To track and measure the finances of a company, businesses mainly use eight branches of accounting. Each branch of accounting has its own functions, uses, and theories that allow accounting personnel to get a better insight into the financial status of a business. You will also need to understand different accounting branches to ensure the success of your business and ensure its viability in the long term.
In this article, you will learn about the branches of accounting and why it is important for businesses to get an understanding of the accounting branches. Then, we will discuss the major branches of accounting, along with useful information about each branch. Hence, to learn more about the branches of accounting, read on through to the end of the article.
Branches Of Accounting – A General Overview
According to Indeed.com,
“Because of the increase of global business and the expansion of tax laws and regulations, accounting evolved to expand its branches and develop specialties in a particular area of finance. Developments in technology and the exchange of international currencies result in the expansion of accounting specialties that place their focus on a particular economic interest.”
Hence, it is important for businesses to understand the different branches of accounting. Having a thorough grasp of accounting will help the business ensure long-term success and viability of the business. Furthermore, if you want to familiarize yourself with various branches of accounting.
Although the business can use various accounting methods, it is important to become well-versed in particular types of accounting.
Branches Of Accounting – Why Are They Important?
According to Business News Daily,
“While having a strong handle on your business’s finances is important, the methods you use to track your expenses and income may differ from how other small businesses conduct their accounting. While you might use different accounting methods, it is important to be well-versed in the particular types of accounting should the need ever arise.”
You have to understand here that not all forms of accounting are the same. While some focus on costs, others focus on taxes, audits, etc. Accountants in businesses need to be specialized in one branch and carry on the job based on specialization. Moreover, a business also focuses on hiring those accountants who can work with the chosen accounting method of the business.
What Are The Major Branches Of Accounting?
According to Early Growth Financial Services,
“Accounting is meant to serve the public interest by reporting a firm’s financial situation accurately. Even though all of these branches of accounting focus on different aspects of business or even different types of businesses, they all adhere to facts, follow specific standards, and follow ethical processes.”
There are eight major branches of accounting. Let’s take a look at each of them in detail:
1. Financial Accounting
All the business transactions of a company are recorded and summarized in financial statements. This process is called financial accounting. In addition to that, the components include the income statement, balance sheet, cash flow statement, and retained earnings statement.
2. Cost Accounting
In cost accounting, the job of the accountant is to analyze, evaluate, and report all the costs of the company, both variable and fixed costs. All these costs are mostly due to the production and manufacturing of a product or service. Based on the situation, cost accounting can be of many types.
3. Auditing Accounting
The auditing of the finances of a business is done by the Internal Revenue Service (IRS). In this case, the job related to the accounting process is the objective evaluation and examination of the financial statements of the business. This is to check whether all the financial information is correctly reported or not.
4. Managerial Accounting
In this case, the job of the accountant is to identify, measure, analyze, interpret, and communicate the financial information of the business to the management. The goal is to maximize profits and prevent losses. This financial information allows managers and business authorities to make better decisions in the business.
5. Tax Accounting
Here, the accountants focus more on taxes rather than public financial statements. This type of tax accounting is more focused on transactions that impact the tax burden of the business and how those transactions relate to tax calculation and preparing tax documents. Here, the accountants follow the rules set in the IRC by the Internal Revenue Service (IRS).
6. Accounting Information Systems
This is a computer-based method that businesses use to track accounting activities combined with technology resources. With the help of AIS, businesses collect, store, process, manage, retrieve, and report financial data for the use of accountants and other experts. The components of an AIS include computer hardware, software, telecommunication system, database & data warehouse, and human resources & procedure.
7. Fiduciary Accounting
In this case, the accounting expert records transactions that are mostly in connection to a trust or real estate. The recording is on the basis of cash. When cash is received, it is recorded, and when it is paid, it is recorded as disbursement. The business then provides such information to beneficiaries and courts.
However, the rules of fiduciary accounting can be different from different states and can even vary with respect to counties.
8. Forensic Accounting
Here, the expert combines accounting, auditing, and investigation skills to evaluate the business’s finances or the finances of an individual entity. Forensic accountants make financial evidence reports, and they communicate these reports with presentations for legal proceedings. You will mainly find these types of accounting processes during financial crimes and frauds.
If you do not have a thorough idea of your business’s financial situation, you will not be able to make your business grow, and things will worsen fast. Once you adhere to one of the branches of accounting (methods), you will be able to ensure transparency in your business. You can then guarantee that your books are clear and accurate, thus enabling you to make decisions better.
One of the best ways of streamlining your accounting process will be to make use of accounting software systems. This will ensure you make your accounting processes faster. Do you have any more information to add regarding the branches of accounting? Share them with us in the comments section below.