To the layman, accounting is simply about counting and recording figures as well as to catch a thief in an organization. However, accounting is broader than the above. Every business needs accounting records. These records can be utilized by various accounting branches handled by different accountants in an organization.
Types of accounting
There are various types or branches of accounting. These are:
- Financial accounting
- Cost accounting
- Performance Management accounting
- Fiduciary accounting
- Government accounting
- Tax accounting
- Investment accounting
- Accounting information system
- Financial data analysis
- Personal finance
Explanations of each type (branches) of accounting
Financial accounting: When talking about accounting, in general, we are referring to financial accounting. This is a branch of accounting that deals with collecting, recording, organizing, presenting, analyzing financial records of a business to help users make decisions.
Financial accounting is more of preparing financial statements based on the accounting data of the organization in question. It also includes interpreting this information for users to make informed economic decisions.
Cost accounting: This is a branch of accounting that deals with the cost of items. It is mostly used by manufacturing organizations to calculate the cost of production. E-commerce businesses can use cost accounting knowledge to estimate the price at which goods are sold online.
Banks and other service firms are keying on costing information to help their organizations make more profit.
Performance management accounting: Previously known as management accounting. It a superset of cost accounting. Most persons working as a cost accountant report directly to a management accountant.
Performance management, therefore, is a branch of accounting dealing with the planning, budgeting, and other performance measures that help the management makes quality decisions regarding its products, employees, and shareholders. It is in performance management that future cost is put into quality usage.
Fiduciary accounting: As the name implies, this is a type of accounting concerns with trust. It involves keeping records of properties including the custodian of it, for a beneficiary. At the death of the benefactor, the properties are safely transferred to the beneficiaries.
For example, a father may ask a bank to be a custodian of his particular properties until when his child is of age to handle such physical assets or it of a person who died testate. The properties of the deceased will be accounted for through accounting procedures and be transferred to the beneficiaries.
Government accounting: Also known as public sector accounting is a branch of accounting for the preparation and presentation of financial data of government to interested users. Government accounting is based on a cash basis or a modified cash basis.
Auditing: Auditing is an aspect of accounting that examines financial records of an organization to know if such transactions are in accordance with accounting principles and standards usually referred to as GAAP (Generally Acceptable Accounting Standard). During the course of their duty, they may end up detecting fraud within the organization. However, it is not the primary duty of an auditor to detect fraud.
Auditing has various types. There is auditing for government, external auditing, internal auditing of each private firm, system auditing, and forensic auditing. The major job of forensic auditing is to detect fraud.
Tax Accounting: This is one area of accounting, I personally love. This doesn’t mean I am not interested or have knowledge of other areas of accounting. Tax accounting is a branch of accounting that deals with the computation of tax returns of each individual and businesses and remitting same to the relevant tax authority.
Tax accounting is an important branch of accounting. This is so, as tax is a compulsory levy paid to the government of the country by its citizens either natural or corporate citizens.
Investment accounting: This is what is called financial management. However, to my knowledge, financial management is a broad field and cut across all branches of accounting stated above and below. This type of accounting is concerned with a mutual fund, hedge fund, ETFs, real estate, and other types of investment.
Records are kept, presented, and analyzed to potential and actual investors. These investors use such information to make decisions that may affect their hard-earned money.
Accounting information system (AIS): The advancements in technology resulted in two new accounting field, AIS, and financial data analysis. The accounting information system is the process of setting up an accounting system of a business using technology and the management of such a system. The process encompasses designing, installing, implementing, monitoring of accounting procedures of that business.
Financial data analysis: Financial data analysis is the use of Microsoft Excel, Python, and programming language to analyze the financial data of a firm. This is a new area of accounting and it is undergoing the process of becoming a field of study.
Personal Finance: Personal finance is the application of accounting knowledge in an individual’s culture. This is not taught in the four walls of schools, colleges, and universities. However, the way each person handles his or her finances is a replica of what he or she will become in the future.
Personal finance expert helps those who want their money to work and provide passive income. Knowledge of budgeting, saving, and investment is the core aspect of personal finance.
I have analyzed most areas of the types and branches of accounting. Nonetheless, in schools, the branches of accounting are financial accounting, cost accounting, management accounting, public sector accounting, auditing, financial management, and tax.
Next, the professional bodies in accounting you can become a member to pursue a career in accounting.