Accounting is a process in which businesses keep records of its financial information such as transactions in a complete and well-organized manner. It helps organizations to understand the situation of economic activities within the organization by analyzing and reporting its financial transactions to various individuals like the management, regulators, oversight agencies, investors, collection agencies, creditors, and debtors etc. Accounting basically informs us about the profit, loss, and available resources of an organization. People who are responsible for the process of accounting are known as accountants.
Some of the examples of the different branches of accounting are managerial accounting, financial accounting, tax accounting, and auditing. Discussed below are the branches of accounting:
- Managerial Accounting:
Managerial accounting, also known as cost accounting is the procedure of recognizing, measuring, examining, translating, and reporting information with the aim of achieving organizational goals. It provides the managers with information about the various aspects of the organization so that they can make effective decisions, create plans, and efficiently manage the performance of the organization.
- Financial Accounting:
Financial accounting deals with the financial resources of an organization. It helps the management to effectively and efficiently utilize the money so that the aims and objectives of the organization can be achieved. It also ensures that the organization is making the maximum profit while spending least amount money on expenses. Financial accounting is generally used to make financial statements of the firm. These financial statements consist of data related to the firm such as profit, loss, revenues, and expenses. The objective of making financial statements is not to assist the management but to provide external sources outside the firm with such information so that they can be able to estimate the value of the firm.
Tax accounting is the branch of accounting that primarily focuses on making, examining, and reporting of tax payments and returns. It monitors the funds related to either a business or an individual. Tax accounting helps businesses and individuals to calculate the accurate amount of tax payments and tax returns.
Auditing is the process of analyzing and examining the financial statements of any business or individual to determine whether their financial records are valid and whether they state the accurate information regarding the transactions of the business. Auditing is sometimes carried out by various external agencies like the Internal Revenue Service (IRS) on businesses and individuals when the agency thinks that the businesses and individuals have not presented or paid the correct amount of tax that they were due to pay. Therefore, this process is used mainly by external agencies to make sure that the companies and individuals are following the proper tax laws and regulations set by the state.
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