Introduction
The measuring, processing, and sharing of financial and non-financial information regarding economic entities like enterprises and corporations is known as accounting, also known as accountancy. Accounting, sometimes referred to as the "language of business," is used to quantify the outcomes of an organisation's economic actions, and this data is shared with a variety of stakeholders, including investors, creditors, managers, and regulators. Accounting is a profession practised by accountants. Accounting and financial reporting are commonly used interchangeably.
Different types of Accounting
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The different categories of accounting are-
1. Financial Accounting
The main focus of financial accounting is the dissemination of financial data about an organisation to external customers, including creditors and investors and potential investors. It uses generally accepted accounting principles (GAAP) to compute, record, and produce financial statements for external users. GAAP is created as a result of the broad agreement between accounting theory and practise, and it changes throughout time to meet the needs of decision-makers. Financial accounting generates past-oriented reports on an annual or quarterly basis, typically pertaining to the entire organisation. For instance, financial statements are frequently released six to ten months after the end of the accounting period.
2. Management accounting
The focus of management accounting is on the measurement, analysis, and reporting of data that might assist managers in reaching organisational objectives. In management accounting, internal metrics and reporting are not required to follow generally accepted accounting standards (GAAP), but rather are centred on cost-benefit analysis. CIMA developed the Global Management Accounting Principles (GMAPs) in 2014. The principles, which are the result of research from 20 nations across five continents, are meant to guide the best practice in the field. In addition to past-focused reports with a variety of time horizons, management accounting also includes future-focused reports like budgets.
3. Information systems
An organisation's information system may include an accounting information system that processes accounting data. Artificial intelligence-based information systems are commonly used in commercial settings. To find fraud, AI is employed in the banking and finance industries. AI is used in the retail sector to improve customer service. In the field of cybersecurity, AI is also utilised. It uses statistical and modelling- based computer hardware and software systems. Accounting computer-based software has helped to streamline many accounting procedures. Large organisations frequently employ an enterprise resource planning (ERP) system because it happens to offer a thorough, centralised approach.
The Bottom Line
Accounting has evolved significantly over the course of human history, both in terms of form and level of competence. The double-entry accounting method, which is still in use today, is generally attributed to the Italian mathematician and Franciscan friar Luca Pacioli. This system was developed in mediaeval Europe, particularly in Venice. Accounting organisations like standard-setters, accounting firms, and professional bodies help to make accounting easier today. Generally Accepted Accounting Principles (GAAP) are used to create financial accounts, and these financial statements are then audited by accounting firms.