Accounting Functions

Last Updated :

21 Aug, 2024

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Table Of Contents

What are Accounting Functions?

Accounting functions are those sets of financial systems that help in the bookkeeping of financial information in the organization, financial analysis, summary creation, and reporting of transactions and act as the backbone for almost any business. Accounting as a system tries to identify, assess and record the transactions of financial nature in a very systematic approach.

What are Accounting Functions?

Functions of Accounting

Accounting helps in the maintenance of bookkeeping and record keeping.
Accounting helps collect and store financial information, transactions happening within the organization, and financial activities happening in the organization.
It helps track several financial information daily or monthly.
It helps create and document 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 to reconciliation information between two sources of financial systems.
The accounted information can be shared with the external stakeholders with the intent of business planning and growth.
Accounting does not focus on the activities of capital budgeting.
It also helps in audit functions and curbs the internal weakness as it makes the systems accountable.
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 corporate expenses do not get mixed with the personal accounts of vice presidents or managers. Such instances are generally referred to as red flags.

Types of Accounting Functions

#1 - Management Accounting

This type of accounting observes the performance of a business and identifies the opportunities to improve the entity's financial health. Such a system or function recommends the management a price to set to make the business profitable.
The management helps in the preparation of internal management reports. It looks into trends, expectations on sales, and related costs. It also helps the management in comprehensive workforce planning.
In short, one could infer that it helps the organization make management decisions.

#2 - Financial Accounting

This type of accounting utilizes accounting transactions and transforms them into consolidated financial statements. Creditors and lenders can utilize the users of the results presented by the o bookkeeping, i.e., identifying, classifying, summarizing and recording all the financial transactions in the Income Statement, Balance Sheet and Cash Flow Statement. It even includes the analysis of these financial statements." url="https://www.wallstreetmojo.com/financial-accounting/"]financial accounting functions. These systems also help in historical analysis.

#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 accounting function helps the organization decide 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.

Conclusion

The knowledge of accounting functions is critical for comprehensive business management. 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 businesses with sound accounting practices.