Accounting is the recording, summarizing, analyzing, and reporting of a business’s financial transactions. This is a crucial component of any business as it plays a key role in decision-making and measuring economic performance. The concise financial statements an accountant produces determine the price of products and services, cut down on spending, gauge cash flow, and more.
Who are Accountants?
Given the high importance of accounting in a business, they often hire a team of accountants to manage all accounting functions. Accounting careers vary greatly depending on the industry and the individual’s focus within the accounting profession. Most qualified accountants have at least a bachelor's degree in accounting and are certified in their niche area.
Types of Accounting
There are many different types of accounting, but let’s explore the main three: financial accounting, managerial accounting, and cost accounting.
- Financial Accountingis tracking and recapping each transaction into monthly, quarterly, and yearly financial statements. These are shared with management, who conducts financial analysis to understand the business’s overall performance and shares it with stakeholders.
- Managerial Accountingis similar to financial accounting. In managerial accounting, the financial data is produced and organized to drive critical business decisions. In addition, little to no analysis used in managerial accounting is shared with stakeholders – it is generally only seen by management.
- Cost Accountingassists businesses when making decisions considering all the different costs that go into the production of their products. This helps to determine how much the product should cost consumers to purchase while maximizing the profit the business generates. Unlike financial and managerial accounting, money is an economic factor rather than a measure of business performance.
Takeaways
- Accounting involves recording, managing, and analyzing financial information and is a vital component of any business.
- Accountants manage the accounting functions within the business.
- Financial, managerial, and cost accounting are the main types of accounting and play a key role in guiding decision making.
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