Home > Business > The Many Forms of Accounting Practice

The Many Forms of Accounting Practice

106 Views
pexels andrea piacquadio 3755700 f0e51f76

Accounting is accounting, isn’t it? Well, yes and no. There are many standard terms, processes and procedures among the various forms of its practice. However, each has its nuances and tax implications. The differences are primarily related to the type of organization, delivery method and the growing number of practice specialties.

For-Profit Accounting

For-profit accounting is for businesses where the goal is to make money. The profits are then subject to state and federal taxes. Revenue and money comes from the sale of products or services. The typical associated costs depend on the type of company. For example, manufacturers have to pay for materials, and retail companies must purchase inventory. The primary cost associated with service companies is labor. Then there are the overhead costs typical of all of these companies. These include rent, utilities, office supplies and others that don’t change significantly with the fluctuations in revenue.

Not-For-Profit Accounting

Not-for-profit accounting, also called nonprofit accounting, is for organizations with tax-exempt status because the nature of their work is to provide a public service. Their revenue comes from donations, grants and fundraising programs, and typical costs depend on the type of service offered. The name is a bit misleading because not-for-profit organizations can and do earn profits. However, rather than paying them out to shareholders, annual operating profits are usually set aside in a reserve fund to meet future cash flow needs. Their tax-exempt standing is dependent upon following a stringent set of rules.

Private Sector Accounting

Most companies have an internal accounting department with at least one person designated to handle daily transaction processing. Small companies often send their financial data to an outside accountant who prepares the tax return, provides adjusting entries and performs other year-end tasks. In a large company, while the accounting department has an increased staff, it still may have an outside CPA prepare the tax return. Other companies employ a full-time CPA, so the tax return is done in house.

Public Accounting

Unlike accounting in the private sector, public accounting is a business that generates revenue by providing accounting services to many different companies, both for-profit and not-for-profit. The people providing these services are typically CPAs and, depending on the firm’s size, may specialize in tax, audit or other specialties.

Tax Accountant

A tax accountant advises the client throughout the year regarding new tax laws and how they impact the business. She also assists with tax planning, so the company is in the most desirable tax situation at year-end. The tax accountant’s job is to focus on tax savings. Besides preparing the tax return, she will also support the company in case of an IRS audit.

Audit Accountant

Companies hire external auditors to determine if the books are a fair and accurate representation of their financial position. Audits consist of performing a series of tests on the accounting data, interviewing management and preparing audited financial statements along with an audit summary report. Businesses may request an audit because one or more of their clients insist on it as a condition of their contract. Lenders, investment bankers and anyone interested in purchasing the company may also request audited financials to assure that they reflect generally accepted accounting principles (GAAP).

Other Specialties

Other specialties focus on specific uses of financial data. Forensic accounting, for example, is used to identify and locate fraud or embezzlement. Those specializing in valuation determine a company’s market value for transactions involving private stock shares or when the business is for sale.

 

Whether it is for-profit or not-for-profit accounting depends on the type of organization and its tax status. Accountants in the private sector work for a specific employer, whereas public accounting is a business that performs this service for multiple clients. Public accountants may specialize in tax, audit or other areas of interest. A career in accounting can provide a wide variety of practice opportunities that may even include putting criminals behind bars.

TAGS , ,
Business Module Hub