AcademicAccounting

Accounting Profession: The Three Branches of Accounting

Accounting is can be separated into three major branches: either financial accounting, management accounting and financial management. Different users of financial information do not always have the same need and a specific branch of their accounting can be more useful than others.

Financial Accounting encompasses the preparation of financial statements. One can think of the statement of financial position, the statement of income, the statement of equity and statement of cash flows. Financial accounting of a business is therefore interesting historical information for external users, such as creditors and shareholders of a company.

Management accounting is much more detailed than the financial accounting at the internal accounts of the company. It is a type of accounting that will be used in decision making within the company, so very useful for managers and business owners. Management accounting includes the manufacture of products in the company and their costs as well as the decision on the internal operations of the company. Themes such as fixed and variable costs, calculation of margins on variable costs and profit margins, the transfer price (TP) often return in management accounting. Unlike financial accounting, information released by the management accounting is almost never communicated to external users.

Financial management is the third major branch of accounting. It covers the application of the principles of financial accounting. The updating, the cost of capital and structure, risk and financing are topics that are affected by the financial management and that can be very useful in financial accounting.

Do not see the three branches of accounting as separate elements but rather elements that intertwine and are useful to each other. It is also possible to be more specific and separate three main topics in accounting or taxation, audit (audit) and cash.

The importance of taxation vary according to company size. Large companies will often use specialized accounting firms tax to reduce their taxable profits and thus pay less tax or reporter. Indeed, the tax rules governing large companies can be very complex for professionals who are not specialized and constantly updated on new developments regarding the change of tax standards. In small companies, taxation is usually simpler and often the accountant in place that will take care of the tax return and tax deductions.

The audit can be internal or external. Internal audit is a branch of accounting that is found in large organizations and aims to ensure that accounting standards are strictly followed and that internal control in place is effective. It is work that can be called complementary to the external auditors acting as independent professionals to obtain assurance on the figures presented in the financial statements.

Accountants specialized in cash management are often present only in the medium and large enterprises. Their role is to work with (or in) the bank at the level of interest rates. They try to maximize the interest receivable and minimize the interest payable. They also deal with topics such as the risk of foreign exchange and foreign currency.

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