Commonly, accounting is misinterpreted and perceived to only be about recording of business transactions, also known as bookkeeping. However, accounting is beyond recording or bookkeeping and it’s a diversified profession. It has many areas and specialized fields which are all useful in catering the needs of a business or non-profit organizations. Bookkeeping, or the process of recording business transactions, is only one of the areas of accounting. In fact, it is the less complex and most basic subject of accounting.
If you are an aspiring accountant or student, in this article, you will pick up knowledge and understanding on the different areas of accounting. It will help you determine which areas of accounting you want to practice and specialize once you become a professional accountant.
Depending on your location and country, you may take a board examination on the specific area of accounting you want to practice, like financial accounting, managerial accounting, tax accounting or external auditing (public accounting). However, in certain countries – like in my country the Philippines – the coverage of the board examination includes all the areas and field of accounting. You need to pass the examination – in a specific area or all the areas of accounting – before you are granted the title of Certified Public Accountant.
If you are a person engage in business or non-profit organization, whose looking for an accountant, this article will be important for you to understand in order to have a clear understanding and expectation on the professional service you will get. It will help you determine and pick up the right accounting service needed by your entity.
12 Areas and Specialized Fields of Accounting
Without further do, here are the 12 areas and specialized fields of accounting:
1. Financial Accounting
Financial accounting is an area of accounting that deals with the recording, classifying, reporting and interpreting of a business financial performance and economic conditions to interested users or stakeholders. The primary purpose of financial accounting is to provide a report in the economic performance and condition of an entity for use of stakeholders.
Example of activities and tasks in financial accounting includes bookkeeping and preparation of reports called financial statements.
2. Managerial Accounting
Managerial Accounting is an area of accounting that deals with accumulation of financial information and preparation of reports for internal users only, like the company’s management or executives. Reports prepared and submitted may vary on a weekly, monthly, quarterly and yearly basis depending on the needs and desire of the internal users. These reports are usually confidential and exclusively used for internal purposes and decision making. Different to financial accounting, wherein the basis of reporting is historical cost, in managerial accounting the basis of reporting is future and forecasting value.
Example of tasks and reports includes sales forecasting reports, budget and comparative analysis, merger and consolidation reports, etc.
3. Cost Accounting
Cost Accounting is an area of accounting that captures and accumulates manufacturing or production costs for internal use of an entity’s management, used in decision making purpose. The reports prepared in cost accounting are helpful tools for management use in budgeting, product costing or pricing, which can improve the future net margins or profits of the business.
Example of cost accounting reports and tasks includes marginal costing, cost-volume-profit analysis, activity-based accounting, standard cost accounting, lean accounting, etc.
4. Budgetary Accounting
Budgetary Accounting is an area of accounting that deals in setting up a tool or control device to help management measure performance against its approved budget or plan. Its primary purpose is to control expenditures of the business or organization. Unlike financial accounting which is based on historical cost, budget accounting looks forward with future values, similar to managerial accounting. It measures the cost of planned acquisitions and the use of economic resources in the future.
5. Auditing and Assurance Services
Auditing and Assurance Services is an area of accounting that deals with providing independent opinion on the completeness and fairness of the financial statements of a business or organization. Also, it involves testing the internal controls of the business or organization’s accounting system.
Auditing and assurance services is an independent professional service with the goal to improve the financial information, being reported to internal or external users, in order to make a better and risk-free decision making. An example of assurance services includes internal and external auditing.
6. Tax Accounting
Tax Accounting is an area of accounting that provides the preparation and filing of required tax returns of a business or organization imposed by local, state and federal government. It also includes understanding of tax amendments and determination of tax consequences of business decisions or future plans. Tax rules and regulations are governed by the specific country’s Internal Revenue.
7. Government Accounting
Government Accounting is an area of accounting that focuses on the accounting development and communication of government agencies financial affairs. It uses an accounting system based on fund accounting system. It has a separate set of accounts used for managing resources or funds that are assigned to specific government unit for specific purposes based on regulations and limitations.
Government accounting is different on financial accounting because it focuses on measuring inflow and outflow of government financial resources rather than measuring the economic activities. It also has different way of measuring financial performance because it records revenue when there’s cash available to pay liabilities while records expense when funds are drained.
8. Non-Profit Accounting
Non-Profit Accounting is an area of accounting with primary purpose of recording and reporting financial information of a business or organization formed for other purposes other than profit. Similar to government accounting, its accounting system is based on fund accounting. Example of Not for Profit Organization are cooperatives, charities, medical institutes, non-profit hospitals, etc.
9. Forensic Accounting
Forensic Accounting is an area of accounting which provides accounting and auditing analysis used in litigation or public dispute in suitable courts. It’s a specialized field of accounting which includes an understanding of business information and financial reporting systems, accounting and auditing standards and procedures, evidence gathering and investigative techniques, and litigation processes and procedures.
10. International Accounting
International Accounting is an area of accounting that focuses on the accounting issues related to international business activities and foreign operations. It is concerned on accounting international trade and multinational companies. It includes matters such as accounting principles and reporting practices in different countries, patterns of accounting development based on international and regional accounting regulations, foreign currency translation, foreign exchange risk, performance evaluation of foreign subsidiaries, and many more.
11. Accounting Information System
Accounting Information System is an area of accounting which deals in the collection, analysis, design and implementation of accounting and management information system. It is generally a computer-based method for recording accounting information’s using information technology resources. Once in place, the main purpose of accounting information system is to collect, store and process financial and accounting information to be used by internal and external users in decision making.
12. Accounting Education
Accounting Education is an area of accounting that deals with upgrading, researching and teaching accounting knowledge to students, aspiring accountants or accounting professionals seeking continuous education and updates.