Accounting is a process of recording various financial transactions happening in a company. These transactions are to be maintained in order to show them to tax collection agencies and oversight agencies. The financial statement is a summary of all the transactions of a company that occurred in a financial year. What are the Types of Accounting?
Accounting is of many types, which has been discussed here. Financial Accounting:
This is a type of accounting in which transactions of a particular period are recorded. These transactions are then shown in the balance sheet, income statement, and cash flow statement. These statements show the various operations of a business in a particular period. Management Accounting:
In management accounting, management reports and accounts are prepared which provide the details of financial and statistical information. This information provided by this accounting is used by the managers and CEO of a company to make short-term and long-term decisions. Auditing:
Audit is a process through which it is ensured that the distribution of finance is done with a fair and efficient way. Audit accountants have the responsibility of reviewing the accuracy of the financial records. Accounting information systems:
It is a system used by an organization to collect, store, manage, process, retrieve, and report its financial data. This data is used by various people in the organization such as an accountant, CEO, consultants, business analysts etc. Tax Accounting:
It is used for tax purposes. This is governed by the Internal Revenue Code in which rules are defined for the companies and individuals to prepare tax returns. Are you interested in making career in tax accounting? Well, there are many institutes where you can avail Accounting Training in Delhi. If you are expert in this field, then you may get good job in company. Forensic Accounting:
This is a type of accounting in which the accounting analysis is conducted that is suitable for court. Such an accounting system is used in fraud cases. Financial Accounting
Financial statement has three components which are:
1. Statement of Cash Flows:
This is a statement in which aggregate data regarding all cash flows within an organization is provided. This data includes all the cash inflows within an organization through various operations. The data also includes the cash that an organization receives from external sources within a particular period.
2. Statement of Profit and Loss:
This is also known as income statement or statement of operations. This statement provides the data regarding revenues, costs, and expenses incurred by an organization in a particular period. This statement helps an organization to generate data through which a company can know its ability to generate profit by reducing the cost or increasing the capital.
3. Balance Sheet:
In the Balance Sheet, you will check assets, liabilities and shareholder equity. On this basis, the rate of return and capital structure of an organization is evaluated. Through this, the company knows the amount which it owns and the amount which it owes. Along with it, the company also has the data of the investment made by the shareholders. Management Accounting
Management accounting focuses on the following areas:
Strategic Management Accounting:
It focuses on non-financial information. Along with this, it also focuses on the external information that is related to people affecting the market such as competitors, political and monetary policies, current trends, share, and costs. Through this information, management can make strategies to be on the top of the market.
Performance management is not related to appraisal meetings or employee evaluations. It is the performance of an employee when he joins and his job is defined till the time he leaves the organization. Performance management is a way of interaction between an employee and the management.
In risk management, risk related to investment is analyzed. Risk management occurs when an investor provides information regarding the risk in the investment. He also has to take the appropriate action for risk tolerance. Difference between Financial Accounting and Management Accounting
There are many differences between both the types of accounting, which are as follows:
Financial accounting for the company is compulsory while management accounting is not.
Financial accounting deals with monetary information only while management accounting deals with both monetary and non-monetary information.
Financial accounting provides financial information to the outsiders while management accounting provides the information according to which planning and decision-making are done by the organization.
Financial statements are needed at the end of the year while report prepared by management accounting can be used anytime.
Both internal and external people can use the reports of financial accounting while management accounting reports are for the internals only.
Report through financial accounting tells the financial position of the organization while the reports through management accounting are complete and detailed and include information.
Financial statements are audited but management reports are not.
Business owners either handle their accounting themselves or they hire someone else to do it. In general, startups and sole proprietors choose the first option to reduce their expenses. Even if you do hire an accountant, it's important that you have a basic understanding of what is involved. Start by learning about the five major accounts, so you know how to read financial reports.
There are five main types of accounts in accounting, namely assets, liabilities, equity, revenue and expenses. Their role is to define how your company's money is spent or received. Each category can be further broken down into several categories.
Asset accounts, for example, can be divided into cash, supplies, equipment, deferred expenses and more. Equity accounts may include retained earnings and dividends. Revenue accounts can include interest, sales or rental income.
These accounting categories are relatively new. Traditionally, the accounts were classified into four types: valuation accounts, nominal accounts, real accounts and personal accounts. However, most companies nowadays rarely use this approach.
The assets account includes everything that your company owns. Assets are divided into tangible and intangible. Examples of tangible assets include desktop computers, laptops, cars, cash, equipment, buildings and more. Your trademark, logo, copyrights and other non-physical items are considered intangible assets.
Any product or service that your company purchases to generate income or manufacture goods is considered an expense. This may include advertising costs, utilities, rent, salaries and others. Some expenses are deductible and help reduce your taxable income.
Revenue or Income
Revenue, one of the primary types of accounts in accounting, includes the money your company earns from selling goods and services. This term is also used to denote dividends and interest resulting from marketable securities.
Liabilities include the debts or obligations payable to creditors and other outsiders to which your company owes money. These can be loans, unpaid utility bills, bank overdrafts, car loans, mortgages and more.
The equity account defines how much your business is currently worth. It's the residual interest in your company's assets after deducting liabilities. Common stock, dividends and retained earnings are all examples of equity.
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