Do you know about the nine (9) major types or branches of Accounting? Don’t be worried if the answer is no. In this article, we will discuss the nine major types or branches of accounting.
For various reasons, different groups of users need information about an entity. However, management requires a great deal of comprehensive information, delivered almost daily and in an accessible format, for business planning and day-to-day control, while the rest of the team requires information only on occasion and for specific purposes.
Because of the disparity in needs among various groups of users, different types or branches of accounting have emerged to serve the needs of management and other users.
What are the 9 Major Types or Branches of Accounting?
The nine (9) major types or branches of accounting are as follows:
- Financial Accounting
- Management Accounting
- Cost Accounting
- Tax Accounting
- Public Accounting
- Forensic Accounting
- Government Accounting
- Fiduciary Accounting
Now we try to know the details about these types or branches.
#1. Financial Accounting:
This branch provides economic data in the form of general-purpose financial statements for use by all types of users who are involved in the business.
The financial accounting statements must obey the legislation governing that specific form of the company as well as the professional standards and ethics practiced by the professionals preparing the statements.
Balance Sheet, Income Statement, Cash Flow Statement, and Owner’s equity Statement are the most common statements prepared.
GAAP (generally accepted accounting principles), the conceptual framework of accounting, and accounting standards are commonly used to direct the collection, processing, and presentation of data in this system.
#2. Management Accounting:
Management Accounting refers to any accounting method that aids management in performing its tasks more effectively.
Management Accounting is concerned with the provision of economic information to management for decision-making purposes, input information on plan fulfillment, and the implementation of appropriate measures for the effective implementation of the business’s desired target.
All required information must be provided at the time, format, and frequency specified by management. It provides both historical and forecasted data to help management solve day-to-day issues and prepare for the future.
This branch of accounting was responsible for gathering, analyzing, and presenting data in special-purpose financial statements. The information of management accounting is not for outside users.
#3. Cost Accounting:
This branch covers the key aspects of cost estimation and control for decision-making, as well as control and assessment.
With the rise of the free-market economic system, the value of this branch as a tool for achieving the primary goal of a company, profit, has grown exponentially.
However, as the business has become more dynamic and competitive, this branch’s role has become almost identical to that of management accounting, as both branches provide information to management for decision-making, monitoring, and assessment of day-to-day activities of various functional units of a company.
In today’s world, this is referred to as management accounting.
You can also read: what is cost accounting? and its objective.
#4. Tax Accounting:
This division of accounting describes how a company’s activities comply with tax laws, as well as the effect of taxation on profits.
It entails the preparation of tax returns as well as the analysis of the tax implications of potential business transactions.
The standard documentation of financial transactions in financial accounting may vary from what is required by tax law. This division is responsible for preparing tax-related statements.
This division is inextricably linked to the financial accounting system. It is a form of accounting practice that examines general accounting in an independent manner.
This division actually reports on whether GAAP, relevant legislation, and professional standards are followed in the recognition, recording, and preparation of financial accounting statements so that they represent an accurate and fair view of the business’s financial condition and operating efficiency.
Internal auditing should be conducted to ensure management and other directly involved parties, such as shareholders, that the documentation and reporting are accurate.
It becomes mandatory to provide reports from the external auditor in the case of a business entity where the management is legally excluded from the ownership.
The external auditor used to carry out his duties in accordance with the organization’s laws.
#6. Public Accounting:
To ensure financial statements, public accounting reviews financial statements and supports the company’s accounting procedures.
For delving into client systems, the area requires great knowledge of accounting frameworks as well as an inquisitive mentality.
#7. Forensic Accounting:
When the financial records set is not available, forensic accounting entails reconstructing financial information, such as reconstructing lost business documents, converting cash-based accounting records to accrual basis, and recreating fundamental data.
The insurance business is the most common user of forensic accounting to determine damages from claims.
Forensic accountants are more likely to work in legal support, the insurance industry, and firm audits.
#8. Government Accounting:
The recording of the government’s financial transactions is known as government accounting.
Income and expenditure are included in the financial transactions.
Government accounting necessitates a large number of accountants who excel in their respective fields.
#9. Fiduciary Accounting:
Fiduciary accounting is the process of entrusting financial accounts to a single person. They have a legal obligation to act on behalf of their clients for accounts involving real estate, trust funds, investments, and other types of accounts.
This type of accounting follows the cash basis accounting. Cash is recorded when it is received, and disbursements and distributions are recorded when they are paid in this accounting.
I hope you understand what the 9 major types or branches of accounting are at the end of this post. If you have any confusion or would like to learn more, please leave a comment.
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