12 Branches of Accounting: What They Are
and What They Do
When a business wants to know its financial position, analyze its cash flow, determine
the health of operations, or understand its competition, it typically turns to certain accounting
branches. Small- to medium-sized businesses may use the services of one specialized
accountant while big business and governments may work with an accounting firm that can
handle different areas of accounting.
Accounting branches use various types of analysis and data to inform management and
to help the organization make knowledgeable, positive decisions for the company's present and
future.
What are accounting branches?
Accounting branches work to measure, process and communicate financial and nonfinancial information that affects a business's economic interests and associations. Most
businesses and corporations use accounting branches to measure the results of the
organization's economic activity. Accounting branches use various methods to compile and
report results to investors, creditors, management, regulators or tax collectors.
Because of the increase of global business and the expansion of tax laws and
regulations, accounting evolved to expand its branches and develop specialties in a particular
area of finance. Developments in technology and the exchange of international currencies
result in the expansion of accounting specialties that place their focus on a particular economic
interest.
What does an accounting branch do?
Accounting branches record business events and transactions, then translate that
information and present it to managers, stakeholders or whoever has a financial interest. The
information assists managers before, during and after projects, and helps stakeholders make
business decisions.
Accounting branches use a variety of accounting practices to monitor and report on
economic activity and company health.
In addition to tracking the movement of money, accounting branches typically serve to:
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Keep and maintain financial records.
Facilitate decision-making.
Comply with laws and regulations.
Protect business assets.
Determine profit and loss.
Monitor business health through multiple analyses.
The different branches of accounting
The world of accounting expanded into several branches that specialize in particular
legal areas, or focus on a certain aspect of business.
Here is a list of 12 branches of accounting along with a description of each area's focus:
1. Financial accounting
Financial accounting involves recording and clarifying business transactions along
with preparation and presentation of financial statements. nancial accounting analyses
the company's balance sheet and prepares profit and loss statements that advise
management or stakeholders in regards to loans, investments, or acquisitions.
Financial accounting provides vital economic business information for:
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Creditors
Banks or financial institutions
Regulators
Suppliers
Tax professionals
2. Managerial accounting
Managerial accounting provides information to a company's internal structure,
namely management. Unlike financial accounting, managerial accountants monitor the
use of money, rather than amounts of money.
Managerial accounting works to improve the company's administration, enhance
its profit, and provide management with financial reports that influence planning and
budgets. This branch of accounting performs forecasting to advise management on the
best business practices to meet goals and maintain profit. Managerial accounting
includes conducting internal examinations through cost to volume profit (CVP) or breakeven point (BEP) analysis, factors that affect decision making.
3. Cost accounting
Cost accounting, considered a subset of management accounting, focuses on
evaluating costs. This branch considers all factors of manufacturing to accurately
determine the cost of a project or venture. Cost accounting analyzes manufacturing
costs to prepare and present reports that inform decision-makers on how to reduce
cost, or when to spend more. It monitors projects for waste and cost control. Cost
accounting regularly analyzes actual costs over budget to determine future monetary
actions.
4. Auditing
Auditing is a branch of accounting that is usually done internally and externally.
Auditors examine and monitor a business for accurate reporting, compliance with tax
laws and regulations, and financial integrity. There are two specializations for auditors:
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External auditor - State or federal auditing takes place with an independent,
outside auditor who examines a company's financial statements for accuracy.
External auditors may test the company's segregation of duties, policies,
authorizations and other management controls for efficacy and integrity.
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Internal auditing identifies and prevents tax issues or prepares the business for
an outside audit. Auditors in this branch are typically chosen by shareholders so
their role doesn't present a conflict of interest and ensures their objectivity. It
identifies and prevents tax issues or prepares the business for an outside audit.
Auditors in this branch are typically chosen by shareholders so their role doesn't
present a conflict of interest and ensures their objectivity.
5. Tax accounting
Tax accounting follows state and federal tax rules during tax planning or in the
preparation of tax returns. This branch reports on the effect of taxes on a business and
may offer advisory services on minimizing taxes or the consequences of tax decisions.
Tax accountants calculate income and other taxes depending on the structure of the
business. Since taxes and income brackets vary from entity to entity, tax accounting is
well-versed in tax laws surrounding sole proprietorships, corporations and limited
liability corporations (LLC).
6. Fiduciary accounting
Fiduciary accounting handles the accounts entrusted to the person responsible
for custody or management of property. The branch tracks and reports receipts and
disbursements from accounts to ensure proper fund allocations and is frequently used
by guardians or custodians.
Fiduciary accounting typically serves:
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Trusts
Receiverships
Estates
7. Project accounting
Some industries, such as construction or engineering, work on large projects that
require a dedicated accountant. Project accounting falls under the project management
umbrella. This accounting analyzes costs and prepares reports at regular intervals to
track a project's financial progress. It provides historical data to inform future project
decisions including cost-saving measures or budget adjustments.
8. Forensic accounting
Forensic accounting, also known as legal accounting, handles legal matters
related to bankruptcy, fraud or mismanagement. This branch conducts investigations for
court and litigation cases, calculates damages, and oversees dispute resolutions.
Forensic accounting serves:
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Lawyers
Law enforcement
Insurance companies
Government organizations
Financial institutions
9. Fund accounting
Fund accounting works with non-profit organizations (NPO) to ensure the correct
and accurate allocation of funds. Fund accountants ensure NPO funds go where
intended through the separation and distribution of funds according to the company's
policies or in accordance with laws governing NPOs.
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Fund accounting is frequently used by:
Charities
Churches
Educational institutions
Hospitals
Government agencies
Clubs
10. Government accounting
Government accounting oversees and records state and federal fund allocation
and disbursement. This can include aspects of social accounting and the measurement
of cost to humans as it relates to federal land use, climate change or the use of welfare
funds. Government accounting tracks the movement of money through various agencies
and ensures budget requirements are kept or met. Government accountants work in
programs such as healthcare, housing and education.
11. Political campaign accounting
Political campaign accounting oversees the development and implementation of
a political campaign's finance systems. This may include transaction accounting or
donation monitoring to ensure compliance with laws governing political campaigns.
Political campaign accounting is practiced in local, state or nationwide political races.
12. International accounting
As global business expands, so do international markets and the need for
international accounting. This branch of accounting serves to learn laws and regulations
in other countries in order to conduct business honestly and fairly.