Discovering the 4 Types of Accounting
Multiple types of accounting careers exist
within the financial industry, with each performing a differing range of
functions. Branches of accounting vary based on the employment setting, range
of responsibilities and daily activities, types of available advancement, and
other factors. This article will break down various types of accounting and
their careers into four broad categories. Though different professional
accounting sources may divide accounting careers into different categories, the
four types listed here reflect the accounting roles commonly available
throughout the profession. These four branches include corporate, public,
government, and forensic accounting. An undergraduate degree is most often
required for any accounting career, while previous master’s work, especially in
the accounting field, is often strongly preferred. Below, we’ll explore the
nuances of each common area of accounting.
Corporate Accounting
Overview: According to a summary published
by AccountingTools.com, corporate accounting involves the use, handling, and
filing of a company’s financial data often for the purpose of external
reporting and tax compliance. To accomplish their role, corporate accountants
must be well apprised of certain widely held accounting methodologies to
maintain accurate records and to keep their financial and tax submissions in
compliance with appropriate rules, regulations, and standards. A few of these
common types of accounting principles, standards, and procedures include
Generally Accepted Accounting Principles (GAAP), and International Financial
Reporting Standards (IFRS) and the Internal Revenue Code (IRC).
Jobs Possible: The types of jobs in which
someone might be involved in corporate accounting often involve external
reporting. This could include working with the financial statements a
corporation or preparing their tax filings. Executive positions such as
financial controllers, analysts, and Chief Financial Officers (CFO’s) are also
considered financial accounting roles. Many traditional financial accounting
positions include managerial responsibilities.
Public Accounting
Overview: Public accountants work with
external clients, most often companies, corporations, or individuals. Their
responsibility to clients is to help ensure their financial statements,
records, and filings are accurate. Public accountants often work closely with
tax regulations and financial reporting and must maintain an up-to-date
knowledge of both GAAP and the tax code. They must also understand, and be able
to apply, industry-standard accounting frameworks and best practices. Public
accountants must possess strong problem-solving skills and attention to detail.
Excellent people skills are also key, to effectively interact with clients.
Jobs Possible: Public accounting positions
are found in public accounting firms that serve external clients. Clientele
could range from small local firms that serve individuals and small businesses
to international corporate conglomerates that serve multi-billion-dollar
companies. Public accountants can advance into management positions at a team
or company-wide level, depending on the nature of the firm. Public accounting
work can also often lead to leadership positions within their firms.
Government Accounting
Overview: Government accountants work
within the context of local, state, or federal government entities. They often
work within frameworks that differ from those employed by public accountants.
Government accountants are also often more strictly vetted, and in some
positions will be responsible for keeping privileged or confidential
information.
Jobs Possible: Government financial
professionals perform a wide range of duties. They might audit private
documentation or tax submissions, maintain the financial records of government
branches or bodies, or manage government resources. OneWire Resources, a
resource for financial professionals, warns that government positions may not
be as highly compensated as comparable positions in the private sector.
However, government positions offer certain perks and advantages that can
offset lower earning power. According to a comparison by Monster.com,
government jobs often offer substantially better educational, insurance,
healthcare, and retirement benefits than many civilian jobs.
Forensic Accounting
Overview: Forensic accounting refers to a
branch of accounting that collects, recovers, and reconstructs financial data
when it is difficult or impossible to obtain. In addition to understanding
accounting principles and practices, forensic accountants must be resourceful,
creative, and able to solve often-complex problems. A sample job listing for a
forensic accountant from the Federal Bureau of Investigation (FBI) stresses the
importance of collaboration, communication, and investigative skills. Previous
coursework in law, or related experience, is also often attractive to potential
employers in this field.
Jobs Possible: Forensic accounting
positions can vary widely. Some forensic accountants are employed by larger law
firms while others are employed by legislative entities. Government agencies
including the FBI, the IRS, and beyond also employ forensic accountants. Still,
other forensic accounting professionals prefer to be self-employed and work on
a contract basis for corporations, insurance companies, and other private
entities.
An accounting professional may choose from
a wide range of employment scenarios and desired amenities to match their ideal
career situation. Options include fast-paced positions that change often and
may feature significant travel, to more standard positions that provide stable
working conditions and responsibilities. Career choices may include roles that
require significant teamwork and interpersonal interaction to positions that are
primarily data-oriented which might require minimal outside personal contact.
Industry & commerce
The success of an industrial or commercial
concern is very much tied up with economics, i.e. budgeting, cash flow, cost
control and accounting systems.
Director, company secretary, chief
accountant, chief executive, financial adviser, management accountant and
internal auditor are just a few of the possible job titles for accountants in
industry or commerce.
Accountants in industry form an important
part of the management team. Sophisticated computer systems are widely used to
store and analyse financial information quickly and accurately.
FINANCIAL ACCOUNTING
This area is concerned with keeping records
of monetary transactions. Tasks include the setting up and supervision of a
firm’s internal audit, preparing the accounts and reports for directors,
protecting the firm’s assets and investments, and preparing share prospectuses
in order to raise new capital. Wages, salaries, taxation, expenditure and
invoices are also handled in this section.
MANAGEMENT & COST ACCOUNTING
Budgetary control, forecasting needs and
expenditure monitoring are the main tasks. The work may also include analysing
and comparing costs, explaining financial information to non-financial managers
and preparing management reports.
To cost a job, service or operation,
calculations must include a price element covering labour, materials,
machinery, buildings and fuel.
OTHER SPECIALISATIONS
Treasury management involves sophisticated
financial housekeeping; for instance, ensuring the best borrowing rates,
keeping stock-piling and debts to a minimum, streamlining invoicing procedures
and investing the firm’s money. Tax management and pension fund management can
also be separate jobs.
Accountants trained in industry and
commerce can do similar work in public services (e.g. local or national
government) or move sideways into fields such as management consultancy.
How Financial Accounting Differs From
Managerial Accounting
Financial accounting and managerial
accounting are two of the four largest branches of the accounting discipline
(tax accounting and auditing are the others). Despite many similarities in
approach and usage, there are significant differences between the two. These
differences center around compliance, accounting standards, and target
audiences.
Main Objectives of Both Accounting
Practices
The main objective of managerial accounting
is to produce useful information for a company’s internal use. Business managers
collect information that encourages strategic planning, helps them set
realistic goals, and encourages an efficient directing of company resources.
Financial accounting has some internal uses
as well, but it is much more concerned with informing those outside of a
company. The final accounts or financial statements produced through financial
accounting are designed to disclose the firm’s business performance and
financial health. If managerial accounting is created for a company’s
management, financial accounting is created for its investors, creditors, and
industry regulators.
Past and Present Use
The information created through financial
accounting is entirely historical; financial statements contain data for a
defined period of time. Managerial accounting looks at past performance and
creates business forecasts. Business decisions should be informed by this type
of accounting.
Investors and creditors often use financial
statements to create forecasts of their own. In this way, financial accounting
is not entirely backward-looking. Nevertheless, no future forecasting is
allowed in the statements.
Understanding an Accounting Method
All businesses need to keep accounting
records. Public companies are required to do so. Accounting allows a business
to monitor every aspect of its finances, from revenues to costs to taxes and
more. Without accurate accounting, a business would not know where it stood
financially, most likely resulting in its demise.
Accounting is also needed to pay accurate
taxes to the Internal Revenue Service (IRS). If the IRS ever conducts an audit
on a company, it looks at a company’s accounting records and methods.
Furthermore, the IRS requires taxpayers to choose an accounting method that
accurately reflects their income and to be consistent in their choice of
accounting method from year to year.
This is because switching between methods
would potentially allow a company to manipulate revenue to minimize their tax
burdens. As such, IRS approval is required to change methods. Companies may use
a hybrid of the two methods, which is allowable under IRS rules if specified
requirements are met.
Cash Accounting
If you’re a business owner, adopting the
cash accounting enables you to focus only on corporate transactions involving
cash. Other economic events — those with no monetary input — don’t matter
because they don’t make it into financial statements. Under the cash accounting
method, a corporate bookkeeper always debits or credits the cash account in
each journal entry, depending on the transaction. To record customer
remittances, for example, the bookkeeper debits the cash account and credits
the sales revenue account. Don’t mistake an accounting cash debit for a banking
debit. The former means an increase in company money, whereas the latter
reduces funds in a client’s account.
Accrual Accounting
Under the accrual method of accounting, a
company records all transactional data, regardless of monetary inflows or
outflows. In other words, this accounting type incorporates the cash accounting
method, but goes beyond it to take into account all transactions making up a
corporation’s operating activities. In a financial dictionary,
“accruing” means accumulating an item and recording it as legally
binding even though no cash payment takes place. The phrases “accounts
payable” and “accounts receivable” perfectly illustrate the
concept of accrual. Accounts payable — also known as vendor payables —
represent money a business owes vendors at a given point in time. The entity
accrues the payables until it settles the underlying debts. The same analysis
applies to customer receivables — the other name for accounts receivable —
which represents money clients owe a business.