Every decision of management has a significant impact on the future of the company. Still, the most critical decision, which can change the business’s whole course, is taken after carefully considering and analysing the company’s financial aspects and other reports. This is where accounting comes in.
Let us know more about the Accounting function and how can it help a business.
Accounting: Meaning
Accounting is considered the language of business as it provides all the financial information in a single place. The management uses the data uncovered in the accounting process to make decisions that will help guide the business to the path of growth and development. The quality of the Accounting Processes plays a significant role in the growth and development of the company. As the quality of the information available to the management after the accounting process increases, the chances of the business’s growth also increase.
Types of Accounting
The accounting process can be divided into two types. Each type serves a specific purpose in accounting. The two types of accounting are, which are:
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Managerial Accounting
Managerial Accounting (also known as management accounting or cost accounting) is a type of accounting that assists the company’s management by conducting processes like identification, interpretation, and analysis of the company’s various accounting information. This type of accounting is more focused on providing correct and understandable information to the company’s management on which it can act and make the decision for the future.
A managerial accountant will analyse numerous different events and interpret many metrics to reach a conclusion. The company’s administration can use the result to make decisions that will guide the company for the future and help the company prepare for any unforeseen circumstances. Managerial accounts provide a very detailed analysis of the various operations of the company to both the management.
As most of the management accountants’ reports are future-oriented, they consist of future estimations and likely industry trends. Such statements can also be shared with the company’s shareholders to help them make an informed decision.
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Financial Accounting
The financial accounting process by which the financial statements such as balance sheet, income statement, cash flow account etc., are prepared so that they can be shared with people outside the company. In most cases, the financial statements are made following the Generally Accepted Accounting Principles (GAAP), but these standards can be changed according to convenience.
As most of these reports are for the benefit of the investors and shareholders, these reports are primarily based on records. Seeing all the documents, an investor can see that he has made the correct decision to invest in the company or take out all his investments from the company.
An accountant needs to combine both of these types of accounting while preparing financial reports of the company. Every function in accounting needs to be performed correctly, or else there may be consequences to be faced by the company in question.
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