What are the Different 8 Types of Accounting?

Accountants, contrary to popular belief, do more than just prepare taxes. Accountants can also investigate white-collar crimes, audit businesses, or specialise in government and manufacturing.

Accountants can be CPAs (Certified Public Accountants) or work in bookkeeping and accounting, such as managing the accounting cycle in a small business or a large corporation. They may also work for a non-profit organisation or a large consulting firm.

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Here are some of the various accounting areas and what they entail.

1. Financial Accounting

Financial accounting's primary goal is to track, record, and ultimately report on financial transactions by generating financial statements.

This must be done in accordance with the standardised guidelines established by Generally Accepted Accounting Principles (GAAP) rules. The Financial Accounting Standards Board (FASB) establishes these rules in order to promote consistency in the reporting process, so Company A will use the same reporting methodology as Company B.

Financial accounting, unlike management accounting, is always concerned with past performance.

Financial accounting, on the other hand, provides an accurate picture of business performance over a specified time period in the form of financial statements. Outside stakeholders, such as investors and financial institutions, are given the completed statements.

Financial accounting is classified into two types: cash accounting and accrual accounting. To accurately record financial transactions, both methods employ double-entry accounting.

While very small businesses frequently use cash accounting, all larger businesses and publicly traded companies must use accrual accounting.

2. Management Accounting

Management accounting is a type of accounting that is used in businesses all over the world. Management accounting is intended to provide management with the information they need to make high-level business decisions.

Management accounting information is only shared with others within an organisation. When comparing managerial and financial accounting, the latter is intended to inform shareholders, investors, and financial institutions about a company's performance over a specific time period.

Furthermore, management accounting is forward-thinking, devising ways to improve efficiency while providing management with the tools and resources needed to develop sound policies and procedures.

• Management accounting is classified into three types:

• Strategic leadership

• Management of performance

• Risk administration

Depending on the circumstances, all three types of management accounting may be used concurrently, or management may choose to use only one or two methods, depending on the information sought.

3. Governmental Accounting

Governmental accounting, unlike financial accounting, is governed by the Governmental Accounting Standards Board (GASB), which, like GAAP, has developed tracking and reporting standards for all levels of government.

The primary distinction between financial accounting and governmental accounting is that governmental entities track income and expenditures using separate funds.

For example, if a county undertakes a road improvement project, all income and expenses related to that project would be recorded in a capital projects fund.

This tracking method is required in order to accurately report how each fund or programme is performing and how public money is spent.

In most cases, the following government funds are used:

• The general fund

• Permanent reserve

• Special revenue account

• Capital project financing

• Fund for Debt Servicing

To provide a complete report on how money is spent and account for any remaining funds, each fund must be tracked separately.

4. Public accounting

Accounting services are provided by public accounting firms to a wide range of clients, including service businesses, manufacturers, retailers, nonprofit organisations, governmental organisations, and individuals. Auditing, tax preparation, tax advisory, and consulting activities, as well as financial statement preparation and analysis, are all part of public accounting.

Public accounting firms can also provide advice on business strategies, mergers and acquisitions, and internal accounting systems.

In addition, public accounting firms may provide their clients with additional financial services such as complete bookkeeping, accounting management, financial consulting, and payroll services. If necessary, public accounting firms may also advise clients on accounting software applications.

5. Cost accounting

Cost accounting is a specialised field that examines the true cost of doing business.

Internally, cost accounting is most commonly used in manufacturing, but it can also be used in service businesses.

Cost accounting examines both fixed and variable costs incurred by a company, such as materials, labour, overhead, maintenance, and production costs, ultimately providing management with critical information such as break-even points.

Although other costing methods can be used, most businesses will use a standard costing system that assigns an average cost to product production.

Cost accounting is a type of management accounting that focuses on the future and is primarily used to aid in decision-making rather than to report past performance.

6. Forensic Accounting

Accounting, auditing, and investigative techniques are all used in forensic accounting.

Forensic accounting is used to investigate both individual and business financial activities. It is frequently used by banks, police departments, attorneys, and businesses to examine financial transactions and then report the results in a completed report.

Forensic accountants are frequently used in fraud and embezzlement cases to collect and prepare data, analyse data, and report on findings.

Furthermore, forensic accountants are frequently called upon to testify in court to explain their findings and to help recreate or reconstruct financial data.

7. Tax Accounting

Tax accounting, unlike other types of accounting that are governed by the FASB, is governed by the Internal Revenue Code (IRC) and is intended to ensure that all current tax rules and regulations are followed by businesses, nonprofit organisations, and individual taxpayers.

Tax accountants collaborate with these entities to ensure the accuracy of their clients' tax liabilities when calculating and reporting them.

Accountants in tax accounting must be familiar with the various tax laws that change from year to year.

Furthermore, tax accounting is used to calculate tax due accurately, reduce tax liability, complete tax returns accurately, and file tax forms on time. Individuals, businesses, government entities, and nonprofits all need to do this.

Tax accounting, in addition to preparing tax returns, can also be used for tax planning, which assists both individuals and businesses in developing a tax strategy in order to minimise taxes due.

8. Auditing.

While accounting is concerned with the tracking and reporting of all financial activity for a business, auditing is concerned with providing an independent analysis of that financial activity to ensure that a business is recording transactions in accordance with the applicable rules and standards.

A variety of audits, including the following, may be performed:

Audit of compliance:

A compliance audit examines a company's or a department's policies and procedures to determine if it is currently in compliance with internal or regulatory standards.

Audit of investigation:

A standard investigative audit may not uncover criminal activity, but it can be the first step in a criminal case if suspicious activity is discovered.

Financial audit: The most common type of audit is a financial audit, which is designed to check the accuracy of financial statements.

Tax examination:

The IRS typically conducts a tax audit to obtain additional information about the accuracy of a tax return.

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