Types of Accounting
Just as there are many types of economic decisions, there are many Types of Accounting information. Financial Accounting, Management Accounting and Tax accounting often are describing three types of accounting information that are widely used business decisions.
1. Financial Accounting
First type of accounting is Financial Accounting, refers to information describing the financial resources, obligations and activities of an economic entity. It is the maintenance of daily record of all Accounting Transactions in such manner that it would help in the preparation Financial Statement. This information is designed primarily to assist investors and creditors. Accounting information is also used for preparation of income tax return. Financial accounting information is used for so many purposes that it often is called General-Purpose Accounting. End results of financial accounting are financial statements.
2. Management Accounting
Second type of accounting is Management Accounting, is meant specifically to assist the management in its operational and strategic planning. This objective is achieved through preparation periodic reports about product, activities, departments and individuals. Cost Accounting and Responsibility Accounting are the two significant parts of management accounting. The most important role of management accounting is to set targets in the form of budget or standards, measure the actual performance and then make variance. It is Specific-Purpose Accounting.
3. Tax Accounting
The financial statements are prepared according to the General Accepted Accounting Principles (GAAP), International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and/or prevailing rules of country. Since these rules and regulation allow flexibility in the accounting treatment of different items, some of them may not be acceptable to tax authorities. Taxable profit must be calculated according to the tax laws of country, based on information provided by the financial statements. The preparation of tax returns has therefore become a specialized field. Every enterprise would like to minimize tax return. This required tax planning.
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