In this article, we will provide a complete guide to the different types of accounting, including:
Definitions
The American Institute of Certified Public Accountants (AICPA) says that, accounting is the art of recording, classifying, and summarizing financial transactions and events in a significant manner.
The American Accounting Association (AAA) defines it as the process of identifying, measuring, and communicating economic information for informed decisions.
Weygandt, Kieso, and Kimmel see it as an information system that identifies, records, and communicates the economic events of an organization to interested users.
Bierman and Drebin define accounting as the identification, measuring, recording, and communicating of financial information.
Financial Accounting
Financial accounting is the process of recording, classifying, and summarizing financial transactions. To provide financial information to stakeholders, such as investors and creditors. This type of accounting is govern by Generally Accepted Accounting Principles (GAAP) and is use to prepare financial statements. Such as balance sheets, income statements, and cash flow statements.
Financial accounting is focus on the external users of financial information. And provides a historical record of a company’s financial transactions. So that this information is use to make investment decisions and to set a company’s financial performance and stability.
Managerial Accounting
Managerial accounting is the process of identifying, measuring, analyzing, and communicating financial information. To help managers take decisions. This type of accounting is focus on internal users of financial information and is use to support decision-making and improve a company’s performance.
Managerial accounting provides information that is not require by external stakeholders but is still important for a company’s success. This information includes cost analysis, budgeting, and forecasting. Managerial accounting provides managers with the information they need to make informed decisions and improve the overall performance of their business.
Cost Accounting
Cost accounting is a form of managerial accounting. It focuses on the cost of producing goods or services. This type of accounting is use to determine the cost of production, as well as to identify areas where costs can be reduced. Cost accounting is important for companies that produce physical goods. As it helps them understand the true cost of production and make decisions about pricing, production, and other key aspects of their business.
Cost accounting provides managers with information about the cost of raw materials, labor, and overhead costs. And it allows them to make informed decisions about pricing and production.
Tax Accounting
Tax accounting is the process of preparing financial records and tax returns under tax laws and regulations. This type of accounting is focus on complying with tax laws and regulations, as well as minimizing a company’s tax liability. So tax accounting is necessary for all businesses. As it helps them understand their tax obligations and ensures that they are in compliance with all relevant tax laws.
Tax accounting is used to prepare tax returns, calculate taxes owed, and manage a company’s tax liability. This type of accounting is complex and requires a deep understanding of tax laws and regulations, as well as financial accounting principles.
Conclusion
There are several different types of accounting that companies can use, each with its own specific purpose and set of rules. So understanding the basics of these types of accounting is important for any business owner or manager. As it provides the information needed to make informed decisions and improve the total performance of their business. Whether you are focus on financial accounting, managerial accounting, cost accounting, or tax accounting. it is important to have a solid understanding of the different types of accounting. And how they can be used to support your business.
FAQs
Question 1: What is Financial Accounting?