Accounting is an essential part of any finance department, and accounting professionals need the help of financial experts to create accounting information that the general public can easily understand. Companies must use various types of accounting to track their income and expenses in the most efficient way. These include cost, managerial, financial, government, and forensic accounting. In this article, we'll explore each type of accounting in detail and discuss how they are used in businesses today.
Financial accounting is designed to provide external stakeholders, such as investors and financial institutions, with an accurate view of business performance over a specific period of time. This is done by generating financial statements that adhere to the Generally Accepted Accounting Principles (GAAP). The Financial Accounting Standards Board (FASB) sets these standards to promote consistency in the reporting process.Management accounting is a form of accounting used internally within companies. It provides management with the information needed to make high-level decisions for the company and is shared exclusively with other members of an organization.
Unlike financial accounting, which looks at past performance, management accounting is future-oriented and designs ways to operate more efficiently. Depending on the circumstances, all three types of management accounting can be used simultaneously or management can choose to use just one or two methods.Government entities use government accounting to keep records of income and expenses. This type of accounting is governed by the Government Accounting Standards Board (GASB) and has developed monitoring and reporting standards for all levels of government. The main difference between financial accounting and government accounting is that government entities use separate funds.Public accounting firms provide a variety of services to their clients, including auditing, tax preparation, tax advice and consulting, preparation and analysis of financial statements, bookkeeping, accounting management, financial consulting, payroll services, and more.
They can also advise clients on accounting software applications if necessary.Cost accounting is a specialized field that takes a close look at the real cost of doing business. It is generally used in a manufacturing environment but can also be used for service companies. Cost accounting analyzes fixed and variable costs that a company incurs and provides management with important information such as break-even points.Forensic accounting is a unique combination of accounting, auditing and investigative techniques used to investigate the financial activities of individuals and businesses. Banks, police departments, lawyers, and businesses frequently use it to examine financial transactions and then provide those findings in a full report.No matter what type of accounting an accountant is doing - drafting an invoice for your company, testifying in an embezzlement lawsuit or preparing the financial statements of a Fortune 500 company - the end result should always be factual.
Companies sometimes buy tangible items such as land, machinery, plants, buildings etc., which are added to their real accounts. A real account, also known as a general ledger account, relates to assets and liabilities other than individual accounts. These accounts do not need to be closed at the end of the financial year because they are transferred to the following year.Personal accounts are general ledger accounts related to people or entities such as individuals, different firms or associations. Examples include creditor accounts or interest accounts.
Intangible real accounts and real tangible accounts are also included in this category.The golden rule of real accounts states: “Debit what comes in, credit what goes out”. This means that when buying a vehicle with a value of 5 million rupees in cash, a vehicle is being added to the business while cash is leaving it. These are the most common types of accounting, but they aren't the only ones used by small businesses.In conclusion, there are many different types of accounting, each with its own purpose and application in business today. Financial accounting provides external stakeholders with an accurate view of business performance over time; managerial accounting helps management make high-level decisions; government accounting keeps records for government entities; public accounting firms provide services such as auditing; cost accounting looks at the real cost of doing business; and forensic accounting investigates financial activities for individuals or businesses.
Understanding these different types of accounting, their purpose and application will help you make better decisions for your business.