What Is Accounting? Definition, Types, and Careers

Accounting is the area of financial services that deals with organizing and summarizing financial data for businesses and individuals. In business, accounting involves analyzing financial details and auditing company finances and transaction information. Although accounting is often misconstrued as a job that only focuses on adding and subtracting, the accounting industry is actually incredibly varied and includes different specializations and skills.

Definition of Accounting

The simplest way to define accounting is: the process of keeping track of accounts. In the same way you check your bank accounts to determine how much you’ve spent or earned, a business needs to know the status of its accounts. 

Ultimately, every business needs accounting — it’s how companies understand their financial footing and future growth (or decline). Sometimes, accounting is called “financial reporting” because accounting in businesses often focuses on the analysis and communication of a business’ financial information. 

Accountants also report important financial information to external authorities. For example, tax accountants ensure companies meet tax requirements and provide the Internal Revenue Service (IRS) with accurate information.

Why Is Accounting Important?

Accounting is important because it helps ensure that a business is financially successful. Just like budgeting and tracking your spending is a large part of personal financial success, accounting ensures that businesses stay on top of their finances — from spending to cash flow.

Accounting can help a business:

• Plan for the long term: By analyzing historical financial data, tracking trends, creating financial projections, and more, accounting can help companies create informed financial plans for the future. 
• Ensure compliance: Accounting helps businesses understand if they’re adhering to complex financial regulations, tax laws, and reporting standards. 
• Stay profitable: Businesses can use accounting to closely monitor their revenue, expenses, profit margins, and overall financial health. 
• Detect fraud: Financial audits can help identify and prevent fraudulent activities within an organization. 
• Make good investment decisions: Through detailed financial statements, cash flow projections, and performance metrics, business leaders can use accounting to understand the potential risks and returns of different investment opportunities.
• Support effective management: Accounting is a tool that helps leaders make informed, strategic decisions. When leaders have the right detail and understanding of their company’s financial performance, they can allocate resources efficiently and make plans that improve business health.

Types of Accounting

Accounting has two main focus areas: financial accounting and managerial accounting. 

Financial Accounting

Financial accounting deals primarily with reviewing and reporting transaction data for a company. This boils down to: how much cash went out and how much cash came in? 

In practice, it’s much more complicated than that. Businesses typically have many financial aspects that need to be recorded and reported, such as non-liquid assets, (like real estate), revenue streams, investor cash, and shareholder equity.

Managerial Accounting

Managerial accounting involves using the financial data of a business to inform company decisions. These accountants look at financial documents and determine what changes need to be made moving forward to meet specific goals or objectives. 

Essentially, while financial accounting is recording and reporting, managerial accounting is interpreting and analyzing.

Careers in Accounting

People who work in accounting are typically called accountants,but many different job titles exist within accountancy. Additionally, because accounting is core to every business, accountants can work in a wide variety of industries and sectors.

Accounting Jobs

Auditor

Auditors track accounts and ensure information is recorded accurately. They’re responsible for looking into business processes and making sure that all of a company’s financial statements and transactions are correct. Internal auditors work for the company they audit, while external auditors work for accounting firms and perform audits for other companies.

Forensic Accountant

Forensic accountants investigate financial information to find areas of fraud or misconduct, usually for law enforcement agencies. Like auditors, they look closely at a company’s (or person’s) financial records; unlike auditors, their goal is to assess for illegal financial activity, such as embezzlement or fraud.

Tax Accountant

Tax accountants prepare and file tax documentation for a business and ensure it’s following all local, state, and federal regulations. While tax accountants are competent in key accounting and finance skills, they specialize in tax laws and guidelines so they can help their clients file taxes promptly, correctly, and effectively.

Budget Analyst

A budget analyst, or cost analyst, reviews a company’s spending habits and determines ways to make the budget more efficient. These professionals may create budget reports or analyze budget proposals, and even ensure that a company sticks to its budget once it’s put in place.

Controller or Financial Manager

Controllers or financial managers are high-ranked finance professionals who develop long-term financial plans and ensure a company stays in good financial health. These are leadership positions that are less hands-on in the day-to-day financials of a business, but rather use those insights to make larger strategy decisions.

Chief Financial Officer

The chief financial officer (CFO) is the top-ranked person regarding a company’s finances. They oversee finances for the entire organization and help other executives make decisions. 

>>MORE: See 20 popular careers in finance.

Accounting Industries

Accountants, and other related finance professions, can work in nearly any industry, including:

• Banking
• Health care
• Technology
• Transportation
• Retail
• Nonprofit
• Government (local, state, and federal)

Regardless of industry, accountants either work internally or externally: 

• Internally, an accountant is an employee of the organization they manage accounting tasks for. 
• Externally, an accountant acts as a consultant, providing third-party accounting services to businesses.

What Accounting Career Is Right for Me? Quiz

Advantages and Disadvantages of Accounting Careers

Advantages

One advantage of a career in accounting is that options are available within most industries. 

Daniel Siciliano, CPA, CMA, senior lecturer in accounting at University of Nevada, Las Vegas, says, “The career options within accounting are varied and include fast paced high reward jobs and slower paced jobs that are more quality-of-life focused.” 

Additionally, accounting is a stable field to get into: Every company needs accounting, and it’s a growing career. According to the U.S. Bureau of Labor Statistics, employment for accountants and auditors is expected to grow 6% from 2023 to 2033.

>>MORE: Explore the different career paths within accounting.

Disadvantages

A key disadvantage of working in accounting is the pressure of the job. Companies are dependent on accurate accounting to survive, so there’s a need for precision and attention to detail. 

Additionally, some financial information necessitates working with hard deadlines, creating longer working hours and a more stressful environment. This is especially true during tax season. 

Another disadvantage some people may find is the subject matter itself.  

“I have found that there are negative views around the accounting profession as it is deemed boring or a passion for math is needed,” says Francis Fabrizi, an accountant at Keirstone Limited. “However, this is not the case, especially now that there are so many accounting software and apps to help make accounting tasks as easy as possible.”

How to Get Into Accounting

Because accounting is a technical field that requires specific math and finance skills, there are specific education requirements to get into the industry. To advance in your career, you’ll also need certification.

Education

You typically need a bachelor’s degree in accounting or a related finance field to get into accounting. This education is also great preparation for the Certified Public Accountant (CPA) license or to find an entry-level position in the accounting field. 

“An accounting qualification [like a CPA license] is not necessary for most entry-level positions, which usually involve processing and generating invoices, payroll, assisting with basic bookkeeping and general administration tasks.” Fabrizi says, “Roles like these are a great way for someone to ‘test the water’ and decide whether to take their finance career further.”

Many accountants choose to pursue advanced degrees to help meet education requirements for a CPA license or other certifications, like the certified management accountant (CMA) designation. Additionally, advanced degrees can help with career progression and make you more marketable to employers.

Certifications and Licensing

The most common certification or license for accountants is the CPA license. Qualifications for a CPA license vary by state, but you generally need a four-year degree, a few years of accounting experience, and to pass the CPA exam. 

The CPA exam is tough, but having this certification is one of the most important tools for progressing in an accounting career. 

“Many CPAs can move into other areas of business like finance or operations and many times CPAs can be promoted to the top position in the company. It is very hard to be an executive without understanding accounting,” notes Siciliano.

Skills

A career in accounting requires at least some skills in mathematics and finance:

• Mathematical proficiency, including advanced mathematical reasoning, statistical analysis, computational skills
• Financial statement expertise, including working on balance sheets, income statements, and cash flow statements
• Technical accounting skills, including understanding of the U.S. generally accepted accounting principles (GAAP)
• Accounting software knowledge, such as QuickBooks, SAP, and Oracle financials
• Depending on what kind of accountant you’d like to be, specialized accounting knowledge is also relevant. For example, if you’d like to get into tax accounting, having knowledge of tax law and regulations is crucial; if you’d like to be an auditor, you’ll need to be an expert in auditing procedures.

Beyond technical skills, accountants also need a range of soft skills to do their jobs well, including:

• Attention to detail
• Analytical skills
• Time-management skills
• Communication skills

Start learning the skills you need to succeed with Forage’s free accounting job simulations.

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