Fields of accounting

Accounting is the systematic development and analysis of information about the economic affairs of an organization. This information may be used in a number of ways: by the organization's managers to help them plan and control the organization's operations; by owners and legislative or regulatory bodies to help them appraise the organization's performance and make decisions as to its future; by owners,lenders, suppliers, employees, and others to help them decide how much time or money to devote to the organization; by governmental bodies to determine how much tax the organization must pay; and occasionally by customers to determine the price to be paid when contracts call for cost-based payments.

Accounting provides informationfor all these purposes through the maintenance of files of data, analysis and interpretation of these data, and the preparation of various kinds of reports. Most accounting information is historical - that is, the accountant observes the things that the organization does, records their effects, and prepares reports summarizing what has been recorded; the rest consists of forecastsand plans for current and future periods.

Accountants may be classified by the type of organization for which they work. For example, business accountants are employed by all types of companies. A small firm may have one general accountant who handles all financial records. But large corporation may have many accountants for the various duties involved. Organizations or individuals may hire professional public accountants for occasional tasks or special accounting services. Most public accountants have passed a state examination and obtained a license to practise as certified public accountants. Such accountants are called chartered accountants in Canada, the United Kingdom, and some other countries. Most accountants specialize in a field of accounting. The major fields include financial accounting, management accounting, tax accounting, auditing, and management consulting services.

Financial accounting involves the preparation of a business's financial statements, mainly for users outside the business. These reports are used by owners and potential owners of a business and by people who have loaned company money. Some government agencies that regulate business and the stock market require companies to submit financial statements to them.

Management accounting helps managers plan and control a company's operations. Accountants prepare budgets to express management's goals in financial terms. After a budget has been adopted, performance reports compare actual results with the budget. Cost accountants help management keep track of how much it costs a company to make the product, or provide the service.

Tax accounting consists of preparing tax returns for organizations or individuals and determining the taxes involved in proposed business transactions. Tax accountants suggest ways to save money on taxes. They must have a thorough knowledge of the tax laws that affect their clients or employers. They also must know the details of court rulings in a wide variety of tax cases.

Auditinginvolves the examination of an organization's financial statements and records. CPA auditors from outside the organization provide assurance that the organization's financial statements present financial information fairly and that follow generally accepted accounting principles. People use such statements in deciding which companies to invest in and lend money to. Internal auditors are employees of an organization who make sure that organization follows the accounting procedures management wants. They also seek ways to increase efficiency and reduce waste.

Management consulting services consist of a variety of activities that many accountants perform. These services include the design and installation of computerized financial information systems, assistance in setting up employee pension plans, and the planning of an individual's personal finances.