Types of Accounting
Accounting is an important part of every organization. Successful business accounting can attract new investors, expand your budget, attract new clients and increase the salaries and benefits of current employees. However, not all accounting methods are suitable for all businesses and industries. As a business owner, it's necessary to know the many different kinds of accounting you can implement according to the industry. Here are 5 most common types of accounting:
1. Financial accounting
Financial accounting is the process of compiling financial reports for external use. Financial accountants work with their colleagues and managers to strategize how a company can be more profitable. Also, they track all financial activity recorded in a ledger in addition to ensuring that internal procedures are being followed and that all financial activity appears on relevant financial statements.
2. Managerial accounting
This type of accounting documents, monitors and assists in the financial planning of an organization. Their documentation is typically meant for internal stakeholders rather than the public. They work with their managers to analyze and create a budget to meet the needs of the short- and long-term goals of the organization.
3. Cost accounting
Cost accounting can be seen as a subcategory of managerial accounting. Cost accountants are responsible for documenting, presenting and reviewing manufacturing costs. They oversee all variable and fixed costs to see if output aligns with the cost to produce a product. They also work with managers to decide on future decisions based on the financial forecast and the progress of production.
Internal and external auditing falls under the category of public accounting. External auditing is the action of a company providing financial statements to a third-party for financial feedback. In this instance, a third-party is a reliable source in describing if a company's financial statement is drawn up in accordance with the financial reporting standards.
Internal auditing determines the effectiveness of internal accounting processes. An internal auditor can review employee departmental responsibilities, management policies and approval procedures on related projects. In turn, they provide useful feedback that can help a company to become more profitable and efficient.
5. Tax accounting
Tax accountants help businesses stay in compliance with annual tax codes when they file each year. They also assist companies in planning for future tax returns, such as avoiding certain tax burdens and understanding the implications of specific tax decisions. Usually, larger organizations will hire a tax accountant to navigate the complexities of financial records.