Accounting is about keeping a detailed record of all the financial transactions in a business.
Why is accounting important?
Accounting gives you a clear picture of a company’s financial health. Accounting helps your business by outlining profits and potential losses, which helps to make smarter decisions.
Accounting gives information to investors, stakeholders, and creditors. It helps them to get a picture of their investments and forecast future earnings.
Accounting is also important because of the tax compliances. It helps companies calculate their taxes and keeps information of their income and expenses.
Different types of accounting
Here’s a breakdown of different types of accounting and what they focus on:
- Financial accounting: This is about keeping track of financial transactions and cash flows. It gives information to people outside the company, like investors or regulators, through financial statements such as balance sheets and income statements. Examples are UK GAAP or IFRS.
- Managerial accounting: This type is for internal use and helps managers to make decisions in a company.
- Cost accounting: Cost accounting is tracking, analysing, and understanding the costs related to daily business operations. It helps make sure that spending is in line with the company’s overall goals.
- Tax accounting: This type focuses on organising financial information for tax purposes. It ensures that a company’s financial records are in compliance with laws and regulations regarding taxes.