Around 136,400 job openings in financial accounting are projected annually in the U.S., and that is not surprising. After all, accounting is a crucial and fundamental business function that involves all financial transactions and activities, such as classifying, recording, and summarizing relevant information to provide accurate reports. According to the United States Bureau of Labor Statistics (BLS), the employment of auditors and accountants is expected to grow by 6% from 2021 to 2031. That is why it is necessary to have a clear understanding of the types of accounting to leverage different job opportunities. Let’s dive deeper into the importance of accounting, its different types, and the career paths you can follow in this field.
Why is Accounting Important?
Accounting is important because it plays a significant role in the functioning of different organizations, businesses, and governments. Here is a breakdown of points that will further help you understand the relevance of accounting.
Accounting is responsible for maintaining accurate records of financial transactions. It ensures compliance with laws and regulations, and provides a clear picture of the company’s financial status. It also helps ensure that a company can effectively manage its finances and make informed business decisions.
Planning and Budgeting
Accounting information is used to develop plans and budgets for the future. It helps businesses identify their strengths and weaknesses and make informed decisions while investing their resources.
The process also helps forecast and allocate financial resources to achieve organizational goals. It involves comparing actual results with the budget results and addressing the variances to overcome loopholes.
Accounting provides relevant financial information to accurately calculate and report taxes. It aids in tax compliance that involves the process of meeting all legal requirements for paying taxes to the government authorities.
The financial information can be used to make important business decisions about revenue, expenses, and investments. It allows managers to identify opportunities for growth and improvement, and make strategic decisions about resource-allocation.
The Different Types of Accounting
Accounting is a broad field, and you can choose from a variety of options based on your interests and career goals. The most common types of accounting include:
Financial accounting records and monitors transactions through relevant statements.
- Financial accountants prepare financial statements such as balance sheets, income, and cash flow statements to perform this type of accounting.
- The process is conducted as per the Generally Accepted Accounting Principles (GAAP) rules set by the Financial Accounting Standards Board (FASB).
- The primary importance of financial accounting is to provide an authentic overview of company performance to attract investors and stakeholders from outside the organization.
- Accrual: All costs should be recorded as incurred instead of linking the costs to cash flow.
- Full disclosure: The company’s financial reports must contain all pertinent information.
- Conservatism: All liabilities and expenditures should be declared as soon as possible.
2. Government Accounting
Government accounting aids in recording, analyzing, and interpreting financial transactions of the local, state, and federal governments.
- This accounting type involves complying with the rules set by the Governmental Accounting Standards Board (GASB) for local and state governments.
- For the federal government, the policies are set by the Federal Accounting Standards Advisory Board (FASAB).
- A government accountant keeps track of public funds entering government accounts and makes necessary adjustments to the government’s budget proposal for efficient fund allocation.
- System of accounting: The single-entry accounting system is typically used in government accounting to calculate the balance.
- Classification of expenses and revenue: To comply with regulations as set by GASB and FASAB, expenses and revenues for services must be classified under different subheads.
3. Cost Accounting
Cost accounting refers to the process of determining the net cost generated by an organization after evaluating all of the company’s assets and obligations.
- The primary aim of cost accounting is to identify key business areas where costs can be reduced to increase profitability.
- Cost accountants are responsible for analyzing costs, developing cost estimates, and creating budgets.
- By monitoring variable and fixed costs, these professionals align the final output with the cost to produce the product.
- Charge of cost only after its incurrence: The unit cost should reflect expenditures that have actually been made. For instance, while an item is being produced, unit costs should not be included in selling costs.
- Unusual costs should be excluded from cost accounts: All costs incurred for unusual reasons (such as theft or negligence) shouldn’t be taken into account when calculating the unit cost.
Public accounting refers to the practice of offering accounting, taxation, and audit consultancy services to different clients such as individuals, commercial businesses, and government agencies.
- The goal of providing public accounting services is to ensure transparency and accuracy of the client’s financial statements.
- Public accountants must clear the Certified Public Accountant (CPA) examination to obtain the license needed to practice public accounting in the U.S.
- Going concern concept: If the financial reports are prepared by adhering to the principle of going concern, then businesses can continue to function for a limited time period, usually 12 months from the start of operations.
- Matching principle: This governs how expenses and revenues are reported and reflected in the same financial statements.
5. Tax Accounting
Tax accounting refers to the process of preparing tax returns and ensuring compliance with tax laws and regulations for businesses.
- Tax accounting differs from other types of accounting in the sense that it takes government credits, revenue, and deductions into account when calculating a company’s taxable income.
- Taxable income is always fluctuating and is primarily dependent on the company’s revenue.
- The primary responsibility of tax accountants is to ensure that businesses remain compliant with the Internal Revenue Code (IRC) while filing tax documents annually.
- Consistency in accounting standards: Proper consistency in accounting methods should be maintained for all taxpayers.
- Tax-related transactions: This ensures that all transactions that are taken into consideration are tax related.
- Government-regulated year of assessment: The year of assessment to be followed while filing tax documents is set forth by the government.
6. Managerial Accounting
Managerial accounting involves providing financial information to internal stakeholders, such as managers and employees, to help them make informed decisions.
- The primary responsibility of managerial accountants is to analyze and create a budget to meet the short- and long-term goals of the organization.
- They also monitor the past financial performance of the company in order to make predictions about future performance.
- Principles of analogy: This principle offers insights that help make forecasts and business-related decisions.
- Principle of casualty: Model business expenditures based on the relationship between the input and output of the resources used to create products and services.
7. Forensic Accounting
Forensic accounting refers to the process of investigating the financial records of individuals and companies.
- The goal of forensic accounting is to compile all relevant financial documents to accurately and comprehensively account for all transactions in financial statements.
- Detect financial fraud and resolve disputes related to situations such as divorce, money laundering, and gambling.
- Independence and neutrality: A professional in forensic accounting must be independent and unbiased in appearance and mentality.
- Integrity and objectivity: They must be accurate, ethical, and fair in all decisions.
Auditing is essentially a financial check-up where an auditor investigates the financial records of a business.
- The primary goal of auditing is to ensure that all the financial records of a business are accurate and compliant with applicable regulations.
- The benefit of conducting audits is that it provides investors reasonable confidence in a company’s honesty and integrity
- Audit evidence: It is the auditor’s duty to compile enough information to back up their conclusions in the audit report.
- Confidentiality: Auditors must maintain confidentiality if they encounter sensitive information about organizational finances and clients during the auditing process.
Career Paths in Accounting
Some of the most common career paths in accounting include:
1. Staff Accountant
Staff accountants are responsible for performing routine accounting tasks, such as preparing financial statements, reconciling accounts, and filing tax returns. They can work in-house at a private company or a public accounting firm.
Average annual remuneration: $60,134
2. Financial Analyst
Financial analysts implement accounting standards to help businesses make informed decisions. They can work in-house at a company or at a financial institution and specialize in areas such as budgeting, forecasting, or investment analysis.
Average annual remuneration: $76,605
3. Audit Manager
Audit managers are responsible for leading teams of auditors in performing independent financial audits. They can work at a public accounting firm or at the internal audit department of a business.
Average annual remuneration: $114,779
4. Financial Controller
Financial controllers are responsible for the overall financial management of a business or organization. They manage budgets, financial planning, and financial reporting.
Average annual remuneration: $136,935
5. Chief Financial Officer
Chief Financial Officers (CFOs) are responsible for designing the financial strategy of an organization. They conduct financial planning and analysis, budgeting, and financial reporting.
Average annual remuneration: $176,329
6. Tax Professional
Tax professionals are responsible for preparing and filing tax returns and ensuring compliance with tax laws and regulations. They work in-house at a business, at a public accounting firm, or as self-employed consultants.
Average annual remuneration: $43,145
7. Forensic Accountant
Forensic accountants use accounting and financial analysis techniques to detect and investigate financial fraud. They work in-house at a business, at a public accounting firm, or as part of a government agency.
Average annual remuneration: $67,952
Note: All salaries are specific to the U.S.
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Accounting is a dynamic field, and professionals need to be willing to continuously learn new skills. Enroll in Emeritus’ wide range of online finance courses, offered in association with top global universities, to upgrade your knowledge of key financial concepts and stay at the top of your field.
By Rupam Deb
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