What are Accounting Functions?
Accounting functions are termed as those set of financial systems that help in the bookkeeping of financial information in the organization, financial analysis, summary creation, reporting of transactions and act as the backbone for almost any business. The accounting as a system tries to identify, assess and record the transactions of financial nature in a very systematic approach.
Functions of Accounting
- The accounting helps in the maintenance of bookkeeping and record keeping.
- Accounting helps in the collection and storage of the financial information, transactions happening within the organization and financial activities happening in the organization
- It helps in the tracking of several financial information on a daily basis or on a monthly basis.
- It helps in the creation and documentation of financial history from day to the latest period.
- It helps in the formulation of comprehensive financial policy for the business.
- It is also utilized in the preparation of budgets and financial projections.
- It also helps in the reconciliation of information between two sources of financial systems.
- The accounted information can be shared with the external stakeholders with the intent for business planning and growth.
- Accounting does not focus on the activities pertaining to the capital budgeting.
- It also helps in audit functions and curbs the internal weakness as it makes the systems accountable in nature.
- A business or an organization can prepare and work on several journals to maintain different accounts.
- A comprehensive accounting system ensures that the accounts of corporates expenses do not get mixed with the personal accounts of vice presidents or managers. Such instances are normally referred to as red flags.
Types of Accounting Functions
#1 – Management Accounting
- This type of accounting observes the performance of a business and identify the opportunities to improve the entity’s financial health. Such a system or function recommends the management with a price that it should set to make the business profitable.
- The management help in the preparation of internal management reports. It looks into trends, expectations on sales and corresponding costs. It also helps the management in comprehensive workforce planning.
- In short, it could be inferred that it helps the organization to take decisions on the management.
#2 – Financial Accounting
This type of accounting utilizes accounting transactions and transforms them into consolidated financial statements. These systems also help in historical analysis. The users of the results presented by the financial accounting functions can be utilized by creditors and lenders.
#3 – Internal Accounting
Internal accounting monitors and examines the controls and processes implemented within the organization to detect fraud and weakness within the management and teams.
#4 – Taxation Accounting
These account for taxes paid by the business to the revenue authority. This system ensures that the returns on taxes are paid within deadlines. Such systems additionally facilitate the planning of taxes.
#5 – Cost Accounting
This function of accounting helps the organization make decisions on the amounts and types of costs it incurs. It segregates and lists down all the components of costs that the business incurs to render service or to produce finished goods.
The knowledge of accounting functions is critical for comprehensive business management. They additionally play a critical role in daily pursuits of life. It helps in tactful record-keeping of resources of the organization which in turn ensures compliance in the organization. The lenders and investors only lend and invest in those businesses that have sound accounting practices.
This has been a guide to what is accounting functions and its definition. Here we discuss the types of accounting functions along with purpose and uses. You can learn more about accounting from the following articles –