Accounting Types and How They Can Affect Your Business By Aron Govil
By Space Coast Daily // November 28, 2021
For a healthy and smooth functioning of a business, two components are incredibly vital: Finance and accounting. Both finances and accounting hold separate meanings and establish different goals for the industry to achieve. On the one hand, accounting involves the acquisition of various revenues and expenses that get distributed.
On the other hand, finances affect the decisions taken when it comes to money and business, which further ensures the growth and sustenance of the company.
But both departments work hand in hand. An accounting section of a business cannot work unless financial experts assist in creating data that general people easily comprehend. At the same time, the finance section needs input from accounting.
To establish an efficient working system, three distinct accounting types are utilized by a business that helps it to track expenses and income conveniently.
Accounting types include:
■ Cost accounting
■ Financial accounting
■ Managerial accounting
Here’s a detailed understanding of the various accounting types –
■ Cost Accounting
It is debatable whether managerial and cost-accounting are different terms for the same system when considering cost accounting. While some in the finance and accounting world disagree and believe that the two types are entirely separate, others agree that it is the same entity with two different terms.
Whatever may be the fact, the two accounting types most definitely overlap.
Cost accounting primarily helps a business determine the production costs according to labor and supply purchasing expenses when the products are in their production stage.
When the production cost figures reach the managers, the statistics are compared against the yield gained by the company with the sales of the product. The process helps the business create a budget for the future when similar endeavors or projects come up, says Aron Govil.
■ Financial Accounting
Financial accounting is also referred to as financial accounting and focuses on the external aspects of the business. Firms that express an interest in your business fall under the category of financial accounting. Plenty of financial statements created by employees go to investors.
These financial statements may consist, income statements, cash flow statements, balance sheets, etc. The company’s finances help the investors easily comprehend the situation and position of the business, which in turn would help them determine whether they wish to make an investment further or decide against it.
Financial statements also come into use when businesses plan on extending credit to the company. It aids in determining the risk of providing loan money to your company. When the company lacks solid financial statements, the creditor can supply a down payment, personal guarantee, or collateral.
It is an alternative method to secure payment. But if a company has consistent losses or poor financial management skills, no credit will get extended in such cases, reminds Aron Govil. Reasonable interest rates on favorable terms help a company present strong financial statements.
■ Managerial Accounting
Managerial accounting acquires as well as prepares the financial documents for senior employees and management. The statements presented by the managerial accountant stay with the organization. Managers then use these financial statements to make better decisions considering the costs.
By implementing cost accounting, managerial accounting, and financial accounting, a business can manage its financial records well and have a smooth sailing bookkeeping experience.