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Accounting – Types and Importance
The importance of accounting in a business organisation is unparallel to anything. This process keeps track of your company’s financial health and reliability. Using a suitable accounting type, a company can analyse the records of its financial transactions. So, it can determine the costs incurred and profit earned through appropriate accounting procedures.
The following sections include various types of accounting and their importance in drawing a clear conclusion about their benefits.
What are the types of accounting?
Branches of accounting vary depending on their usage. A company can either use it for internal purposes or public purposes. Internal usage includes reporting processes to regulatory agencies. However, public usage is beneficial to everyone who involves in a business. The list includes investors, owners, customers, etc.
Check out the following accounting types to decide which is suitable for your business purpose:
Managerial accounting
Managerial or management accounting deals with a company’s operation. It collects the data related to the company’s operation and delivers it to the manager. This data helps the manager to take decisions regarding a company’s development. These accounting types include cost analysis, forecasting, budgeting, financial analysis, etc. Moreover, it helps assess previous business decisions to opt for precise decision-making.
Financial accounting
Financial accounting is one of the crucial types of accounting that helps a company to make informed financial decisions. A company can attract potential investors and comply with legal rules and regulations with a proper understanding of financial accounting.
This is because investors always check a company’s financial report to invest in its stocks and shares. The financial report of a company comprises the business’s health. A company uses this strategy to create income statements, balance sheets, and cash flow statements.
All these documents are highly essential for a company as they keep the company compliant with the laws and regulations and determine its performance. This is because the government uses these reports to assess a company’s tax status and legal records.
Cost accounting
Industries that include a vast resource management cost can opt for cost accounting to manage their cost control. Companies use this technique to assess their internal operations strategically. Basically, cost accounting deals with a company’s variable and fixed costs to record and analyse the production costs. As a result, it is also considered a type of managerial accounting.
Cost accounting collects information regarding fixed and variable costs and then analyses their effects on the business. Finally, it determines how to manage the company’s costs for better financial development.
Filing Resolutions With ROC
As per the provisions contained in section 117 of the Companies Act, 2013, every resolution is required to be filed with the ROC within 30 days of being passed. The Registrar of Companies needs to record all such resolutions. The Companies Act, 2013, has also laid down the penalty in case of failure to file the resolutions with the registrar within the stipulated time.
In other words, a company is required to intimate the Registrar of Companies concerning all of its activities which includes appointing directors or managing directors, issuing prospectus, appointing sole-selling agents, or the resolution regarding voluntary winding up, etc.
Forensic accounting
As the name suggests, these types of accounting are associated with legal fields. It helps determine if the company has been involved in any kind of financial crime. Maurice Peloubet, in 1946, introduced the term forensic accounting. This technique helps extract, report, identify and record the financial data of a company to verify the company’s authentication.
However, forensic accounting is not just associated with industries. It also deals with divorce cases. With forensic accounting, the legal team can expose the hidden assets of a spouse to handle civic matters lawfully. Moreover, it helps determine the economic conditions due to non-disclosure, breach, and non-compete agreement.
Tax accounting
Through tax accounting, a company can determine the amount of payable income tax and other taxes. Moreover, tax accounting helps them find legal ways to reduce their payable taxes. Tax accounting also ensures that every company abides by the rules and regulations of the Indian Revenue System (IRS).
Importance of accounting
The benefits of accounting do not end with determining a company’s financial records. Scroll down to learn more about the importance of accounting in broader aspects:
To avail of bank loans
Accounting helps provide a company’s financial report to banks and other lending institutions. Thus, they can assess the company’s credit score, financial stability and other associated factors before sanctioning a loan.
Generates company information for stakeholders
There are several stakeholders associated with a business organisation, and they must have a clear idea of the company’s financial status. It will help them make better investment decisions. Moreover, the company’s employees, customers, government agencies, etc., should also know about the business performance to evaluate the company’s success.
Budget creation
The need of accounting does not end here. A company needs to use strategic accounting to set its budget. It helps collect the real-time financial data of a business to plan the budget strategically. A company should assess its financial stability while creating the budget by including all expenses and income accurately.
FAQs on Private Limited Company Registration
To help you get started with confidence, we've compiled answers to the most frequently asked questions about Private Limited Company registration. These FAQs will give you clear insights into every step and empower you to take the first step toward building your business.
Three main types of accounting include financial accounting, managerial accounting, and cost accounting. Considering the differences in their working principle, each accounting type has different goals. However, all of them are equally important for a business organisation.
Financial accounting comprises two types mainly. They are accrual accounting and cash accounting. Cash accounting helps focus on corporate transactions that involve liquid cash.
Beginners can opt for the role of budget analyst while seeking a job in the accounting profession. Private accounting or management firms offer this entry-level position to fresher accountants.
There are three types of auditing. They are as follows:
- External Audit
- Internal Audit
- IRS Audit
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