Branches of Accounting
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Sanjoy19
July 14, 2020
There are three main types or branches of accounting. Accounting activities are
very big, so accounting has been divided into different parts. Such as, financial
accounting for financial activities, cost accounting to control cost and expenses, etc.
Learning Objectives: Branches of Accounting.
After studying this unit,you will be able to:
Type/ Branches of accounting: type or branches of accounting two parts
divided.
Traditionally, type or branches of accounting may be classified
into three parts such as:
1.Financial accounting.
2.Management Accounting.
3.Cost accounting .
However, at present, the branches of accounting has expanded
to a large extent to include :
1.Human Resource Accounting.
2.Social Accounting.
3.Forensic Accounting.
4.National Accounting.
5.Tax Accounting.
6.Green Accounting.
7.Creative Accounting.
The type/branches of accounting can be explained with the help of the
following chart :
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Branches-of-Accounting
proper discuss the type or Branches of accounting in the below:
1.Financial Accounting:
It is the traditional form of accounting. this branches of accounting It is basically related
to record-keeping needed for the finalization of Accounts.
It helps to prepare the Profit and Loss Account for showing the periodic operational
result and the balance sheet for exhibiting the financial position of a business on the
closing date of the accounting period.
It involves (a) classifying and recording business events and transaction of financial
character (b) preparing profit and loss account and balance sheet (c) communicating
necessary accounting information to the parties concerned.
It is primarily confined to the creation of traditional financial statements to meet the
common need of financial information of external user groups like creditors,
debenture holders, shareholders, employees, customers, tax authorities, regulatory
agencies, banks, and other financial institutions, public at a large and so on.
Its primary objective is to ascertain the financial results of an organization during each
accounting period and to disclose the financial position at the end of each accounting
period.
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It is guided by some accepted accounting principal and customs, relevant legal
regulations and existing accounting standards set up by appropriate authorities.
2.Management Accounting:
This branches of accounting opened up only in the twentieth century. It is related to
the presentation of accounting information in a manner to help the management the
best possible use of its economic resources.
The American Accounting Association feels that “Management Accounting
includes the method and concepts necessary for effective planning, for choosing among
alternative business actions and for control through the evaluation and interpretation of
performance.”
Accounting to T.G, Rose it is “the adaptation and analysis of accounting information
and its diagnosis and explanation in such a way as to assist management.”
Whereas financial accounting is concerned with the preparation of final accounts for
external users, management accounting is concerned with the presentation of
information and reports to the internal users like the management.
Management accounting is that type of accounting that deals with the application of
professional information in such a way as to assist the management in the formation of
policies and in the planning and control of the operations of the undertakings.
It covers all the arrangement and combination of adjustment of conventional
information to provide the chief executive with the information on the basis of which he
can control the business.
Management Accounting deals with the data and information collected from both cost
and financial accounting for formulating policies, controlling operations, and making
decisions.
3.Cost Accounting:
This branches of Accounting it is related to the cost accounting. It begins with the
recording of expenditure and ends with the presentation of necessary data. It helps to
ascertain and control the costs of products and services.
Cost accounting refers to the branches of accounting which confined itself with the
collection, classification, recording, summarization, and presentation of cost
information that is needed for cost ascertainment, cost reduction, and cost control.
Its primary objective is the determine the cost of the product manufactured or to
determine the cost of rendering services, their control, and reduction
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Management Accounting is actually an offspring branches of Accounting cost. Horngren
felt that these two are practically indistinguishable from each other. The former is a
recent development in the accounting filed.
But the first book in cost accounting “Prime cost keeping for engineers, Iron
Founders, Boiler and Bridge makers” by John walker came out in 1875.
Immediately after its publication Henry Metcalfe, Slater Lewis, Alexander Church, etc,
made valuable contributions towards the development of Cost Accounting.
The introduction of Budgetary Control, Marginal Costing, Integrated Cost, and
Financial Accounting, etc have later on been taken by Management Accounting also.
4.Human Resource Accounting:
The functions of producing and selling goods and services by a business enterprise
depends on (a) human assets and (b) non- human assets(like Machinery, Furniture,
etc). Financial accounting is associated with non-human factors.
These type/branches of Accounting is associated with the human resources of a
concern. It identifies and measures data related to human resources. It communicate
the relevant data to the users. It is thus, an accounting for human employees as an
organizational source.
Moreover, a concern, at present, has to incur costs for the up-gradation of technical
know-how of its employees. This investment in human factors is considered as a cost of
the accounting period in which it is incurred. Human resource accounting aims at
evaluating the performance and utilization of human resources in light of relevant costs.
5.Social Accounting:
Every business has a responsibility towards the society. Just as it renders benefits to the
society, it causes the imposition of some social costs. The concept of social accounting
has grown up from the need of comparing the social costs with social benefits.
Simply speaking business activities may fetch benefits to society and at the same time
cause some harm to society in the form of creating environmental pollution,
deforestation, and leaving harmful excrements like poisonous gas, etc.
Profit maximization leads to the enhancement of business capital at the cost of gift of
the nature.
The concept of social accounting or social responsibility accounting is still in the mental
realms of the social researchers and awaiting a final shape. This type of accounting is
social accounting
6.National Accounting :
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National accounting means accounting for the resource of the nation as a whole. It is
generally not concerned with the accounting of individual business entities and is not
based on generally accepted accounting principles. It has been developed by economists
and statisticians.
7.Forensic Accounting:
Financial scams and frauds in the type of accounting practices have drawn the
attention of the users of the accounting information supplied by business enterprises.
Even the well-governed multinational companies like Enron and World.com have not
escaped from the fraudulent accounting practices. Auditors who are also qualified for
accounting have the increased responsibility of detecting frauds and scams in the
corporate world.
Today forensic accountants are not only expected to do the regular audit job but must
also be aware of all the financial transactions performed in the organization.
It means forensic accountant is required to pay attention to the smallest detail, analyze
accounting or financial information thoroughly, think creatively, possess common
business sense, Computer skills, excellent communication skills and puzzle-solving
ability that can be used to reconstruct the details of past or historic accounting
transactions and be able to tell the story.
The integration of accounting, auditing, and investigative skills has opened up unique
branches of accounting known as forensic accounting.
8.Green Accounting:
The concept of green type of accounting is related to the calculation of national income
in which standard measures of income and output are Gross National Product
(GNP), Gross Domestic Product (GDP), and Gross National Income (GNI), etc.
In simple words, Green Accounting is a kind of accounting that tries to take into
consideration the environmental costs in the calculation of operating income of an
enterprise. It is argued that there is a need for a revised method of income
determination that includes green accounting because Gross national Product
ignores the environment.
Green accounting takes into consideration not only the value of natural resources but
also the costs of pollution and depletion of natural resources. The Green Accounting in
terms of sustainable development.
9.Creative Accounting :
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Creative type of Accounting is nothing but the manipulation of the operating results and
financial position of the company, of course, within the limits of the accounting
standards.
It is the primary duty of the persons in the accounting professions, the accountants, to
report a true and fair view of the financial statement, namely the profit and loss account
and the balance sheet.
It means though accounting standards are followed yet the manipulation is done by
adopting such practices as recognition of premature or fictitious revenues, reducing the
rate of depreciation or artificially increasing the life of the fixed assets, and so on.
Investors and other users of accounting information must educate themselves about the
creative accounting and fraud detection methods.
10.Tax Accounting
These branches of accounting have grown in response to the difficult tax laws such as
relating to income tax, sales tax, excise duties, customs duties now the new tax regime
Goods and Services Tax (GST)”India“.An Accountant is required to be fully aware
of various legislation.
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