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Types of Accounting and Their Functions

The document outlines various types of accounting, including financial, managerial, cost, tax, and auditing, each serving distinct functions within a business. Financial accounting focuses on external reporting, while managerial accounting aids internal decision-making. Cost accounting analyzes production costs, tax accounting ensures compliance with tax laws, and auditing verifies the accuracy of financial records.

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3 views

Types of Accounting and Their Functions

The document outlines various types of accounting, including financial, managerial, cost, tax, and auditing, each serving distinct functions within a business. Financial accounting focuses on external reporting, while managerial accounting aids internal decision-making. Cost accounting analyzes production costs, tax accounting ensures compliance with tax laws, and auditing verifies the accuracy of financial records.

Uploaded by

rcegamingcodm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Types of Accounting and Their Functions

Accounting is a diverse field that serves a wide range of business needs.


Over time, different branches of accounting have developed to address
specific functions within an organization. Understanding the various types of
accounting can help a business apply the right practices for specific
objectives.

1. Financial Accounting

Financial accounting focuses on the preparation of financial statements for


external users such as investors, creditors, and regulators. The main goal is
to present a true and fair view of the company’s financial performance and
position.

Key components of financial accounting include:

 Income Statement (Profit and Loss Statement)

 Balance Sheet

 Statement of Cash Flows

Financial accounting adheres to specific standards such as the Generally


Accepted Accounting Principles (GAAP) or International Financial
Reporting Standards (IFRS) to ensure consistency and comparability
across organizations.

2. Managerial Accounting

While financial accounting serves external stakeholders, managerial


accounting (or management accounting) caters to internal decision-makers.
It involves generating detailed reports to assist in planning, controlling, and
decision-making.

Examples include:

 Cost analysis

 Budgeting reports

 Break-even analysis

 Performance evaluations

These reports are often customized and do not follow a standardized format,
as they are not intended for public consumption.
3. Cost Accounting

Cost accounting is a specialized branch of managerial accounting that


focuses on capturing all costs associated with the production of goods or
services. It helps companies understand their cost structure and identify
ways to reduce or control costs.

Key concepts include:

 Direct vs. Indirect Costs

 Fixed vs. Variable Costs

 Standard costing

 Activity-based costing

This type of accounting is essential in manufacturing industries and can drive


strategic pricing and operational efficiency.

4. Tax Accounting

Tax accounting deals with preparing tax returns and planning for future tax
obligations. It ensures that a business complies with all tax laws and takes
advantage of deductions, credits, and incentives to minimize its tax liability.

In the Philippines, tax accounting includes the preparation of:

 Monthly and quarterly BIR returns (e.g., 2550M, 2551Q, 1701Q,


etc.)

 Annual Income Tax Returns

 Withholding tax filings

 VAT computations

Tax accountants must be updated with the latest regulations and BIR
issuances to avoid penalties and ensure compliance.

5. Auditing

Auditing involves the independent examination of financial records to ensure


accuracy and compliance. Auditors may be internal (employed by the
company) or external (third-party professionals). An audit provides assurance
to stakeholders that the company’s financial reports are free from material
misstatements.

Audits can be:


 Internal audits (operational efficiency and risk management)

 External audits (compliance and credibility for stakeholders)

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