The word accounting stands for gathering information and maintaining it and there are multiple streams of accounting. So based on the type of information being gathered you can differentiate it. Here, we have discussed the types of accounting to give you an insight into the various types in detail. Also, these may be divided further into various other types.
Types of Accounting:
Listed below are various types of accounting:
Financial accounting is a branch dedicated to keeping a track of the financial transactions of a firm or company. It follows standard guidelines to record, summarize, and track the financial report over a period of time.
It could be in the form of an income statement, balance sheet or cash flow statement. There is a routine schedule made to ensure the financial accounting process is performed without delay. The financial statement used in accounting basically consists of assets, revenues, expenses, equity, and liabilities.
It is a vital part of companies because they have to show it to their creditors, investors, and suppliers. Accrual basis and cash basis are accepted by financial accountants. A cash basis involves recording the transactions only when there is a flow of cash. Accrual basis, on the other hand, is recorded when there is recognition of revenue and transaction is recorded. Definitely, financial accounting is the supreme need of every company.
Project accounting is a branch dedicated to accounting for the key tasks involved in the management of a project.
It is, in turn, helpful in adequately tracking the financial results and implications. It differs from the traditional methods of accounting as it only focuses on the transactions related to a specific project.
It tracks the hours spent and the costs incurred on the project. This gives the company a clear idea of the resources and money invested in a project so that the financial accounting reports can be created.
Large companies involve multiple departments in completing a single project. So the transactions and progress tracking become difficult with the involvement of multiple departments. With project accounting, the business activities of a project are tracked no matter how many departments are involved or what is the time frame of the project. Ensuring clarity instead of confusion.
Management accounting is also termed as managerial accounting.
It involves applying professional knowledge and skill in such a way that the accounting information can be tracked by the management for the creation of policies.
It helps the managers in decision making. The finance administration shares financial information with the management team. They use the statistical data provided by them for accurately analyzing and controlling the business activities, enterprise, and development.
There are various benefits associated with the involvement of management accounting in a company. The management can track the early signs of problems and take decisions to modify the strategies for better performance. This ensures losses can be minimized.
Cost accounting is a branch dedicated to keeping track of the cost of manufacturing products and providing services or anything else in a company. It is targeted towards controlling the amount of money spent and coming out with different methods of improving cost efficiency.
It is different from financial accounting as it is not accounted for by external users. The management needs to know about it and there are no strict guidelines that need to be followed to track the cost.
It is further divided into activity-based costing, lean accounting, and standard cost accounting. If we talk about the process of cost accounting then it involves recording, classifying, and allocating various expenditures. The data has to be suitably presented to ensure the cost control can be carried out smoothly.
It controls the material production, identifies the profits and losses, finds the exact cause of increase or decrease in profits, guiding the future production policies. For the expansion of your company, it will help in deciding whether you must increase the production of a certain product or add a new one. So, it is a reliable check on financial accounts and their accuracy.
Tax accounting involves generating tax assets and liabilities for an individual or business. It is different from public financial statements as the main focus is on tax returns and payments.
The process of tax accounting focuses on deriving the tax assessed or liability based on the income taxes for the current year and future years. You usually need accounting services to know about the amount of tax you have to pay and the different tax accounting methods that work best for you.
If we talk about the employees in a company then the income tax is usually taken out of their salary by the company. For the ones who are self-employed, the scenario is completely different. They have to file a self-assessment tax return based on their income. There are multiple records that you have to keep to ensure the tax return is filed successfully. It involves income, expenses, etc.
Internal auditing is a process that involves creating an annual report which includes the account statements.
It involves compliance with the rules and regulations so that financial reporting can be accurately maintained. It also provides management with the tools that are important for improving the operational efficiency of the company. Internal auditing also focuses on finding the weaknesses and mismanagement that leads to reduced efficiency of the company.
The internal auditors of the company are important as they help in the survival of any organization with prosperity. In a way, they help the companies in succeeding. The companies need to ask the internal auditors to send their auditing reports to the CEO.
They should be allowed to work independently irrespective of internal politics. Audits help in assessing the organization’s performance against the standard, policies, or other metrics followed by the company.
So, these were all types of accounting. As you can see, accounting plays a major role in not only the smooth functioning of your business but also helps it prosper.
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