The 8 types of accounting you should know (2023)

If you are just passing throughAccounting 101, you probably still don't understand the different types of accounting fields used today.

Isn't bookkeeping the same as bookkeeping? Actually no. The fact is that the field of accounting is very diverse, with several types of accounting,accounting conditions, Ofaccounting systemsaccessible.

You may be wondering why you need to learn about the different types of accounting. The best answer is that you may need to use one or more of these in the future. So why not take a few minutes and learn about these different areas of accounting?

Overview: The different types of bookkeeping

• financial accounting
• government accounting
• public accounting
• cost accounting
• Forensic Accounting
• operational accounting
• tax accounting
• Test

The 8 types of accounting

Contrary to popular belief, accountants don't just prepare taxes. CPAs may also investigate white-collar crime, audit companies, or work exclusively in government and manufacturing environments.

Accountants can be CPAs (Certified Public Accountants) or perform bookkeeping and accounting functionsmanage the billing cyclein a small business or a large business entity. You can also work fora non-profit organization or a large consulting firm.

These are some of the different areas of accounting and what they involve.

1. Financial Accounting

The main purpose of financial accounting is to track, record and eventually report financial transactionsPreparation of annual accounts.

This should be done using the standardized guidelines contained in the rules of Generally Accepted Accounting Principles (GAAP). These rules are established by the Financial Accounting Standards Board (FASB) and are intended to promote consistency in the reporting process, with Company A using the same reporting methodology as Company B.

Financial accounting always looks at past performance and not, like operational accounting, at the future.

Rather, financial accounting in the form of annual financial statements provides an accurate picture of business development over a specific period of time. Full declarations are providedexterne Stakeholderas investors and financial institutions.

There are two types of financial accounting: cash accounting and accrual accounting. Both methods use double-entry bookkeeping to accurately record financial transactions.

Although very small businesses often use cash accounting, all larger businesses, as well as publicly traded companies, should use accrual accounting.

Management reports focus on the internal while financial statements focus on company performance.

2. Company accounting

Managerial accounting is a form of bookkeeping used in businesses around the world. Business accounting is designed to provide management with the information needed to make high-level business decisions.

Management accounting information is only shared with others in an organization. However, when comparing business and financial accounting, the latter serves to inform shareholders, investors, and financial institutions about a company's performance over a period of time.

Additionally, management accounting looks to the future by creating opportunities for more efficient operations while providing management with the tools and resources to develop sound policies and procedures.

Three common types of business accounting are used:

• Strategic management
• performance management
• risk management

Depending on the circumstances, all three types of management accounting can be used simultaneously, or management can use only one or two methods depending on the information desired.

3. Government Accounting

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

The main difference between financial accounting and government accounting is that government agencies use separate funds to track income and expenses.

For example, if a municipality undertakes a road improvement project, it would record all income and expenses related to that project in a capital project fund.

This tracking method is necessary to report accurately how each fund or program is performing and how public money is being spent.

In most cases, five state funds are used:

• general background
• permanent background
• Special Income Fund
• Fund for Capital Projects
• Debt Service Fund

Each fund needs to be tracked separately to provide a full report of how the money is being spent, as well as an overview of the remaining funds.

4. Public Accounting

Public accounting firms provide accounting services to a wide variety of clients, including utilities, manufacturers, retailers, nonprofit organizations, government organizations, and individuals. Auditing focuses on auditing, tax preparation, tax advice and business consulting, includingPreparation and analysis of annual accounts.

Accounting firms can also view various business strategies, mergers, acquisitions, and internal accounting systems.

In addition, accounting firms may offer other financial services to their clients, such ascomplete accounting, accounting management, financial consulting and payroll services. Accounting firms can also advise clientsAccounting Software AppsIf necessary.

5. Cost Accounting

Cost accounting is a specialty that takes a close look at the true cost of doing business.

Used internally, cost accounting is typically used in a production environment, although it can also be used for service businesses.

Cost accounting analyzes fixed and variable costsCosts incurred by a company, such as B. Material, labor, overhead, maintenance and production costs that provide important information to managementas balance points.

Most companies use a standard costing system that allocates an average cost to the manufacture of the product, although other costing methods can be used.

The following table shows how to use cost accounting to determine the cost of goods manufactured:

Calculating manufacturing costs can help management determine a profit point.

Cost accounting is considered a future-oriented form of business accounting and is primarily used as ahelp in decision makingand not as a way to report on past performance.

6. Forensic Accounting

Forensic accounting is a unique combination of accounting, auditing and investigative techniques.

Forensic accounting is used to study the financial activities of individuals and businesses. Banks, police authorities, lawyers and companies often use it to examine financial transactions and then make these findings available in a comprehensive report.

Forensic accountants are often employed in cases of fraud and embezzlement, using data collection and preparation techniques, data analysis, and reporting methods.

In addition, forensic accountants may be asked to assist in the recovery or reconstruction of financial data, and are often asked to testify in court to explain their findings.

7. Tax Account

Unlike other forms of accounting that are regulated by the FASB, tax accounting is regulated by the Internal Revenue Code (IRC) and is designed to ensure that corporations, nonprofits, and individual taxpayers comply with all current tax rules and regulations.

Tax advisors work with these companies to ensure accuracy in calculating and reporting their clients' tax obligations.

Tax accounting requires accountants to be familiar with the various tax laws that change from year to year.

In addition, tax accounting is used to accurately calculate taxes owed, reduce tax liability, accurately fill out tax returns, and submit tax forms in a timely manner. This is required for individuals, businesses, government agencies, and non-profit organizations.

In addition to preparing tax returns, tax accounting can also be used for tax planning to help individuals and businesses develop a tax strategy to minimize the taxes owed.

8. Audit

While accounting involves tracking and reporting on all of a company's financial activities, auditing aims to provide an independent verification of those financial activities to ensure that a company is recording transactions in accordance with applicable acceptable rules and standards.

All accountants are accountants, although not all accountants are accountants.

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

• Compliance-Audit:A compliance audit examines the policies and procedures used by a company or a department within a company to determine whether internal or regulatory standards are being followed.
• Research Audit:While a standard investigative review may not uncover criminal activity, it can be the first step in a criminal proceeding when suspicious activity is identified.
• financial audit:A financial audit is the most common type of audit performed and is designed to verify the accuracy of financial statements.
• Tax Audit:The IRS typically conducts a tax audit to obtain additional information about the accuracy of a tax return.

What all types of accounting have in common

Whether you follow GAAP, CFSP, or IRC rules and regulations, the one thing all types of accounting have in common is compliance with the facts.

This means that if an accountantWrite an invoice for your companyWhether as a witness in a embezzlement lawsuit or preparing the financial statements for a Fortune 500 company, the end result must be factual.