What Are the Functions of Accounting?

By Indeed Editorial Team

Updated October 13, 2022

Published September 25, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Management, employees, clients and investors are all interested in how well a business handles its money. Accounting is the part of a business that is responsible for the company's finances. Understanding the function of accounting will help you manage and analyze monetary resources. In this article, we explain the functions of accounting and the types of work performed by an accountant.

Functions of accounting

All companies use accounting to report, track, execute and predict financial transactions. The main functions of accounting are to store and analyze financial information and oversee monetary transactions. Accounting is used to prepare financial statements for a company's employees, leaders, and investors. Accounting also functions to ensure the payment of funds into and out of a company.

Accounting creates a fiscal history for any company. It is used to track expenditures from business operations as well as a company's profits. It can also be utilized to predict financial success and the future needs of a company to create budgets and take advantage of new growth opportunities. Accountants use this information to prepare financial statements used by business professionals and government officials.

The functions of accounting in a business include the following:

Business Costs and Revenue

An important function of accounting is to track business spending in relation to income. Just like managing your personal finances, accountants record expenses and payments to keep an accurate and up to date record of the company's funds.

Accounts Receivable

Proper accounting ensures the company receives any payment they are due. An accountant tracks the profits of a business to ensure that revenue is continually flowing into their bank account.

Accounts Payable

Accounts payable functions to pay the company's bills. They ensure the business pays for any money they owe and check that it is a legitimate charge. They also help set the due dates for payments so a company can best manage their own funds based on when money is coming in.

Payroll

Accountants deduct employee wages from company funds for paychecks. They are also in charge of managing employee benefits if they are paid out of an employee's income. Accounting may help decide how employees are compensated for their work based on how wages affect the company's profits.

Financial Reporting

Accountants use digital systems to store and calculate data. If a company is publicly owned, it must also prepare both quarterly and yearly reports for shareholders detailing the assets, profits and losses of the business. Privately-owned companies also utilize fiscal reports like these to understand the financial resources of their firm.

Financial Analysis

Companies use accounting to perform regular analysis of how well the business is performing. Either an outside consultant or internal personnel will look at the business as a whole to determine what functions can be made more efficient based on financial outcomes. They may suggest changes to employee departments or streamlined costs for production to reduce waste.

Taxes and Compliance

A business must comply with government laws and standards from the Internal Revenue Service and the Securities and Exchange Commission, among other regulations. States also enforce monetary guidelines for businesses. Accounting is responsible for reporting the financial workings of the company and making sure they conform to all local and national laws and guidelines.

Budgeting

Accounting is in charge of setting a company's budget. They use financial data from the past as well as projections for future income to compose annual budgets. Accountants also prepare budgets for individual departments and special projects within the company.

Related: What Is Cost Accounting?

Fraud

Accounting makes sure money is not mismanaged or wasted within the company. They seek to protect the company's assets from internal and external fraud, specifically through cybersecurity. An accountant may specialize in securing digital financial data or hire an outside business to protect the company's funds. They also scrutinize financial data to make sure an employee is not mismanaging or embezzling funds for company or personal gain.

What is an accountant?

An accountant is a business professional responsible for processing and tracking financial data within a company. Accountants store and analyze financial information. They actively track all funds entering and exiting a company, making sure everything is documented and accurate. They may work individually or as a team depending on the size and needs of a business.

Accountants are involved in daily monetary functions like payroll and invoicing. They also plan for future business decisions based on financial reports and analysis by creating budgets. An accountant works closely with management to evaluate business functions. They may suggest changes to employee workflow to increase productivity or point out a way to make a process more cost-effective.

An accountant directs funds for employee use and wages. They make sure invoices are sent and paid. If a question arises about financial resources, an accountant works to find the answer. Their overall goal is to see that more money is coming in than going out of a company's funds.

Accountants who earn a Certified Public Accountant (CPA) certification can conduct audits of businesses or act as a consultant and trainer to others in their field.

Related: What Is a CPA?

Types of accounting

Financial accounting

Financial accountants handle the daily use of funds within a company. They are responsible for tracking all the money that flows in and out of a business. They are in charge of making, receiving and documenting payments.

Financial accounting departments use data from the past to analyze a company's expenses. Accountants who work in this field create statements intended for public use. They maintain structures for reporting and filing all the financial transactions a business makes. Accountants then use these systems to analyze how a business is handling its finances. They report profits and losses so managers and investors can see how a business is functioning.

Related: 16 Accounting Jobs That Pay Well

Managerial accounting

Managerial accounting departments analyze how internal processes impact the finances of a business. They are interested in the future and work to make financial predictions that benefit a company. They take a look at the business as a whole to report trends that impact the expenses and financial stability of a firm.

Managerial accountants generate reports to help a business increase productivity and impact financial growth. Since managerial accounting isn't for public view, accountants working in this field can use their own methods and select data to advise company leaders regarding trends and output.

Jobs in accounting

If you're interested in a career in accounting, you can choose from a variety of jobs to start your career. Here are 10 possibilities for you to consider:

1. Certified Public Accountant (CPA)

2. Auditor

3. Investment accountant

4. Staff accountant

5. Financial planner

6. Chief financial officer (CFO)

7. Tax manager

8. Cost accountant manager

9. Financial analyst

10. Accounting manager

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