Types of Accounting Overview

Types of Accounting

• Financial Accounting focuses on providing financial statements to external parties, ensuring accurate reflection of transactions.
• Management Accounting focuses on providing internal financial information to management for decision-making and business improvement.
• Cost Accounting falls under Management Accounting and focuses on company operating expenses, analyzing different costs like fixed and variable.
• Tax Accounting focuses on tax-related activities, preparing tax returns, analyzing them, and managing tax payments.
• Auditing provides an independent assessment of a company's financial activities, ensuring compliance with rules and standards.
  • Internal Audits assess a company's accounting methods, identify resource wastage, and minimize fraud risk.
  • External Audits confirm compliance with GAAP by reviewing a company's official financial statements.
• Forensic Accounting investigates inconsistencies and fraudulent actions, using a combination of auditing, accounting, and investigative expertise.
• Governmental Accounting ensures transparency and responsibility in managing public funds by focusing on the financial activities of government bodies.
• International Accounting deals with applying specific accounting standards to a company's finances abroad, considering currency exchange variations and global tax matters.

Fundamentals: Revenue Recognition Principle

• Businesses should record revenue when it is generated, ensuring accurate representation of financial reality.
• This principle helps stakeholders make informed decisions and ensures compliance with GAAP and legal requirements.

Fundamentals: Common Terminologies

• Accounting Period: A specific timeframe (month, quarter, or year) used to record financial transactions and prepare financial statements.
• Revenue: The money a business earns from sales during an accounting period, calculated by subtracting costs from total revenue.
• Financial Position (Balance Sheet): Shows a business's assets, liabilities, income, and overall value (equity).
• GAAP (Generally Accepted Accounting Principles): Guidelines for preparing and presenting financial statements correctly, utilizing double-entry accounting.
• Double-Entry Accounting: A method of recording financial information where every transaction has a debit and credit entry, helping calculate profits and losses.
• Income Statement: Shows a business's income, expenses, and profits during an accounting period, for performance analysis and improvement identification.
• Balance Sheet: Shows a business's assets, liabilities, and equity, assessing financial stability.
• Debt: The amount a business owes (loans or credit cards), late payments can have consequences.
• Expenses: Costs associated with running a business (advertising, rent, etc.). Fixed expenses stay the same, while variable expenses change based on business activity.
• Profit and Loss Statements: Measure a business's profitability, calculated by subtracting expenses from total revenue.

Fundamentals: Cost Principle

• Businesses should record financial transactions at their original price, unchanged despite changing circumstances.
• This applies to all business assets.
• It provides a simple and accurate record.

Fundamentals: Common Terminologies

• Tangible assets: Physical items a business owns, like cash, property, and equipment.
• Intangible assets: Non-physical assets a business owns, like ideas and financing.
• Market value: The estimated worth of an asset on the open market.
• Bank reconciliation: Matching bank statements and financial records to ensure accurate transaction recording.

Fundamentals: Matching Principle

• Expenses should be recorded in the same period as the associated revenue, ensuring accurate profit representation and preventing manipulation.

Fundamentals: Common Terminologies

• Net income: What's left after deducting expenses from total income, used to assess business health.
• Return on assets ratio: Measures how well assets are used to generate income, calculated by dividing net income by total assets.
• Return on equity ratio: Shows business profitability, calculated by dividing net income by shareholder's equity.
• Shareholder's equity: The portion of a business's assets belonging to shareholders.
• Common Shares: Ownership of a business, giving holders a portion of profits and assets.
• Preferred Shares: Ownership of a company, holders receive a fixed dividend rate of profit before common stockholders.
• Price-to-Earnings Ratio (P/E Ratio): Compares share cost to earnings, calculated by dividing share price by earnings per share (EPS).
• Earnings Per Share (EPS): Shows a business's financial performance, calculated by dividing total earnings by outstanding shares.

Fundamentals: Full Disclosure Principle

• Important financial information should be shared with stakeholders, regardless of its nature, ensuring accurate and timely disclosure.
• This applies to public company filings and internal financial statements.

Fundamentals: Common Terminologies

• Public company filings: Official documents submitted by businesses, including reports detailing performance.
• Inventory valuation: How businesses determine the market value of their inventory.
• Depreciation: How businesses spread the cost of assets over their lifetime.

### Fundamentals: Objectivity Principle

• Financial statements should be based on objective evidence, ensuring accuracy and fairness.
• This prevents manipulation and ensures all changes are documented.

Fundamentals: Common Terminologies

• Objective evidence: Evidence based on verifiable facts.
• Subjective evidence: Evidence based on opinion, not verifiable.

Explore the various branches of accounting including Financial, Management, Cost, Tax, Auditing, and Forensic Accounting. This quiz will test your knowledge on the functions and importance of each type, helping you understand the essential roles they play in business. Perfect for students or professionals looking to refresh their knowledge.