Accounting is an essential element of any business or organization. It’s helpful to know the different types of accounting. Let’s look at the nine different types of accounting and the variety of career options available.
1. Public Accounting
Public accounting is a business that provides accounting advice and services to clients. A public accountant offers various services, including auditing and completing tax returns. They also provide consultation on technology or computer programs beneficial for the client’s day-to-day operations. Accountants in this field may also provide legal advice.
2. Managerial Accounting
This type of accounting focuses on accounting documents, monitoring, and assisting with an organization’s financial planning. The type of documentation they maintain is usually for internal stakeholders and not the public. Managerial accountants have to be extremely careful about how they handle confidential information. They work closely with managers to analyze and create budgets to help the organization meet its short and long-term goals. Managerial accounting works by managerial accountants collecting financial information from various parts of a business to issue financial statements laying out problems and areas of improvement. Managerial accountants carefully consider and analyze the organization’s past performance to accurately predict its future performance.
3. Tax Accounting
Tax accounting is a subsection of accounting that focuses on preparing tax returns and tax payments. Individuals, businesses, corporations, and other entities use it. Tax accountants assist businesses to comply with the Internal Revenue Code when tax documents are filed annually. They also help companies with tax planning for their future tax returns. Proper planning can help avoid specific tax burdens and help understand the implications tax decisions can hold. Tax accounting is a group of methods for accounting centered on preparing public financial statements showing tax assets and liabilities. Most large organizations hire tax accountants to help navigate the complex world of business taxes.
4. Forensic Accounting
Forensic accountants investigate the financial records of businesses or individuals. If information is missing or not available, the accountant may need to recreate the information. This type of accounting aims to gather documentation so that all transactions are accurately and comprehensively accounted for and line up with financial statements. Forensic accounting uses more than just investigation techniques to uncover financial crimes. It also uses a number of accounting skills such as auditing to discover if a financial crime has been committed.
5. Cost Accounting
Cost accounting affects financial and managerial accountants, but it is more of a subcategory of managerial accounting. Cost accountants document, present, and review manufacturing costs. They provide oversight and both variable and fixed costs and ensure that the output aligns with the cost of producing a product. They work closely with managers in making business decisions regarding the financial forecast and the progress of production.
Cost accounting involves analyzing a company’s total production costs for its products or services. Calculating unit costs varies greatly between industries and businesses, even if they are similar. Cost accountants implement, oversee, and provide feedback on tracking costs. Their primary concern is allocating overhead. Some costs, such as materials and labor, are easy to track. Indirect costs like utilities, buildings, shared, staff, machinery, etc., have various ways they can be allocated.
Another service provided by cost accountants is to find the true cost of an employee. The process is similar to determining how indirect costs are used to determine the unit cost of a product or service. Accountants must allocate overhead and department costs to employees to determine how much money they bring in versus how much employing their costs. This process usually applies to employees with revenue associated with their roles. Two examples include healthcare providers and sales staff.
6. Financial Accounting
Financial accountants compile information to be used with financial reports. These generated reports are shared externally. They work with colleagues and managers to build a profitability strategy for the company. Financial accounting requires tracking all financial activities in a ledger, ensuring internal procedures are adhered to, and making sure financial activity is recorded on relevant financial statements. Most financial accountants work with disbursements and revenue. This includes providing oversight or helping with general ledger accounting, fixed assets, grant management, accounts receivable and payable, and payroll. In addition, they ensure financial transactions are accurately recorded and reported.
Financial accounting involves analyzing business transactions and creating financial statements that represent a company’s financial health. Financial accountants must comply and abide by the Generally Accepted Accounting Principles (GAAP) determined for US businesses. Companies operating overseas must comply with the International Financial Reporting Standards. A financial accountant must pay close attention to detail to accurately convey financial information to outside sources.
An external audit involves a company sharing financial documents with a third party to receive feedback about its finances. The third-party reviews the documents to ensure the company’s financial statement aligns with GAAP. A Certified Public Accountant (CPA) provides external auditing services.
An internal audit looks at the organization’s internal accounting processes and determines their effectiveness. Internal auditors review employees’ responsibilities, approval procedures, and management policies. They provide informative and useful feedback to help the company improve efficiency and profitability. The internal auditor is an internal role within a company, so their qualifications may vary. For example, an accountant can become a CIA (Certified Internal Auditor). Many governmental agencies and public companies may require that their internal auditors get this certification.
8. Accounting Information Systems
AIS or accounting information systems are the systems companies use to collect, store, and process accounting and financial data. Many of today’s accounting information systems are built to be integrated with other departments. For example, a company may connect its hiring process with its Human Resource department, also connected to the payroll function. This improves the flow of new hires and helps minimize the need for manually entering information.
An AIS professional manages and improves accounting procedures within a company. They choose the best time to install, upgrade and update technology. They also monitor the progress of existing systems to discover ways to improve productivity. They work closely with IT professionals to help provide continuity with these processes. They may also help with technical support for maintaining the AIS, including setting up new accounts or troubleshooting software issues.
9. Governmental Accounting
A governmental accountant manages financial planning and allocating of company resources to appropriate local, state, and federal governmental departments. Governmental accountants must comply with the GASB (Governmental Accounting Standards Board). The GASB develops consistent accounting procedures for state and local governmental bodies. Federal employees comply with the FASAB (Federal Accounting Standards Advisory Board). They also monitor governmental budgets and properly allocate funds.
What are the Most-Used Types of Accounting?
There are numerous types of accounting, but three of the most common types include tax accounting, management accounting, and financial accounting. For example, a finance department cannot operate without proper accounting. Different types of businesses and industries will require a variety of accounting types, but these three are essential for tracking income and expenses.
- Tax Accounting: Tax accountants provide many tax planning tasks for a company. They provide tax prep advice, file taxes correctly, and help companies adjust financial decisions and transactions to achieve the best outcomes. They also make sure the company remains compliant with governmental bodies on a federal, state, and local level.
- Management Accounting: This area concerns itself with obtaining and preparing financial information for the use of management and other upper-level staff members. Managerial accountants prepare documents that are only shared within the company. Then, managers can use the financial information they receive to make the best decisions for the company while managing costs.
- Financial Accounting: This area focuses on external institutions that express interest in the business. Financial statements are prepared and presented to investors. Some of the most common financial documents a financial accountant prepares include balance sheets, income statements, and cash flow statements. These types of records help provide investors with information about the company’s financial strength. They base their investments on this information.
These documents are also useful to lenders who are considering extending credit to the company. This data is crucial for helping creditors determine the risk associated with a loan. Creditors may request down payments, collateral, or other methods of payment security if the company can’t show strong financial documents. A company with a consistent loss or poor money management may not have as many credit options. Companies that show the strongest financial documents will get the best interest rates and more favorable consideration.
Where are the Types of Accounting Used?
There is a wide range of tasks and types of accounting jobs. For example, different types of accountants may audit a company’s financial records or prepare tax returns. Because there are such varied tasks, accountants usually specialize in one of the common accounting fields. They may take one of many accounting career tracks. Accountants work with companies and organizations in either an internal or external role.
Internal users of accounting types include owners, managers, and employees. Owners use accounting information to learn more about how their business is performing, how stable the business is, and changes in the economic factors. Managerial accounting helps managers plan, monitor, and make decisions for the business. Employees operating in financial departments provide accounting information and financial statements for different entities.
External users of accounting types include entities outside the company or organization who may benefit from understanding financial information. This includes investors, lenders, suppliers, customers, tax authorities, governmental bodies, auditors, and the public. Each of these may get various types of financial data and use it for deciding about their involvement with the company or organization.