Branches of Accounting

Accounting Definition

“A systematic record of the daily financial events of a business leading to presentation of a complete financial picture is known as accounting

 Accounting has been divided into three branches, financial accounting, cost accounting, and management accounting and each branch of accounting is inter – related with other branch. No one branch is perfect without other branch of accounting.

 Financial Accounting

“The Accounting system concerned only the financials state of affairs and the financial results of operations. This is called financial accounting”. It includes preparation of accounts (Journal, Subsidiary books, ledger and Trail Balance) on historical basis and Provides Financial Statements (Profit & loss Account and Balance Sheet). It presents a general idea of the working of the business and permits management to control in general way the major functions of a business, viz. finance, administration, production and distribution.

The main object of Financial Accounting is to find out the profitability and financial position of the organization and it is provided to Insiders (Owners and Employees) and outsiders (creditors, banks and Financial Instructions) of the organization.

 Cost Accounting

Cost Accounting means “ascertain the cost of the product and to help the management in the control of cost”. Cost of individual jobs and Products reports not available in Financial Accounting. So Cost Accounting was developed.

The main object of Cost Accounting is to find out the cost of goods produced or services rendered by business. It also helps the management to detect and control all leakages, defective works, and wastage in tools and stores. Cost Accounting information useful at time of making numerous decisions and for exercising control over the costs being occurred. Cost Accounting basically involves estimating costs in advance and detailed analysis.

Management Accounting

 Third branch of accounting is Management Accounting. “Accounting which provides necessary information to the management for to take decisions and to control various business activities”. The primary objective of Management Accounting is to supply relevant information at appropriate time to the management to enable it to take the decisions and effect control.

It means such accounting as will enable management to discharge its functions properly, chiefly in respect of forecasting and budgeting, control over costs and revenues decisions, both routine and strategic.

              Branches Accounting Process and Reports

Financial Accounting Cost Accounting Management Accounting
Journal Cost Sheet Trend Analysis
Subsidiary Books Material Cost Ratio Analysis
Ledger Labour Cost Funds flow statement Analysis
Trail Balance Other Expenses Cost Cash flow statement Analysis
Reports Reports Reports
Profit and Loss Account/Income and Expenditure statement Standard Cost Report Budgetary Reports
Balance Sheet Variance Report MIS Report
Break Even Analysis Interpretation
Managerial cost report
Price determination report

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