Accounting is an indispensable component of any organization. Successful business accounting can attract new investors, expand your budget, bring in new clients and increase the salaries and benefits of current employees. However, not all accounting methods are the right fit for all businesses and industries. If you're considering a career in accounting, it's necessary to know the many different kinds of accounting you can implement according to the industry.
In this article, we explore why accounting is important, the different types of accounting available and what career options exist for professionals interested in accounting.
Why is accounting important?
Accounting is a deciding factor regarding the financial health of a business. Logging and tracking an organization's financial data can help you find out a company's cash flow, income and expenses. All of this information can be provided to stakeholders who have a direct impact on business operations. The more financial information you have about your company's financial health, the better positioned you are to make decisions about your company's future.
Types of accounting
Accountants can specialize in different types of accounting depending on their career interests and goals. Here the 10 most common types of accounting:
1. Financial accounting
Financial accounting is the process of compiling financial reports for external use. Financial accountants work with their colleagues and managers to strategize how a company can be more profitable. Also, they track all financial activity recorded in a ledger in addition to ensuring that internal procedures are being followed and that all financial activity appears on relevant financial statements.
They must abide by Generally Accepted Accounting Principles set for U.S. businesses and International Financial Reporting Standards if a company operates overseas. Overall, financial accountants need to have strong attention to detail to convey the current financial state to outside sources.
2. Managerial accounting
This type of accounting documents, monitors and assists in the financial planning of an organization. Their documentation is typically meant for internal stakeholders rather than the public. A managerial accountant must be careful in communicating confidential information and to whom. They work with their managers to analyze and create a budget to meet the needs of the short- and long-term goals of the organization.
Related: 16 Accounting Jobs That Pay Well
3. Cost accounting
Cost accounting can be seen as a subcategory of managerial accounting. Cost accountants are responsible for documenting, presenting and reviewing manufacturing costs. They oversee all variable and fixed costs to see if output aligns with the cost to produce a product. They also work with managers to decide on future decisions based on the financial forecast and the progress of production.
Internal and external auditing falls under the category of public accounting. External auditing is the action of a company providing financial statements to a third-party for financial feedback. In this instance, a third-party is a reliable source in describing if a company's financial statement is a representation of GAAP.
Internal auditing determines the effectiveness of internal accounting processes. An internal auditor can review employee departmental responsibilities, management policies and approval procedures on related projects. In turn, they provide useful feedback that can help a company to become more profitable and efficient.
5. Tax accounting
Tax accountants help businesses stay in compliance with annual tax codes when they file each year. They also assist companies in planning for future tax returns, such as avoiding certain tax burdens and understanding the implications of specific tax decisions. Usually, larger organizations will hire a tax accountant to navigate the complexities of financial records.
Related: 6 Essential Accounting Skills
6. Accounting information systems
Accounting information systems, or AIS, manage the improvement of successful accounting procedures. Employees working in this field decide on the best times to install updated technology and monitor the progress of existing systems to determine if there is an increase in productivity over a given timeframe. They can make decisions in conjunction with the IT department to instill continuity with technological processes.
7. Fiduciary accounting
Fiduciary accounting is the procedure of trusting one individual to handle financial accounts. They're obligated to serve on behalf of their clients for accounts tied to real estate, trust funds, investments and others. Also, they must give relevant financial information to their clients once a year, which includes a summary of all accounts, schedules of receipts, gains, losses and the assets they have at their disposal.
8. Forensic accounting
Forensic accounting requires accountants to reconfigure a company's financial information when some information is missing or not available to review. The goal of forensic accounting is to gather all available documentation and accurately and comprehensively record all credit, debit and cash transactions in financial statements. These professionals often work on legal cases involving fraud, claims and disputes.
9. Public accounting
Public accounting refers to businesses that provide accounting advice to clients based on their needs. They can work in auditing, assist with tax returns, consult on procedures tailored to the installation of technology or computer programs and provide legal advice.
10. Government accounting
Government accountants manage the financial planning and allocation of resources to departments within a local, state or federal government. This type of accounting has standards that must comply with the Governmental Accounting Standards Board (GASB) who is responsible for developing consistent accounting procedures for local and state governments. They also monitor a government's budget and allocate funds appropriately.
Here is a list of careers that accountants can pursue:
National average salary: $51,088 per year
Primary duties: A staff accountant works under a Controller or Certified Public Accountant (CPA) to preserve and maintain financial records and budgets for an organization. They also work with reimbursement of company expenses and insert financial data into a centralized software.
National average salary: $52,291 per year
Primary duties: A payroll accountant is responsible for carrying out compliance duties for the organization. They report all financial activities from the business to the local, state and federal government in addition to having the correct amount taken out of each employee's paycheck.
National average salary: $61,939 per year
Primary duties: A tax accountant provides tax preparation advice to companies to file their taxes correctly and save when applicable. They also make certain that a company is compliant with filing their federal and state income tax returns.
National average salary: $63,362 per year
Primary duties: An auditor reviews financial documents to ensure their accuracy and to make sure that taxes can be paid on-time. They also provide recommendations to reduce budgetary costs and to increase the profitability of a company.
National average salary: $63,601 per year
Primary duties: A financial accountant ensures that confidential tax information is properly documented. They also publicize financial information for stakeholders and monitor internal transactions accordingly.