Branches of Accounting

 

In order to meet the ever-increasing demands made on accounting by different interested parties (such as owners, management, creditors, taxation authorities, etc.) the various branches of accounting have come into existence.

Today we are going to study branches of accounting. Different branches of accounting came into existence keeping in view various types of accounting information needed by a different class of people viz owners, shareholders, management, suppliers, creditors and various government agencies etc., There are three main branches of accounting which include “Financial accounting, Cost accounting, and Management accounting”.

 Financial Accounting

 ·         Financial Accounting is based on a systematic method of recording transactions of any business according to the accounting principles.

·         It is the original form of the accounting process, the main purpose of financial accounting is to calculate the profit or loss of a business during a period and to provide an accurate picture of the financial position of the business as on a particular date.

·        The Trial balances, Profit and Loss accounts and Balance Sheets of a company are based on an application of financial accounting these are used by creditors, banks, and financial institutions to assess the financial status of the company further taxation authorities are able to calculate the tax based on these records only.

 Cost Accounting

 ·         Cost accounting deals with evaluating the cost of a product or service offered.

·         It calculates the cost by considering all factors that contribute to the production of the output both manufacturing and administrative factors.

·         The objective of cost accounting is to help the management in fixing the prices and controlling the cost of production it also pinpoints any wastages leakage and defects during manufacturing and marketing processes.

 Management Accounting

 ·         This branch of accounting provides information to management, for better administration of the business, it helps in making important decisions and controlling of various activities of the business.

·         The management is able to take decisions efficiently with the help of various management information systems such as budgets projected cash flow, and fund flow statements variants analysis reports cost-volume-profit analysis reports break-even point calculation etc.

·         Management accounting and Financial Accounting are not to be confused with each other both are different.

·         Management accounting serves the needs of the management in decision makings regarding minimization of the cost factor and enhancing of profit-making.

·         Financial accounting serves the needs of shareholders creditors and financial institutions for ascertaining the financial position of the company.

·         Management accounting records are kept secret for the use of management only they are not made public.

Besides the above-mentioned three branches of accounting there are many other branches. 

Auditing it is a branch of accounting where an external certified public accountant known as an auditor inspects and certifies the accounts of a business for their accuracy and consistency.

Tax accounting its functions include preparation and filing of various tax returns and dealing with their legal implications, tax accountants aid in minimizing tax payments and also help financial accountants in preparing financials.

Fund accounting deals with keeping records for funds of nonprofit business entities, a separate fund accounts are maintained for separate works like welfare schemes of different nature to ensure proper utilization of funds.

 Government accounting is done for central government and state government budget allocations and utilizations.

 Forensic accounting is also known as legal accounting enables calculating damages or settling disputes in legal matters.

 Fiduciary accounting is the accounting and evaluation of a third party's business and property maintained under the guardianship of another person.

For detailed discussion watch the following video:

It should be remembered that in these lectures, we are concerned only with financial accounting. Financial accounting is the oldest and the other branches have developed from it.