Types of accounting | 7 different types of accounting with explanation (2023)

Accounting Types - Overview

Accounting is a process that helps businesses collect, analyze, and report financial and non-financial data. There are different types of accounting that serve specific purposes in different sectors of the economy.

Various types of bookkeeping range from preparing tax returns to auditing. Also, there are different business segments in the market, so there are different methods to evaluate them based on your needs.

main highlights

• Accounting refers to the study and analysis of financial information of a company or organization.
• Seven different types of accounting can be considered: audit, financial, management, cost, fiscal, forensic, and government accounting.
• These methods help analyze and recordfinancial liabilitiesand luck
• Among all types of accountingfinancial Accountingmost commonly used, including the swing,cash flow statement, income statement, etc.

types of accounting

#1 Financial accounting

Definition:

Financial accounting tracks and reports transactions primarily through financial statements.

Explanation:

• Among the types of accounting, the first type is financial accounting, which mainly tracks, records and reports all financial transactions, generating impressivefinancial statements.
• And this whole process is followed as followsGenerally Accepted Accounting Principles(GAAP) established by the Financial Accounting Standards Board.
• The main benefit of this method is that it helps to provide an authentic view of the company's performance over a period of time in the form of financial statements.
• And these statements are shared with outside stakeholders and investors to capture their attention and interest in our company.
• Financial accountants work closely with their colleagues, especially company managers, to efficiently strategize how changes can be made to generate more profit and more revenue for the company.

Beginning:

• delimitation principle:According to accrual accounting theory, all costs should be recognized as they are incurred and not when they are linked to cash flows.
• Cost principle:Under this theory, a company can present all of its liabilities, earnings, and capital contributions at their initial purchase prices.
• Full Disclosure Policy:In accordance with the principle of full disclosure, the company must include all relevant data in itsfinancial report.
• Principle of conservatism:According to this theory, all liabilities and expenses must be reported as soon as possible.
• Consistency principle:The consistency principle allows a company to publish its financial statements using the same procedures and standards of the accounting system.
• Driving principle affected:If the financial statements are prepared on a going concern basis, the company may continue as a going concern for a short period, generally 12 months after commencing operations.
• Appropriate principle:The matching theory governs how costs and revenues are reported and reflected in financial statements.
• Principle of economic entity:Under this theory, a company must distinguish all its purchases from its owners, shareholders, and other companies.

#Example: swing

Liabilities, assets and equity for the year 2021 forAmazon Inc.was registered as:

(Image source: Amazon Annual Report 2021)

Therefore, based on the above data, we can conclude that:

• There was an increase in the current and in the companycapital bensin 2021, resulting in total assets of $420,549 million.
• Likewise, the company's current and non-current liabilities also increased to US$146,226 million.
• Additionally, total net worth increased from $321,195 in 2020 to $420,549 in 2021.

Positions and Salary:

(Those: Payscale.com)

#2 Corporate Accounting

Definition:

• Business accounting is another type of accounting that helps in evaluating the financial performance of a business and making fruitful decisions.

Explanation:

• Managerial or managerial accounting is a method of preparing reports, documents and financial statements to later help management make better decisions for the good development of the business.
• In a nutshell, accountants can also be described as strategic business partners, as they work to ensure the future success of the company.
• It differs somewhat from financial accounting in that its primary focus is to report to the company's internal decision makers.

Beginning:

• Principles of analogy:This principle helps generate insights that can be useful in making predictions and business decisions.
• accident principle:This principle helps model business expenses based on the relationship between the inputs and outputs of resources used in the production of goods and services offered.

# Example: profit and loss account

The consolidated income statements ofAmazon Inc.for the year 2021

(Image source: Amazon Annual Report 2021)

From this, we can conclude that the company generated a net profit of $33,364 in 2021, which is 1X higher than the profit of $21,331 generated in 2020.

Positions and Salary:

(Those: Payscale.com)

#3 Tax accounting

Definition:

• tax accountinghelps companies prepare and manage tax returns and payments.

Explanation:

• In addition to the annual accounts, tax accounting is mainly focused on the preparation of the company's tax returns and the management of the respective payments.
• Unlike other types of accounting, tax accounting considers government deductions, receipts, and credit to determine the business's taxable income. Taxable income never stays the same; it changes annually and depends mainly on the turnover of the company.
• In simple terms, it is the process of storing the company's financial records, which will later be used for tax preparation. This process helps track the flow of money within customers, investors, or business owners.

Beginning:

• Consistency in accounting:Proper consistency must be maintained for all taxpayers.
• Tax Related Transactions:Ensures that all transactions considered are tax related.
• Year of investigation regulated by the state:The evaluation year must comply with state regulations.

# Example: fiscal accounting of a company

Let's say Cakes and Baked Goods, a small bakery made $210,000 in sales in 2021-2022fiscal year, It's incost of goods soldo COGS was $50,000. In addition, the company's calculated cost of inventory for the fiscal year was $40,000. Now let's find the tax base of Cakes & Bakes:

Taxable profit = COGS total sales

= $210,000 times $50,000

= 160.000 $

Now, the tax rate for businesses like cakes and bakeries (depending on type and size) is 15%. Therefore, an accountant subtracts the tax rate from the taxable income to determine the amount of tax due. That means the owner of Cakes & Bakes owes around $25,600 in taxes for the 2021-2022 tax year.

Positions and Salary:

(Those: Payscale.com)

#4 Cost accounting

Definition:

Cost accounting is used to determine the net costs generated by a company after valuing all assets and liabilities.

Explanation:

• Cost accounting works to analyze and report the entire cost structure of the business.
• It helps to capture the company's total cost of production after evaluating the cost of each production step, and this includes thefixed costs, as well as the company's leasing costs.
• It's a useful way to determine how much the company makes, where you see money, and where you lose money.
• First analyze, then report, then drive to areas of improvement for internal cost controls. In short, this process is a fundamental part of the operational analysis for the management of any company.

Principle:

• Principle of cause and effect:This principle must be followed for each cost element.
• Charge costs only after they have arisen:Only costs actually incurred should be included in unit costs. For example, the unit cost must be excluded from the cost of sales while an item is in production.
• Past costs must be distinguished from future ones:Past costs should not be subtracted from future costs, as this will affect future costs and change other statements as well.
• Abnormal costs must be excluded from cost accounts:When calculating unit costs, costs incurred due to unusual causes (such as theft or negligence) should not be taken into account.
• Dual registration principles:It should be followed to reduce the probability of error or error.

# Example: Cost accounting for a juice company

Let's say that fixed costs for a Canadian-based juice manufacturing company are estimated to be $60,000. EITHERvariable costseach bottle of juice costs $9. The company now wants to determine the expected total cost of producing 6,000 of these bottles of juice at the same unit price. To find this, we implement the cost accounting formula. According to the formula:

Total costs = fixed costs incurred + variable costs per unit.

= 60.000 $ + 6000*9

= 114.000 $

Therefore, based on the total cost, the juice company will price each bottle of juice so that it makes some profit in the end.

Positions and Salary

(Those: Payscale.com)

#5 Forensic accounting

Definition:

Forensic accounting is among the types of accounting that deal with the legality of situations like divorce, gambling, money laundering, etc.

Explanation:

• Forensic analysis is one of the types of accounting used to examine a company's financial information to gather possible evidence of crimes.
• Forensic accountants use their auditing, accounting, and investigative skills to understand whether a person or entity has committed a financial crime, such as fraud.
• They analyze accounts and financial records that can be used as legal; Evidence in court if necessary Simply put, it is a type of accounting that is only suitable for court cases.

Beginning:

• Independence and neutrality:The professional must be neutral and independent in spirit and behavior.
• Integrity and objectivity:The professional must be truthful, honest, highly ethical and fair in all his decisions.
• professional care:To avoid misunderstandings, it is important to carry out the work with the proper approach and professional standards.
• Confidentiality and Secrecy:Maintain strict confidentiality, respect individual privacy rights, and collect information without violating those rights.
• Skills and abilities:To carry out quality work, the professional must have the necessary qualification, solid knowledge, practical experience and specialization in the area.
• Contextualizing the situation:To understand the scenario, it is necessary to understand the context of the situation and the environment in which the transactions take place.
• Primacy of truth:The primary goal of any professional should be to discover the truth and unravel the facts behind each claim.
• Respect for rights and obligations:It is essential to obtain the views of all parties by asking suspects for information and evidence.
• Separate facts from opinions:The information must not be distorted by the subjective opinions of the source; instead, it should be based solely on facts.
• Quality and continuous improvement:The professional must carry out quality controls to confirm that the work carried out is correct.

# Example: divorce case

The most famous and controversial divorce case between Hollywood stars Johnny Deep and Amber Heard may be the most appropriate example to talk about the most interesting type of accounting that is forensic accounting. In this case, the two couples had the most contentious evaluation session, blaming each other. However, after a long journey of counterclaims, Deep won the case.

According to the investigation into the $50 million libel case against Heard, Deep's CEO and accountant Edward White confirmed the costs of the couple's divorce. White reportedly confirmed that Amber Heard initially filed for a $4 million divorce settlement, but later increased it to around $14 million.

Positions and Salary

(Those: Payscale.com)

#6 Government Accounting

Definition:

• Government accounting helps the federal government record, analyze, and interpret the government's financial transactions.

Explanation:

• As the name suggests, government accounting is a scientific process of classifying, summarizing, collecting, recording, and interpreting the financial transactions of all government entities, including their expenditures and revenues.
• It even keeps track of public money entering government accounts.
• It is one of the types of accounting used by all government agencies, such as state, county, federal, local, and special purpose entities.
• In addition, its six main objectives are financial management, decision making, accountability, independent audits, regulatory compliance, and the allocation of budgets and funds.

Beginning:

• Public sector companies:Double-entry bookkeeping is used for business purposes like business accounting.
• Accounting system:The government generally follows the simple accounting system to determine the balance.
• Consolidated financial transactions:All results are consolidated to present the overall result for the relevant point in time.
• Breakdown of expenses, income and income:To meet regulatory requirements, it is necessary to categorize service revenues and expenses under various headings and subheadings.

# Example: Accounting United States of America

The annual accounts ofUnited States of AmericaThe government shows your total liabilities, income, and other factors.

(Source: 2021 US Government Financial Report)

These data allow the following conclusions to be drawn:

• Ototal assetsfrom the US government decreased from $5,955 to $4,893 from 2020 to 2021.
• US government liabilities increased in 2021 and were reported at $34,777.
• In addition, the US government's net position and total liabilities decreased from $5,955 to $4,893 in 2021.

Positions and Salary

(Those: Payscale.com)

#7 Audit

Definition:

An audit is a financial audit in which an external accountant examines and analyzes the finances of a company.

Explanation:

• The audit is also known as a financial audit, which is similar to an official audit conducted to review a company's financial records.
• While not strictly accounting, it still falls under different types of accounting.
• The primary purpose of the audit is to ensure that all financial records in our company accounts are accurate and comply with regulatory guidelines. And it is mostly done by an external third party.
• The best thing about conducting audits is that they help provide creditors or investors with reasonable assurance that they can trust this business and its integrity.

Beginning:

• Skills and abilities:In order to carry out the audit smoothly, the auditor must be experienced and qualified.
• Audit conclusions and reports:The auditor should formulate his audit opinion for the audit report after obtaining the relevant evidence.
• test test:The auditor's responsibility is to collect sufficient data to support their findings in thereport.
• Confidentiality:During the audit, the auditor finds sensitive information about finances, activities, etc. of the organization.
• Accounting systems and internal controls:The auditor ensures that the accounting system is adequate to record all the necessary information.
• Documentation:This is to certify that the exam meets the basic exam standards.
• Integrity, objectivity and independence:The auditor must be trustworthy and conduct the audit impartially.
• Planning:The audit plan that the auditor develops helps him plan his work in a timely and effective manner.
• Work done by others:It is the auditors' job to review the work of all other employees.

#Example: Amazon Inc test report.

Below is the test report issued forAmazon Inc.. Said report was signed by Ernst & Young LLP (also known as EY) on February 3, 2022 and refers to the calendar year 2021. Let's take a look and get some information:

(Image source: Amazon Annual Report 2021)

With this audit report we can be sure that the audit was carried out in accordance with the legal provisionsbalance sheetprovided by the company. The audit also confirmed that internal controls are effective.

Positions and Salary

(Those: Payscale.com)

final thoughts

Accounting is a dynamic and comprehensive profession that must be implemented by companies according to their needs. It is mandatory in any organization to record financial and non-financial information that is useful for the administration and people outside the company.

Also, the concept of different types of accounting broadens the scope in each area, as specific accounting platforms have to be implemented depending on the type of business and its demand for business activities.

Frequently Asked Questions (FAQs)

Q.1 What are the 5 types of accounting?

Respondedor:Accounting is broadly classified into 7 types and they are known as Financial, Administrative, Expense, Fiscal, Forensic, Government, and Audit. All the different species have their own set of rules and principles that can be applied for specific purposes.

Q.2 What kind of information does internal accounting provide?

Respondedor:Managerial accounting helps provide financial information to executives, CEOs, or decision makers in a company. It contains various financial metrics like sales, cost control, revenue, operating expenses, etc.

Q.3 What are the 5 types of accounting accounts?

Respondedor:The 5 different types of accounts in accounting are as follows: Assets, Expenses, Liabilities, Income (Income), and Equity. Businesses use them to track their current assets and financial information. You can use each of them for specific purposes and record them on your balance sheet or ledger.

Q.4 Which types of accounting are most rule-based?

Respondedor:GAAP, or Generally Accepted Accounting Principles, is generally the most rule-based accounting used in the United States. It is the most standardized form of reporting financial information. It is important that companies comply with their rules and regulations and present their financial statements accordingly.

Q.5 What are balance indices?

Respondedor:balance sheet ratiosThey are an important subset of variables used to assess an organization's productivity and profitability based on its financial reports. They serve to express the connection between one data point and another based onratio analysis.

Q.6 What accounting methods are there?

Respondedor:Cash and accrual accounting are the two main methods. Income and expenses are recognized as cash upon receipt and payment. Income and expenses are recorded on an accrual basis. Also, GAAP or Generally Accepted Accounting Principles uses accrual accounting.

Q.7 What are accounting assets and liabilities?

Respondedor:In its simplest form, your balance sheet can be divided into two categories, assets and liabilities. A business's assets are all possessions that have the potential to generate future financial gains. Your debts to other people are called liabilities. In other words, assets increase your wealth, while liabilities decrease your wealth.

Related Posts

This is a guide to the types of accounting. Here we also discuss types of introductory accounting including finance, management, etc. You can also refer to the following articles for more information:

1. reservation process
2. accounting cycle
3. general Accounting
4. Merger Accounting