristic in nature and does not follow any set of principles. Managerial accounting uses and records both qualitative and quantitative aspects.
3. Cost Accounting
It is a subcategory of managerial accounting that deals with recording, analyzing and reporting company’s costs. This accounting is used for internal purposes helping the company in determining how to reduce the cost and in what ways they can increase the profit margins.
The objective of cost accounting is to ensure that the cost needed to produce a good is reasonable and at the same time profitable. Only quantitative aspects are recorded and this accounting follows certain principles for recording costs. It is concerned with both past and present data.
4. Tax Accounting
Tax accounting includes methods of preparing account statements that show the firm’s tax assets and liabilities. These would involve recognition along revenue, deductions, and credits to determine taxable income.
The general rule depends on the Internal Revenue Code and is used to determine the preparation of tax documents from companies and individuals. Differences are possible from traditional accounting balance sheet with the objective to be in line with laws to avoid penalties and discover openings for maximum tax savings.
The purpose is to allow the government to monitor a company’s finances and ensure adherence to financial laws.
5.Auditing
Auditing is a form of accounting practice that is intended to provide an independent examination of the financial activities undertaken by a company and ensure that such practice is conducted in accordance with set regulations and best practices. Auditors, who are not directly affiliated with the organization, examine financial records and prepare detailed audit reports.
In other words, audits can either be internal, which focuses on the effectiveness of the accounting processes of a company to better its financial planning and reduce risks, or external, reviewing financial statements in conformity with GAAP. The IRS conducts audits to check for compliance with tax laws.
Proactive auditing may prevent the imposition of penalties since some issues are noticed early enough.
6.ForensicAccounting
Forensic accounting applies the skills of auditing, accounting, and investigation to detect financial malfeasance such as frauds. In legal disputes, it is used to search for evidence to establish financial malpractice or crime, such as embezzlement or money laundering.
Forensic accountants play a very important role in any litigation by interpreting complex financial data in the courts. It also contributes to the ability to detect and prevent cybercrimes such as identity theft, tracing all financial transactions, and providing this valuable evidence to prosecute criminals.
7. Governmental Accounting
Governmental accounting considers the financial management of a government entity to ensure transparency and account for public fund usage.
There are standards set by the Government Accounting Standards Board (GASB), which emphasize accuracy over decision-making, as they do in business accounting- GAAP/IFRS. Governmental accounting considers a modified accrual basis and is essential for both budget adherence and financial reporting for local, state, and federal entities.
8.International Accounting
International accounting deals with some complexities such as different standards, and practices including GAAP Vs IFRS, and currencies of international operations that fluctuate by minute and hour.
A financial report is consolidated when combining two or more legal subsidiaries by accountants. International accounting has another role in that the person is responsible for compliance to cross-border taxation requirements of the country; additionally, the accountant assists with merging and acquiring.
CONCLUSION
Several accounting types exist, ranging from financial accounting to governmental and international, each fulfilling a different, yet sometimes related purpose to the needs of the financial landscape-to ensure compliance, for fraud detection, management of public funds, or in international finance’s complexities.
Together, these specialized fields make financial reporting more accurate and transparent so that all businesses, governments, and legal entities can make accountable decisions, follow the rules and regulations appropriately, and keep trust with the public.
Thus, it is extremely important to understand different accounting practices for the right financial management and growth in various sectors.