The field of accounting is broad, but it is typically separated into three major branches, each serving a different audience and set of objectives. Accounting Services Baltimore. These branches determine how financial information is gathered, organized, and reported.
1. Financial Accounting
This branch focuses on preparing and reporting financial information for external parties.
Audience: Investors, creditors, government regulators (like the IRS), and the public.
Purpose: To present a clear, objective view of the company’s past financial performance and current position.
Key Output: The Financial Statements (Income Statement, Balance Sheet, and Cash Flow Statement).
Guiding Rules: Must adhere to strict external standards like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) to ensure consistency and comparability.
2. Managerial Accounting (or Management Accounting)
This branch focuses on providing financial information and analysis for a company’s internal managers.
Audience: Executives, department heads, and internal operations teams.
Purpose: To aid in planning, controlling operations, and making strategic decisions for the future.
Key Output: Detailed budgets, cost analysis reports, performance evaluations, and forecasts.
Guiding Rules: There are no external standards like GAAP. Reports are custom-designed to meet the specific needs and decision-making requirements of management.
3. Tax Accounting
This branch specializes in preparing tax returns and planning tax-related strategies. Bookkeeping Services in Baltimore.
Audience: Tax authorities (such as the IRS), businesses, and individuals.
Purpose: To ensure compliance with government tax laws and legally minimize the tax burden (tax planning).
Key Output: Various national, state, and local tax returns (e.g., income tax, sales tax).
Guiding Rules: Must strictly follow the Internal Revenue Code (IRC) and other specific tax legislation, which often uses different rules than financial accounting (GAAP).
Accurate accounting relies on how well financial data is recorded and maintained. All three branches—financial, managerial, and tax accounting—depend on consistent records to function effectively. Proper Bookkeeping ensures information remains reliable for reporting, analysis, and compliance decisions.
