Accounting is the process of recording, analyzing and using financial information. Nearly every business and financial transaction involves some type of accounting. Learning accounting will help almost anyone who makes business or personal financial decisions, such as a taxpayer, investor or business owner. Accounting knowledge will help you to understand the meaning of the financial information presented to you. There are different reasons to learn the different accounting disciplines.
Financial accounting consists of recording transactions and presenting information in a standard format of financial statements for people to use to make decisions. Anyone with an interest in a company, such as management, creditors, investors, employees and regulators, can use financial accounting to understand the strength and future performance potential of a company. For example, an individual investor needs to know about a company’s finances before deciding to invest in the company.
Managerial accounting is the internal process a company uses to provide detailed financial information to its managers. A person who runs a business or makes financial decisions about a company’s operations can benefit from learning managerial accounting. The information is important to making decisions about a company’s costs, production volumes and department operations. Without managerial accounting, a company can plan inefficiently and overspend on manufacturing costs that could jeopardize its profits.
Tax accounting involves analyzing a business’ or individual’s financial information to calculate taxes. A business uses tax accounting to budget for expenses and plan a business strategy that minimizes its tax liability. An individual can use tax accounting to understand how factors such as wages, investments and dependents affect her income taxes. The knowledge can help her file her own taxes or effectively communicate with an accountant who files for her.
Accounting for Personal Finances
Learning accounting will help you with your everyday finances. Financial tasks such as depositing money into a bank account and filling out a checkbook involve a form of accounting. Accounting knowledge helps you to understand how interest rates are calculated on a car loan or a mortgage. You can also benefit from generating personal financial statements that help you to determine your net worth, make a budget and plan for the future.