What are the different types of branch account?
Accounting, as we all know, is the backbone of every organization. There are several branches of accounting, and without accounting, companies wouldn’t be able to flourish and grow. The accounting process holds together all the financial functions of an organization, leading to accountability and order.
Not many know that accounting as a practice was established in medieval times in response to the development of trade and commerce. The presence of accounting can be found as back as the mid-1400, with the first accounting work published in 1494 in Italy by a Venetian monk. Therefore, it is evident that accounting as a means of bookkeeping has been around for centuries at a stretch. Another important fact to remember is that the principles on the basis of which accounting was developed, haven’t changed much since they were first introduced. Assets, liabilities, income, and reconciliation are still the fundamental basis for all accounting processes.
Though the fundamentals haven’t changed in a long time, with the passing years, new accounting fields and branches have come up. Reports compilation and transaction recording have evolved, thanks to the introduction of technology, and many other new functions such as data entry and reports building have cropped up. However, the fundamental use of accounting still remains the same: to receive a complete financial health snapshot of the business. As a result of the many financial, industrial and technological advancements, different specialised and niche branches of accounting have emerged.
Financial accounting involves recording and categorizing transactions for business. This data is generally historical, meaning it’s from the past.
It also involves generating financial statements based on these transactions. All financial statements, such a balance sheet and income statement, must be prepared according to the generally accepting accounting principles (GAAP), according to Accountingverse.
Public companies have to follow a set of rules set out by the government (this is the Securities and Exchange Commission in the U.S.).
Financial accounting is performed to conform to external regulations and is not for internal employees to analyze and make financial decisions—managerial accounting is used for this purpose.
Cost accounting is considered a type of managerial accounting. Cost accounting is most commonly used in the manufacturing industry, an industry that has a lot of resources and costs to manage. It is a type of accounting used internally to assess a company’s operations.
Cost accounting concerns itself with recording and analyzing manufacturing costs. It looks at a company’s fixed (unchanging and constant costs, like rent) and variable costs (changing costs, like shipping charges) and how they affect a business and how these costs can be better managed, according to Accounting Tools.
There are two types of auditing: external and internal auditing. In external auditing, an independent third party reviews a company’s financial statements to make sure they are presented correctly and comply with GAAP.
Internal auditing involves evaluating how a business divides up accounting duties, who is authorized to do what accounting task and what procedures and policies are in place. Internal auditing helps a business zero in on fraud, mismanagement and waste or identify and control any potential weaknesses in its policies or procedures, according to Accounting Tools.
Also known as management accounting, this type of accounting provides data about a company’s operations to managers. The focus of managerial accounting is to provide data that managers need to make decisions about a business’s operations, not comply strictly with GAAP.
Managerial accounting includes budgeting and forecasting, cost analysis, financial analysis, reviewing past business decisions and more. Cost accounting is a type of managerial accounting.
Accounting Information Systems
Known as AIS for short, accounting information systems concerns itself with everything to do with accounting systems and processes and their construction, installment, application and observation. This can include accounting software management and the management of bookkeeping and accounting employees.
Tax accounting involves planning for tax time and the preparation of tax returns. This branch of accounting aides businesses be compliant with regulations set up by the IRS.
Tax accounting also helps businesses figure out their income tax and other taxes and how to legally reduce their amount of tax owing. Tax accounting also analyzes tax-related business decisions and any other issues related to taxes.
This specialized accounting service is trending in accounting and is becoming increasingly popular. Forensic accounting focuses on legal affairs such as inquiry into fraud, legal cases and dispute and claims resolution.
Forensic accountants need to reconstruct financial data when the records aren’t complete. This could be to decode fraudulent data or convert a cash accounting system to accrual accounting. Forensic accountants are usually consultants who work on a project basis, according to Accounting Tools.
This branch of accounting centers around the management of property for another person or business. The fiduciary accountant manages any account and activities related to the administration and guardianship of property.
What Are the Three Types of Accounting?
In this type of accounting, all records and reports are made according to regulations established by the tax authorities. Small businesses can hire a tax accountant who specializes in making sure the accounting records are IRS-compliant and who transfers that information to the business tax return.
The IRS requires that businesses use one accounting system and stick to it (see below for an exception). Whether they use the cash or accrual method determines when they report revenue and expenses.
Financial accounting is performed with potential lenders and investors in mind, as well as GAAP (generally accepted accounting principles). Using this standard accounting methods helps investors and lenders get an accurate read on a business’s financial health if a company is looking to finance a new purchase or venture.
It also helps businesses be transparent by reporting management’s income.
That said, small businesses usually aren’t required to use GAAP and its accrual method. Any business that makes, buys or sells products must use GAAP, according to the IRS.
Larger businesses often employ accountants in-house to help them comply with these standard accounting principles.
This category of accounting doesn’t follow GAAP but it does follow standard accounting practices taught in accounting school.
The focus here is on generating financial statements like budgets, product costings, cash flow projections and business acquisition analysis reports. Standard reports like balance sheets, profit and loss statements and cash flow statements are generated in a way to help managers analyze past decisions and plan for the future.
Small businesses may only use cash projections. Larger companies, especially manufacturers, will use many more reports.
Types Of Branches
Branches may be classified as under from the accounting point of view:
1. Inland Branches
2. Foreign Branches
1. Inland Branches
The branches opened in the different parts of the nation, where the original undertaking being registered are called inland branches. These types of branches are also called home branches or national branches. There are two types of inland branches, which are:
a) Dependent branch
b) Independent branch
a). Dependent Branch
Dependent branches are the branches that do not keep their records but all the records are maintained by head office. They are not authorized to act solely without the prior permission of the head office. All the plans, policies, rules and regulations of these branches are totally formulated and executed by the head office. In other words, all the functions of dependent branch are totally controlled by head office.
Under dependent branch, two types of branches are included, which is termed as service branch and retail branch.
* Service Branch: All the branches which are booking or executing orders on behalf of head office are called service branches. These are the branches which are busy in execution all the orders for the sake of head office.
* Retail Branch: Retail branches are also dependent branches, but they are concerned with the head office for selling goods, produced by the head office itself or purchased from outside in a bulky position and are sent to the retail selling branches for selling them out as like.
b). Independent Branch
The branches that can keep their accounts themselves and sell goods that are sent by the head office as well as those purchased by themselves are known as independent branches. These are the branches which can sell the goods to head office too. They can pay their own expenses and can deposit their collection in their own name in the bank. These branches record separately
and independently all the transactions which are even recorded by the head office.
2. Foreign Branches
Because of the rapid development of trade, commerce and industries and with the growing tough competition, the business enterprises are opening their branches abroad in order to capture the potential market and accelerate their business globally. Therefore, the branches established abroad is called foreign branch. The accounting procedure of foreign branch is just like an independent branch except in the following cases:
- Exchange rate and conversion of foreign currency into home currency
- Effects of foreign exchange rate are to be incorporated in the books of head office.