What is Accounting? Different Types of Accounting

Accounting is a way to record and organize transactions. Accounting is usually done for big companies and corporate houses, but some accountants also serve individuals with accounting. Accounting processes raw financial information and shows them in an organized and systematic manner. It also shows whether a business is making a profit or not.

Types of Accounting

Accounting can be of the following types −

  • Financial Accounting − These are financial statements that are meant for stakeholders to illustrate how the financial condition of the company is. The financial statement is one of the most important documents that are generated via accounting.

  • Managerial Accounting − Managerial and financial accounting are the same. The only differences are − managerial accounting is for internal purposes and they are generated more frequently.

  • Tax Accounting − Tax accounting is about taxation and it helps the companies get the most tax saving. Usually, tax accounting is regulated by a governing authority, such as Internal Revenue Service (IRS) and the tax accounting must be done following their guidelines.

  • Cost Accounting − Cost accounting is done to measure the margins or during the consideration of increasing the price of a product. It shows how much a product costs for manufacturing to determine the price of the product. Cost accounting data is used both in managerial and financial accounting.

  • Credit Accounting − Credit accounting helps analyze the credit unpaid of a company or an individual. This is required because managers won't want to remain tied to unpaid bills all the time.

Importance of Accounting

Accounting is a tool that helps accountants do their duties easily and without errors.

  • Accounting is an unmissable part of recording growth. Without knowing it, businesses cannot know whether the business is growing or not.

  • Accounting lets you have loans − Financial institutions such as banks offer loans based on accounting.

  • Accounting helps you to get paid − You should usually seek an accountant's help to get your invoice paid.

  • Accounting helps to get investors − Investors usually want to see the accounting reports before investing in a business.

  • Accounting helps small businesses or individuals pay the right amounts of taxes.

Nowadays, accounting is done by sophisticated software that has zero errors. However, it is the skill and hard work of the accountant that brings uniformity to the accounting processes. That is why, accounting and accountants are so important for a business.

Points to Note

  • Accounting is the process of recording, generating, and expressing transactions made by a business.

  • Financial accounting is the most common form of accounting.

  • Accounting is now done with the help of software.