There are tax accountants, financial accountants, public accountants, government accountants and more. Forensic accountants are employed by regulators and law enforcement to help track illegal activity. Diving even further, crypto accountants deal with cryptocurrency assets.
An accountant usually works for a person, a business or the government. However, accounting firms such as Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers are renowned for tracking and managing public and private financial data.
Here’s a breakdown of the three main types of accounting:
Financial accounting: This type of accounting is accomplished with investors in mind. It is used to assess the financial health of a business and helps management get an accurate idea of a business’s finances. This type of accounting is essential for companies to be transparent about their financial health.
Managerial accounting: This type of accounting is used to generate financial statements for companies, including product costings, cash flow reports, profit and loss statements, and business acquisition reports. This type of accounting is essential for business leaders, as it provides accurate financial data and can help companies make decisions about their money.
Tax accounting: Tax accounting focuses on how your business works with the IRS. Accountants can help you understand your financial picture when filing your yearly or quarterly taxes. This is an essential service that all small businesses should utilize.
Accounting ratios help to uncover difficult-to-find conditions and trends by inspecting the individual components of the ratio. Formulas like this help accountants determine a company’s status and projections. Accounting ratios are divided into five main categories:
Liquidity ratios measure a company’s liquid assets versus its liabilities.
Profitability ratios measure an organization’s ability to turn a profit after paying expenses.
Leverage ratios measure total debt versus total assets and gauge equity.
Turnover ratios measure efficiency by comparing the cost of goods sold over a period of time against the amount of inventory that was on hand during that same time.
Market-value ratios measure a company’s economic status against other companies in industry.
Many accountants choose to become CPAs, which they achieve by passing an exam and getting work experience. CPAs audit financial statements of public and private companies; serve as consultants in many areas, including tax, accounting and financial planning; and are well-respected strategic business advisors and decision-makers, according to the Pennsylvania Institute of Certified Public Accountants. Positions CPAs hold include accountant, controller, chief financial officer and financial advisor.
You can find more information on accounting careers at The Accounting Path.
Accounting vs. bookkeeping
While bookkeeping and accounting may seem like the same thing, they are actually very different. Bookkeeping is a record-based practice. It focuses on logging information, tracking important numbers and quantifying the important monetary aspects of your business. Accounting comes in when these numbers and reports are interpreted and extrapolated so you can make informed business decisions.
So, while bookkeeping – and having proper bookkeeping systems in place – is extremely important, it is only half the work for building a financially healthy business. You need accounting practices in order to make informed decisions about the future of your business. What good is data without proper interpretation? Generally, many accountants either manage or oversee bookkeeping within an operation to ensure its accuracy.
Basic accounting tasks
Here are some of accountants’ main job duties:
Record transactions: Depending on the volume of transactions, an accountant may record each transaction (e.g., billing customers, receiving cash from customers, paying vendors) daily or weekly.
Document and file receipts: Accountants may copy all invoices sent, all cash receipts (cash, check and credit card deposits) and all cash payments (cash, check and credit card statements). They also may start a filing system that is easy to understand, track and maintain.
Pay vendors and sign checks: Accountants may track accounts payable and have funds scheduled to pay suppliers on time and avoid late fees.
Balance business checkbooks: Accountants may do this monthly to ensure that your business’s cash transaction entries are accurate and that you are working with the correct cash position.
Process or review payroll and approve tax payments: You need to meet payroll tax requirements based on federal, state and local laws at different times. Accountants make sure you withhold, report, and deposit the applicable income, Social Security, Medicare and disability taxes to the appropriate agencies by the required dates.