Let’s face it: You know accounting is an important part of your business. It helps you understand your business’s financial situation and plan for the future. But the truth is, there are many different types of accounting, and you might be wondering which will provide you the most benefit. 

So, what are the types of accounting? In this post, we’ll go over the different accounting types to help you understand which types of accountants your business might need. 

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1. Financial accounting

Financial accounting is a type of accounting that records, analyzes, and summarizes business financial transactions. Financial accountants create financial statements and provide information about your business’s financial health and performance to investors, customers, and creditors.

Some of their responsibilities include:

• Preparing monthly, quarterly, and annual reports
• Taking care of income statements, balance sheets, and cash flow statements 
• Giving insights on revenue and costs
• Advising businesses on investments and strategies

With financial accounting, businesses can use both accrual and cash accounting methods to determine net income. It also uses a standard set of rules, called the Generally Accepted Accounting Principles (GAAP), to make reporting consistent across periods and encourage transparency.

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2. Management accounting

Management accounting, or managerial accounting, is similar to financial accounting but focuses on creating reports and giving financial information to business managers and internal team members. Management accountants analyze the company’s financial health to help the team make better financial decisions.  

Their responsibilities include: 

• Analyzing financial records to share internally
• Supporting with budgeting and funding decisions
• Managing investment portfolios
• Evaluating the company’s performance

Management accounting helps make future projections and minimize risk by using pro forma financial statements, which use financial assumptions to measure and track financial information internally.

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3. Tax accounting

The Internal Revenue Code regulates tax accounting, helping businesses stay compliant with tax regulations, understand their tax liabilities, and avoid penalties. Tax accountants help businesses, individuals, and other organizations prepare their tax returns and make tax payments. 

Some of a tax accountant’s responsibilities include: 

• Reviewing financial statements
• Organizing financial records
• Calculating taxes and preparing tax returns
• Providing solutions to difficult tax issues

Since business tax can be more complex, using small business tax services and tax accountants can help you make tax calculations, prepare tax documents, and help you save money on taxes.

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4. Cost accounting

Cost accounting is a type of management accounting that focuses on the business’s costs. It assesses both fixed and variable costs, including production costs, materials, labor, overhead, and leases. Cost accountants analyze these expenses to provide better cost management solutions. 

Some of their responsibilities include: 

• Analyzing the business’s operating costs
• Developing cost standards for labor and materials
• Overviewing factors that affect costs
• Tracking inventory and spending

Cost accounting helps businesses make decisions to reduce costs, increase profits, and boost efficiency.

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5. Forensic accounting

Forensic accounting is a type of accounting that focuses on auditing and investigating businesses and individuals to search for cases involving fraud and embezzlement. Forensic accountants often work for law enforcement agencies and insurance companies, analyzing financial records and accounts. 

Some forensic accountant responsibilities include: 

• Analyzing and interpreting complex financial data
• Communicating findings and testifying in court
• Tracing funds and recovering assets
• Helping with fraud prevention

Businesses might look for forensic accountants if they suspect missing assets, fraud, or any other criminal activity involving their business.

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6. Public accounting

Public accounting focuses on helping a range of clients, including individuals, corporations, and small businesses, by providing services based on their needs. Public accountants may provide various services, from auditing to helping with tax returns. 

Here are some of their responsibilities: 

• Reviewing financial documents
• Preparing financial statements
• Performing auditing services
• Assisting with tax preparation and consulting

Public accountants are different from private accountants since private accountants work with one single organization, while public accountants work with a range of businesses and individuals.

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7. Fiduciary accounting

Fiduciary accounting is a type of accounting that deals with the financial transactions of an estate or a trust. Fiduciary accountants represent the beneficiary and provide information on expenditures, income, assets, and liabilities for that estate or trust. 

Some of their responsibilities include: 

• Allocating receipts and disbursements
• Protecting beneficiaries’ interests
• Preparing fiduciary accounting statements
• Maintaining records for reconciliation

Some rules and principles of fiduciary accounting will vary depending on the state and even on the county.

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8. Governmental accounting

Governmental accounting focuses on managing and budgeting local, state, and federal government departments. This accounting type follows the Governmental Accounting Standards Board (GASB) rules. 

Some governmental accountant duties include: 

• Developing accounting procedures for the government 
• Managing the allocation of resources and financial planning
• Tracking fund spending
• Helping minimize expenses

Governmental accountants are experts in providing services that serve the government’s needs. They track project funds to ensure government programs are performing as expected and give clarity on fund spending.

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9. International accounting

International accounting helps businesses that operate across borders or that want to expand their business to another country. This type of accounting follows the International Financial Reporting Standards (IFRS) and helps businesses adhere to the laws and regulations of other countries. 

Some of an international accountant’s responsibilities include: 

• Keeping track of tax rules
• Complying with the accounting standards of the country
• Preparing financial reports 
• Reviewing financial transactions

If you want to expand your business globally or work with companies in other countries, working with an international accountant can help you take advantage of opportunities overseas.

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10. Fund accounting

Fund accounting tracks how businesses allocate and spend funds across their operations. Fund accountants ensure that businesses and nonprofits use funds effectively to benefit the organization.

Some of their responsibilities include: 

• Working with limited resources
• Tracking the investment of funds 
• Reallocating funds
• Determining investment potentials

Fund accountants also have tax knowledge to ensure business tax compliance and investigate fraud to ensure investments are safe.

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11. Auditing

Auditing analyzes a business’s financial activity independently to ensure it complies with regulations and best practices. Auditors examine financial records and create audit reports. 

There are two categories of auditing: 

• Internal auditing: Accountants who work for the company will provide a business audit of their finances to improve operations and ensure compliance. 

• External auditing: Accountants who work for a third party will audit the business’s finances to review company accounts and ensure they are accurate.

There are also different types of audits that can happen, including compliance, tax, and investigative audits.

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12. Accounting information systems

Accounting information systems (AIS) use technology to collect, track, and store financial activity for accountants to use. This system allows businesses to automate accounting and create more accurate reports. 

Using AIS allows accountants to customize the platform to meet their needs and provide more accurate and secure financial information. These platforms can also integrate with other departments, like payroll and inventory management systems, to reduce manual data entry.

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What all accounting types have in common

These different types of accounting each focus on specific areas of a business or different types of business. However, they also have some things in common, including: 

• Adhering to a set of rules or standards
• Accurately reporting on the financial situation
• Providing factual analysis

No matter the type of accounting your business uses or needs, all types provide accurate information and help businesses understand their finances. 

This article originally appeared on the Quickbooks Resource Center and was syndicated by MediaFeed.org.

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