The 12 Branches of Accounting: Their Uses and How They Work (2022)

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October 26, 2022

The 12 Branches of Accounting: Their Uses and How They Work (1)

There are twelve types of financial accounting. Each branch has come about thanks to technological, economic or industrial developments. And each has its own specialized use.

Accountants tend to specialize in one branch.

Some of these branches of accounting are important to small businesses. Their usefulness will be noted below, as applicable.

In this article, we’ll cover:

  • Financial Accounting
  • Cost Accounting
  • Auditing
  • Managerial Accounting
  • Accounting Information Systems
  • Tax Accounting
  • Forensic Accounting
  • Fiduciary Accounting
  • Government Accounting
  • International Accounting
  • Fund Accounting
  • Political Campaign Accounting

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals. And cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

1. Financial Accounting

Financial accounting involves recording and categorizing transactions for businesses. This data is generally historical, meaning it’s from the past.

It also involves generating financial statements based on these transactions. All financial statements, such as a balance sheet and an income statement, must be prepared in a certain way. This tends to be according to the generally accepted accounting principles. These are known as GAAP for short.

Public companies have to follow a set of rules set out by the government (this is the Securities and Exchange Commission in the U.S.).

Financial accounting is performed to conform to external regulations. It is not for internal employees to analyze and make financial decisions— managerial accounting is used for this purpose.

2. Cost Accounting

Cost accounting is considered a type of managerial accounting.

Cost accounting is most commonly used in the manufacturing industry, an industry that has a lot of resources and costs to manage. It is a type of accounting used internally to assess a company’s operations.

Cost accounting concerns itself with recording and analyzing manufacturing costs. It looks at a company’s fixed (unchanging and constant costs, like rent) and variable costs (changing costs, like shipping charges). Then it looks at how they affect a business, and how these costs can be better managed, according to Accounting Tools.

(Video) Different Branches of Accounting

3. Auditing

There are two types of auditing: external and internal auditing. In external auditing, an independent third party reviews a company’s financial statements. This is to make sure they are presented correctly and comply with GAAP.

Internal auditing involves evaluating how a business divides up accounting duties. As well as who is authorized to do what accounting task and what procedures and policies are in place.

Internal auditing helps a business zero in on fraud, mismanagement and waste. It also identifies and controls any potential weaknesses in its policies or procedures.

4. Managerial Accounting

Also known as management accounting, this type of accounting provides data about a company’s operations to managers.

The focus of managerial accounting is to provide data. This is what managers need to make decisions about a business’s operations, not comply strictly with GAAP.

Managerial accounting includes budgeting and forecasting and cost analysis. As well as financial analysis, reviewing past business decisions and more.

Cost accounting is a type of managerial accounting.

FreshBooks has simple online accounting software for small businesses. This makes it easy to produce these reports.

5. Accounting Information Systems

AIS concerns itself with everything to do with accounting systems and processes. This involves their construction, installment, application, and observation. This can include accounting software management. As well as the management of bookkeeping and accounting employees.

6. Tax Accounting

Tax accounting involves planning for tax time and the preparation of tax returns. This branch of accounting aids businesses to be compliant with regulations set up by the IRS.

Tax accounting also helps businesses figure out their income tax and other taxes and how to legally reduce their amount of tax owing. Tax accounting also analyzes tax-related business decisions and any other issues related to taxes.

7. Forensic Accounting

This specialized accounting service is trending in accounting and is becoming increasingly popular. Forensic accounting focuses on legal affairs. Such as inquiry into fraud, legal cases and dispute and claims resolution.

Forensic accountants need to reconstruct financial data when the records aren’t complete. This could be to decode fraudulent data or convert a cash accounting system to accrual accounting. Forensic accountants are usually consultants who work on a project basis.

8. Fiduciary Accounting

This branch of accounting centers around the management of property for another person or business. The fiduciary accountant manages any account and activities. This is specifically related to the administration and guardianship of property.

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Fiduciary accounting covers estate accounting, trust accounting, and receivership. This is the appointing of a custodian of a business’s assets during events such as bankruptcy.

9. Government Accounting

Government accounting, also known as public accounting, handles any state and federal fund allocation and disbursement. This can range anywhere from social accounting and the measure of cost to humans, to climate change or the use of welfare funds.

Government accounting tracks the movement of money through a number of different agencies and makes sure that budgets are kept to or met.

A government accountant may work in state or federal programs such as housing, education or healthcare.

10. International Accounting

The need for international accounting expands alongside growth within international markets. This branch of accounting then serves to learn about the laws and regulations in other countries. So that there is a fair and honest cross of information.

International accountants follow GAAP. But they are also well versed in International Financial Reporting Standards (IFRS).

11. Fund Accounting

A fund accountant will work with non-profit organizations. They will make sure that any funds that are taken in are handled correctly and accurately. They will work according to company policy, or in accordance with the laws that govern NPOs.

Fund accounting tends to be used by:

  • Charities
  • Churches
  • Educational institutions
  • Hospitals
  • Government agencies
  • Clubs

12. Political Campaign Accounting

The political campaign branch of accounting oversees the development and implementation of the finance systems. This is within a political campaign.

This could include transaction accounting or monitoring donations. With the aim of ensuring compliance with state and federal laws. It is practiced in local, state, or nationwide political races.

People also ask:

  • What Are the Three Types of Accounting?
  • What Are the Two Types of Accounting?

What Are the 3 Types of Accounting?

Though there are 12 branches of accounting in total, there are 3 main types of accounting. These types are tax accounting, financial accounting, and management accounting.

Management accounting is useful to all types of businesses and tax accounting is required by the IRS. Financial accounting is only relevant to larger companies.

Tax Accounting

In this type of accounting, all records and reports are made according to regulations established by the tax authorities.

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Small businesses can hire a specialized tax accountant. They are charged with making sure the accounting records are IRS-compliant. As well as who transfers that information to the business tax return.

The IRS requires that businesses use one accounting system and stick to it (see below for an exception). Whether they use the cash or accrual method determines when they report revenue and expenses.

Financial Accounting

Financial accounting is performed with potential lenders and investors in mind, as well as GAAP.

Using this standard accounting method helps investors and lenders get an accurate read on a business’s financial health. This is if a company is looking to finance a new purchase or venture.

It also helps businesses be transparent by reporting management’s income.

That said, small businesses usually aren’t required to use GAAP and its accrual method. Any business that makes, buys, or sells products must use GAAP, according to the IRS.

Larger businesses often employ accountants in-house. This is to help them comply with these standard accounting principles.

Management Accounting

This category of accounting doesn’t follow GAAP. But it does follow standard accounting practices taught in accounting school.

The focus here is on generating financial statements like budgets, and product costings. As well as cash flow projections, and business acquisition analysis reports.

Standard reports like balance sheets, profit and loss statements, and cash flow statements are key. They are generated in a way to help managers analyze past decisions and plan for the future.

Small businesses may only use cash projections. Larger companies, especially manufacturers, will use many more reports.

What Are the 2 Accounting Methods?

There are 2 accounting methods: Cash and accrual. Most small businesses can use either method. Businesses that are corporations or have gross revenue over $5 million per year are required to use the accrual method, according to the IRS.

Cash Method

The cash accounting method is the simplest method. When money comes in, revenue is recorded. When money goes out, an expense is recorded, according to the Houston Chronicle.

Accrual Method

In accrual accounting, revenue is recorded when it’s earned, not when money actually comes in. A company can perform a service and bill the client. Even if the client hasn’t paid yet, revenue is still recorded in the books.

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Expenses are matched to revenue in accrual accounting, meaning they’re recorded at the same time as revenue. So if a house painter has to buy paint for a job, the total income for the job and the cost of the paint are recorded in the books at the same time. It doesn’t matter exactly when the paint was purchased.

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FAQs

What are the branches of accounting explain briefly? ›

What Are the 3 Types of Accounting? Though there are 12 branches of accounting in total, there are 3 main types of accounting. These types are tax accounting, financial accounting, and management accounting. Management accounting is useful to all types of businesses and tax accounting is required by the IRS.

What is the importance of knowing the different branches of accounting? ›

Accounting branches measure, process, and transmit financial and non-financial data that impact a company's economic interests and relationships. The majority of organizations and enterprises use branches of accounting to measure the outcomes of their economic activities.

What are the 12 accounting concept? ›

: Business Entity, Money Measurement, Going Concern, Accounting Period, Cost Concept, Duality Aspect concept, Realisation Concept, Accrual Concept and Matching Concept.

How many types of accounts are there explain with proper example? ›

3 Different types of accounts in accounting are Real, Personal and Nominal Account. Real account is then classified in two subcategories – Intangible real account, Tangible real account. Also, three different sub-types of Personal account are Natural, Representative and Artificial.

Which branch of accounting is best? ›

Management Accounting

Management accountants help crucial decision-making in business, by providing detailed economic information.

What are the different objectives of accounting explain each one of them? ›

To keep Systematic Records

The main objective of accounting is to keep a systematic record of financial transactions which helps the users to understand the day to day transactions in a systematic manner so as to gain knowledge about overall business.

How many types of branches explain? ›

These branches are located outside the country. They are operated in the foreign country which has a different currency and, as such, question of rate of exchange will arise. These branches may be of: (i) Dependent Branch or (ii) Independent Branch depending on the method of accounting.

What are the branches of accounting explain the difference between financial accounting and cost accounting? ›

Cost Accounting refers to that branch of accounting which deals with costs incurred in the production of units of an organization. On the other hand, financial accounting refers to the accounting concerned with recording financial data of an organization, in order to exhibit exact position of the business.

Why accounting is important in our daily life? ›

It can be used in our daily lives because it maintains and expands the financial health of a business. Accounting plays an important role in running a business because it helps you track financial income and expenditures, management, and ensure statutory compliance which can be used in making business decisions.

Which purpose of accounting is most important? ›

The main goal of accounting is to record and report a company's financial transactions, financial performance, and cash flows. Accounting standards improve the reliability of financial statements.

What are the objectives of accounting for Class 12? ›

Objectives of Accounting

Accounting facilitates the systematic management of the records of the transaction and other financial data. It gives an idea about the chances of profitability or failure or losses. The process assists the management by helping them to make the best decisions.

What are the functions of accounting class 12? ›

The functions of accounting include the systemic tracking, storing, recording, analysing, summarising and reporting of a company's financial transactions.

Which type of account is cash? ›

A cash account is a type of brokerage account that requires that all transactions be payable in full on the settlement date with available cash.

What are the types of accounts and explain each rule of accounts? ›

Golden rules of accounting
Type of accountGolden rules
Real accountDebit what comes in Credit what goes out
Personal accountDebit the receiver Credit the giver
Nominal accountDebit the expenses or losses Credit the income or gain
12 Aug 2020

What type of account is salary account? ›

By definition, a Salary Account is a type of Savings Account, in which the employer of the account holder deposits a fixed amount of money as 'salary' every month. Who can open a Salary Account? A business (employer) has to tie-up with a bank to open Salary Accounts for its employees.

Who is father of accounts? ›

Luca Pacioli, was a Franciscan friar born in Borgo San Sepolcro in what is now Northern Italy in 1446 or 1447.

Which type of accounting is easier? ›

Of all three accounting methods, cash-basis accounting is the easiest. Because of its ease of use, many small businesses prefer this method for their bookkeeping.

What is the richest type of accountant? ›

Find out about the Top 10 Highest Paying Accounting Careers and what they do.
  • 1) Financial Controller.
  • 2) CMA (Certified Management Accountant)
  • 3) Chartered Accountant.
  • 4) Bank Branch Manager.
  • 5) CGA (Certified General Accountant)
  • 6) Senior Accountant.
  • 7) Financial Analyst.
  • 8) Credit Supervisor.
31 Oct 2022

What are the main functions of accounting explain each function in detail? ›

The main functions of accounting are to store and analyze financial information and oversee monetary transactions. Accounting is used to prepare financial statements for a company's employees, leaders, and investors. Accounting also functions to ensure the payment of funds into and out of a company.

What do you mean by accounting principles explain its main characteristics? ›

What Are Accounting Principles? Accounting principles are the rules and guidelines that companies and other bodies must follow when reporting financial data. These rules make it easier to examine financial data by standardizing the terms and methods that accountants must use.

How do you solve a branch account? ›

Branch Account is debited with the opening balance of cash and further sum sent by Head Office to Branch. At the closing time, Branch Account is credited with the closing balance of Petty Cash. Thus, the petty expenses are automatically charged to Branch Account.

What is the use of branches? ›

A branch represents an independent line of development. Branches serve as an abstraction for the edit/stage/commit process. You can think of them as a way to request a brand new working directory, staging area, and project history.

What are the branches answer? ›

Legislative, Executive, Judicial.

Which branch of accounting is most concerned with the collection of detailed financial data for use in planning and control decisions of an entity? ›

Managerial accounting involves the presentation of financial information for internal purposes to be used by management in making key business decisions. Techniques used by managerial accountants are not dictated by accounting standards, unlike financial accounting.

Why accounting is divided into several branches? ›

“Accounting is divided into several branches to better serve the needs of different users with varying information needs. These branches sometimes overlap and they are often closely intertwined.” Financial accounting is primarily concerned with processing historical data.

What is the difference between department and branch accounting? ›

Departmental accounting presents the trading results of each individual department. Branch accounts present the trading results of each individual branches. Departmental accounting is practically a segment of accounts. Branch accounts are a condensation of accounts.

What is accounting in simple words? ›

Accounting, which is often just called "accounting," is the process of measuring, processing, and sharing financial and other information about businesses and corporations.

Why accounting is important in simple words? ›

Why Is Accounting Important? Accounting plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information which can be used in making business decisions.

What is the purpose of accounting explain with real life examples? ›

Most households set a weekly or monthly budget, track spending, make investments and put money into savings. Each of these practices is a form of accounting too.

What is the most important rule in accounting? ›

Take a look at the three main rules of accounting: Debit the receiver and credit the giver. Debit what comes in and credit what goes out. Debit expenses and losses, credit income and gains.

How can I learn accounting by myself? ›

Take an accounting course.

You can always look into courses at your local community college, or take online courses in accounting for free. Try websites like Coursera or other online education platforms to find free courses taught by distinguished professionals in the field of accounting.

How can I improve my accounting skills? ›

5 tips to enhance your accounting skills this year
  1. Don't fear technology. There is no escaping the fact that software skills are vital, says Jotkowitz. ...
  2. Learn to analyse data. ...
  3. Hone your communication skills. ...
  4. Learn how to lead. ...
  5. Seek sector-specific experience.
6 Mar 2019

How can I be good at accounting? ›

20 Qualities & Traits That Make a Good Accountant
  1. You Shine Behind the Scenes. ...
  2. You're Detail-Oriented. ...
  3. You Can Think of Money as Numbers. ...
  4. You're Tech-Savvy. ...
  5. You Have a Strong Work Ethic. ...
  6. You Value Personal and Professional Integrity. ...
  7. You Have Great Communication Skills. ...
  8. You're a Team Player.
18 Nov 2021

Why accounting important for business and what is the role of accounting in business? ›

Accounting records the details of the business transactions of the company in the books of accounts. These records are essential for the owners, investors, managers and other stakeholders in a company to have the ability to view and evaluate the financial details of the business.

Who are the uses of accounting information? ›

Users of Accounting Information and their Needs: The public, the government and its agencies, management, employees, lenders, suppliers, and other creditors in the business world are among the users of accounting information.

What is the importance of financial statements Class 12? ›

It provides adequate information for planning, budgeting and controlling the affairs of the business. Ans. Lenders can judge long-term and short-term solvency of the business or its ability to repay debts and interest through analysis of financial statements.

What is the basic summary of accounting? ›

Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities.

What are the functions of financial management class 12? ›

The financial management role is the sizing and composition of the fixed assets, amount and composition of the current assets, fixing the debt-equity ratio in the capital, deciding on the long and short term financing, and all the items in the profit and loss account.

What are the 10 types of accounting? ›

Take a look at 10 types of accountants who focus on more than taxes.
  • Staff Accountant. ...
  • Certified Public Accountant. ...
  • Investment Accountant. ...
  • Project Accountants. ...
  • Cost Accountant. ...
  • Management Accountant. ...
  • Forensic Accountant. ...
  • Auditor.
7 Nov 2019

What are the 7 most important fields of accounting? ›

Types of accounting
  1. Financial accounting. Financial accounting is primarily concerned with the process of compiling information for financial reports for external reporting. ...
  2. Managerial accounting. ...
  3. Cost accounting. ...
  4. Auditing. ...
  5. Tax accounting. ...
  6. Accounting information systems. ...
  7. Forensic accounting. ...
  8. Public accounting.

What are the 7 basic accounting categories? ›

7 basic accounting concepts
  • Revenue. For a business, the total amount of money the company receives for selling services and products is its revenue. ...
  • Expenses. Expenses are the costs a business incurs to generate revenue. ...
  • Assets. ...
  • Liabilities. ...
  • Capital. ...
  • Accounts. ...
  • Financial statements.

What are the 5 basic accounting? ›

Although the guidelines for accountants are extensive, there are five main principles that underpin accounting practices and the preparation of financial statements. These are the accrual principle, the matching principle, the historic cost principle, the conservatism principle and the principle of substance over form.

What is debit and credit? ›

A debit entry in an account represents a transfer of value to that account, and a credit entry represents a transfer from the account. Each transaction transfers value from credited accounts to debited accounts.

What is importance of accounting? ›

Accounting is important as it keeps a systematic record of the organization's financial information. Up-to-date records help users compare current financial information to historical data. With full, consistent, and accurate records, it enables users to assess the performance of a company over a period of time.

What are accounting principles? ›

Accounting principles are the rules and guidelines that companies and other bodies must follow when reporting financial data. These rules make it easier to examine financial data by standardizing the terms and methods that accountants must use.

What are the 3 most important skills every accountant should have? ›

Strong written and oral communication. Organization and attention to detail. Analytical and problem solving skills. Time management.

What are the 4 ledgers? ›

Types of ledger accounts
  • Asset accounts: prepaid expenses, cash, accounts receivable, assets, and cash.
  • Liability accounts: lines of credit, accounts payable, debt, and notes payable.
  • Revenue accounts.
  • Expense accounts.
  • Equity accounts.
  • Profit and loss accounts.

What are 3 Golden Rules of accounts? ›

Golden rules of accounting
  • Rule 1: Debit all expenses and losses, credit all incomes and gains.
  • Rule 2: Debit the receiver, credit the giver.
  • Rule 3: Debit what comes in, credit what goes out.
2 Nov 2022

What type of account is cash? ›

A cash account is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account (trading on margin).

What are journal entries? ›

A journal entry is a record of the business transactions in the accounting books of a business. A properly documented journal entry consists of the correct date, amounts to be debited and credited, description of the transaction and a unique reference number.

What are the 4 principles of GAAP? ›

What Are The 4 GAAP Principles?
  • The Cost Principle. The first principle of GAAP is 'cost'. ...
  • The Revenues Principle. The second principle of GAAP is 'revenues'. ...
  • The Matching Principle. The third principle of GAAP is 'matching'. ...
  • The Disclosure Principle. ...
  • Why are GAAP Principles important?
10 Sept 2021

What is the basic formula of accounting? ›

What is the Basic Accounting Equation? The basic accounting equation is Assets = Equity + Liability. It is also known as the balance sheet equation. The double-entry bookkeeping system is founded on this very equation, as it represents that the total credit balance equates to a total debt balance.

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