What Are the Functions of Accounting? (Definition and Types)

Updated 7 August 2023

Accounting is crucial for managing and analysing the financial resources of a company. By understanding the functions of financial accounting and the duties and responsibilities of accountants, you can decide if you want to pursue a career in this field. In this article, we explain what is an accountant, review some types of accounting, list the functions of accounting and provide a few different jobs qualified accountants can undertake.

Salary figures reflect data listed on Indeed Salaries at time of writing. Salaries may vary depending on the hiring organisation and a candidate's experience, academic background and location.

Related: Accounting Skills For A Resume (With Tips To Highlight Them)

What Are The Functions Of Accounting?

The functions of accounting include the systemic tracking, storing, recording, analysing, summarising and reporting of a company's financial transactions. Through the functions of the accounting department, the company can maintain a fiscal history that they can make accessible for audits. They can also use it to prepare reports, create budgets, reduce costs, increase profits, avail growth opportunities, assess future expenditure requirements and make financial predictions.

The basic functions of accounting in a company may include the following:

  • Keeping financial records: Accounting helps businesses maintain an accurate and up-to-date record of the day-to-day financial transactions of the company, such as supply purchases, product sales, receipts and payments.

  • Monitoring financial transactions: Accountants may track multiple financial transactions related to payments due to the company to ensure it receives the revenue and remains profitable.

  • Making bill payments: Accounting involves checking invoices to ensure the legitimacy of the charges, setting payment dates and paying the bills that the company owes to various vendors and suppliers.

  • Paying employee salaries: Companies can use accounting to make payroll payments from company funds, manage employee benefits and issue employee work-related bonuses.

  • Keeping digital records: Accounting may involve creating, maintaining and updating digital accounting systems to store and calculate the company's financial data.

  • Writing financial reports: Accounting involves repairing detailed quarterly and annual financial reports about the company's assets, profits and losses for internal and external stakeholders.

  • Maintaining fiscal history: Accountants assist with creating, documenting and storing the fiscal history of the company's transactions and making it available for audits and assessments.

  • Achieving business goals: An accountant can analyse financial data to formulate and implement comprehensive financial policies and strategies to advance the company's business goals.

  • Preparing budgets: The accounts department may reference the company's financial data to prepare the overall company budget, the department budgets and the project budgets.

  • Making financial projections: Accounting involves analysing the company's available financial resources, expected revenues and business goals and using this information to predict future business expansion and growth.

  • Auditing finances: Accountants may conduct financial audits of the company, identify accounting discrepancies and implement corrective solutions.

  • Assessing financial resources: Companies can use accounting to identify the financial weaknesses and strengths of the organisation, determine how to counter weaknesses and boost strengths and implement appropriate strategies.

  • Reviewing performances: Accounting involves performing regular financial reviews of the company's departments to assess their performance and make changes to reduce waste, increase productivity and streamline expenses.

  • Complying with legal requirements: Accountants make sure the company complies with industry and government rules, regulations and policies related to taxation, financial reporting and employee wages.

  • Preventing mismanagement: The accounting department can keep accurate track of the company's financial transactions to ensure no mismanagement or wastage of money occurs in the company.

  • Ensuring vigilance against fraud: Accounting includes implementing strong security measures to protect the company assets against data breaches and internal and external fraud.

Related: 9 Commonly Accepted Accounting Principles

What Is An Accountant?

An accountant is a business professional who handles the financial matters of companies. They may work on their own or as part of an accounting team in the company's accounting department. Their work involves keeping track of the company's incoming and outgoing funds and gathering, storing and processing financial data. They may analyse financial information and verify its accuracy.

The daily duties of an accountant include directing funds for payroll purposes and checking and paying invoices. They may prepare financial reports and refer to these to create company budgets. Working together with the company management, they may review its expenditure and propose practical solutions to reduce its costs and increase its profits. If the accountant has a certified public accountant (CPA) certification, they are qualified to conduct financial audits, provide financial consultancy services and train the company staff.

Related: Accountant Roles and Responsibilities: A Complete Guide

Types Of Accounting

The types of accounting are:

Financial accounting

Financial accounting focuses on the proper financial management of the company's funds. A financial accountant may keep track of the incoming and outgoing cash flow and record all financial transactions. They may use that information and past financial data to analyse the overall expenditure and prepare financial reports. By reporting the profits and losses of the company to its management, they help the executives and the investors understand its financial health and make informed business decisions.

Related: Accounting Questions and Answers for an Interview

Managerial accounting

Managerial accounting is for a company's internal purposes. A managerial accountant may review the company's entire financial situation and assess how internal processes impact expenditure and financial stability. They may analyse its business productivity, monitor its growth and use the information to make financial predictions. Additionally, they may generate financial reports, monitor business trends and make recommendations to improve finances.

Related: Basics of Accounting - Terminology, Principles and Concepts

Cost accounting

Cost accounting considers the regular expenses that the company incurs to run its business operations. A cost accountant may create a list of all the raw goods or items that the company needs for production purposes, the number of goods it buys and their prices. Having this information can help the company manage expenses and scale production.

Internal accounting

Internal accounting is about carrying out an independent audit of the company's standard operating procedures and internal control structure and assessing its effectiveness. The company may hire an independent chartered accountant or a cost accountant to conduct the internal audit. The auditor may identify threats and recommend improved risk management practices.

Taxation accounting

Taxation accounting ensures that the company complies with tax laws and pays the correct tax dues on time to the revenue authority. Tax accountants can help the company to determine how to set aside funds for tax payments. They may also recommend tax accounting methods that are suitable for the company's business.

Related: 10 Potential GST Interview Questions With Sample Answers

Jobs In Accounting

As a qualified accountant, you may be able to work in the following roles:

1. Staff Accountant

National average salary: ₹2,25,856 per year

Primary duties: Staff accountants work in a company's accounting department and manage its accounting and financial processes. They may manage financial accounts, perform financial transactions, maintain the general ledger and prepare tax documents. Additionally, they may update expense files, prepare financial reports and perform client-related administrative duties.

Related: Accountant Vs. Staff Accountant: Key Differences And Duties

2. Auditor

National average salary: ₹2,88,907 per year

Primary duties: An auditor examines financial accounts and verifies the accuracy of financial records and statements. They may track a company's cash flow to ensure proper accounting of all funds and identify any existing accounting discrepancies. They may also be responsible for ensuring compliance with tax laws.

3. Financial Planner

National average salary: ₹2,93,153 per year

Primary duties: Financial planners help clients to define their financial goals, identify financial risks, conduct cash flow analysis and prepare effective financial planning and investment strategies. They may assist them with creating personal budgets and with tax planning, insurance planning, retirement planning and estate planning. Financial planners may operate independently or may work with investment or insurance companies.

4. Cost Accountant Manager

National average salary: ₹4,14,284 per year

Primary duties: Cost accountant managers are responsible for planning, budgeting and tracking the company's expenditure. They may review which departments are most profitable and may make cost-saving recommendations for other departments. Cost accountant managers typically work under the chief financial officer.

5. Financial Analyst

National average salary: ₹4,16,564 per year

Primary duties: A financial analyst provides financial insights and feedback to the accounting team. They may analyse financial data, create financial models and perform financial forecasting. Additionally, they may prepare financial reports, review budgets and make investment recommendations.

6. Certified Public Accountant

National average salary: ₹6,12,973 per year

Primary duties: The job duties of a certified public accountant include checking financial records, auditing financial information and writing financial statements and reports. They may work with the tax department to ensure tax compliance and file tax returns. They may also help companies establish budgets.

7. Accounting Manager

National average salary: ₹6,95,030 per year

Primary duties: Accounting managers oversee and manage the daily work operations in the company's accounting department. They may track accounting data, audit and analyse it and compile and present financial reports. They may carry out financial forecasting, prepare tax returns and make recommendations to reduce expenses.

8. Tax Manager

National average salary: ₹8,86,929 per year

Primary duties: Tax managers are in charge of a company's taxation-related matters. Typically, they are knowledgeable about tax laws, and they ensure compliance with legal regulations. Along with reporting taxes, they may supervise the staff in the accounting department.

9. Chief Financial Officer

National average salary: ₹10,22,054 per year

Primary duties: A chief financial officer is responsible for analysing, planning and managing the finances of a company. They may build financial models, prepare financial statements and identify financial strengths and weaknesses. Using their knowledge and research of financial matters, they may propose and implement corrective solutions.

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