What Is Micro Accounting?
Micro accounting is defined as the branch of accounting performed at a personal, corporate, or divisional level. It is the opposite of macro accounting, which is the compilation of national accounts or macroeconomic data of a country.
- Micro accounting refers to the process of recording financial transactions pertaining to a business, individual, or household.
- It differs from macro accounting, which tracks and reports components of an entire economy rather than a single company or individual.
- Micro accounting data shows up in personal or corporate tax returns, corporate financial statements, and audits.
Understanding Micro Accounting
Micro accounting is generally used to refer to accounting for small businesses or company subunits and divisions. By definition, all conventional accountants are micro accountants. Micro accounting for small business clients is a large market and focuses on the preparation of financial statements for internal use and income tax preparation.
Micro accounting is essentially what most people know as accounting or bookkeeping. It’s the recording of transactions, preparation of financial statements, tax filings, among other things. Micro accounting is generally used when describing an accounting subset. Analyzing the financials and transactions of the subsidiaries of a larger company may be referred to as micro accounting.
Micro accounting can involve breaking down a larger company’s financials into divisions or subsidiaries. It can also mean looking at something on a smaller scale, whether it be a specific company division or a particular time frame. For example, to figure out why a company lost money in a particular quarter one might do some micro accounting to identify the source.
When you have a larger subset but are drilling into a specific unit or entity, one may use the term micro accounting. Still, broadly, anything accounting-related for individuals, companies, or government agencies is considered micro accounting.
In most cases, micro accounting adheres to generally accepted accounting principles (GAAP). GAAP is a set of standards and principles designed to improve the comparability and consistency of financial reporting across industries. Its standards are based on double-entry accounting, a method in which every accounting transaction is entered as both a debit and credit in two separate general ledger accounts that will roll up into the balance sheet and income statement.
Micro Accounting vs. Macro Accounting
Micro accounting applies to company-level and individual accounting, while macro accounting is the statistics and performance of entire countries and nations. Micro accounting can apply to government agencies as well, with the big distinction for macro accounting being that it covers entire nations.
Macro accounting doesn't necessarily involve any accounting. Where accountants are the ones doing micro accounting, it’s usually economists doing macro accounting. Accountants deal with recording transactions and analyzing data, while economists study and analyze the allocation of resources.
Micro Accounting and Economics
The meaning of "macro" is big picture, while "micro" focuses on something smaller, more individualistic. This holds true in accounting, as it does in economics. Microeconomics covers company-level or individual economic changes, which includes company-specific pricing, and supply and demand. Macroeconomics is the bigger picture, being the study of national data, such as unemployment rates, and imports and exports.
The microeconomic and macroeconomic relationship is similar to the micro, macro one in accounting. Companies use micro accounting data to make decisions that impact micro accounting.