Unit- 2
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Branches of Accounting
There are three branches of Accounting.
i) Financial accounting;
ii) Cost accounting;
iii) Management accounting.
Question.1 – How many types of Accounting
Branches are there?
Answer – There are three types of accounting
branches.
Con…
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Question.2 – Name the Accounting branches.
Answer i) Financial accounting;
ii) Cost accounting;
iii) Management accounting.
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(i) Financial Accounting
The accounting system concerned only with
the financial state of affairs and financial
results of operations is known as Financial
Accounting. It is mainly concerned with the
preparation of financial statements for the use
of outsiders like creditors, investors and
financial institutions. The financial statements
i.e., the profit and loss account and the
balance sheet.
Con…
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Question – What is financial accounting?
Answer - The accounting system is concerned
only with the financial affairs of the business is
known as Financial Accounting.
ii) Cost Accounting
It is that branch of accounting which is
concerned with the accumulation and
assignment of historical costs to units of
product and department.
Cont…
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Cost accounting seeks to ascertain the cost of
unit produced and sold or the services
rendered by the business unit with a view to
exercising control over these costs to assess
profitability and efficiency of the enterprise.
Question – What is cost accounting?
Answer – Cost accounting is concerned with
the ascertainment cost of unit produced and
sold or the services rendered by the business
unit.
Con…
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(iii) Management Accounting
It deals with the processing of data obtained
from financial accounting
and cost
accounting for managerial decision making. It
also deals with application of obtained data
for the efficient running of the business and
thus in maximizing profits.
Question – What is management accounting?
Answer – Management accounting deals with
the processing of data obtained from financial
accounting and cost accounting for managerial
decision making.
Con…
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ACCOUNTING PRINCIPLES
Accountancy is based on fundamental truth,
rules and procedures which are universally
accepted. These rules to record business
transactions are called accounting principles.
Accounting principles can be classified into
two groups, viz., accounting concepts and
accounting conventions.
Con…
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Accounting Conceptsa) Business entity Concept
b) Going Concern Concept
c) Money Measurement Concept
d) Cost Concept
e) Accounting period Concept
f) Dual aspect Concept
g) Accrual Concept
Con…
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Accounting Conventionsa) Disclosure
b) Materiality
c) Consistency
d) Conservatism
Question - What do you mean by accounting
principles?
Answer - Fundamental truth, rules and
procedures of the accounting are called
accounting principles.
Con…
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Accounting Concepts:
a) Business Entity Concept: According to
Entity concept, business is treated as a unit of
entity separate from its owner, Creditors and
Management etc.
b) Going Concern Concept: Under this
concept, the transactions are recorded
assuming that the business will exist for a
longer period of time, i.e.,
Con…
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a business unit is considered to be a going
concern and not going to close in near future.
c) Money Measurement Concept: In
accounting all events and transactions are
recorded which can be measured in terms of
money. Transactions which cannot be
expressed in monetary terms are not recorded
in accounting.
Con…
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d) Cost Concept: According to cost concept
the various assets acquired by enterprise
should be recorded on the basis of actual cost
incurred. As per cost concept Fixed Assets are
shown at cost less depreciation charged from
year to year.
e) Accounting period: It is customary that the
life of the business is divided into appropriate
parts for analyzing the results shown by the
business. Each part divided is known as an
accounting period. Normally the accounting
period consists of twelve months.
Con…
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f) Dual aspect Concept: This concept based on
double Entry book-keeping which means that
Accounting system is set up in such a way that
a record is made of the two aspects of each
transaction that affects the record. The
recognition of the two aspects of every
transaction is known as dual aspects concept.
(Every debit is followed by a credit).
g) Accrual Concept: This accounting concept
states that revenue is recognized when they
are earned and not when they are received
similarly, cost is recognized as and when they
are incurred and not when they are paid.
Con…
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Accounting Conventionsa) Disclosure: According to convention of full
disclosure, accounting must disclose all the
material facts and information.
b) Materiality: According to the convention of
materiality; account should report only what
is material and ignore insignificant details
while the preparing the final accounts.
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c) Consistency: This accounting convention
state that once a particular accounting
practice, method or policy is adopted to
prepare accounts, statements and reports. It
should be continued for years together and
should not charge.
d) Conservatism: Financial Statements are
usually drawn up on a conservative basis.
There are two principles of conservatism
Con..
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a) The accountant should not consider any
future income but should provide all possible
losses, and
b) In valuing an asset the accountant should
choose a method which leads to the lesser
value.
Con…
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Question - write down the accounting
concepts.
Answer – Accounting concepts are
a) Business entity Concept
b) Going Concern Concept
c) Money Measurement Concept
d) Cost Concept
e) Accounting period Concept
f) Dual aspect Concept
g) Accrual Concept
Con…
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Question – Write down the accounting
conventions.
Answer –
a) Disclosure
b) Materiality
c) Consistency
d) Conservatism
Con…
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REVIEW
Question-1. There are ……….branches of Accounting.
(i) 1 (ii) 2 (iii) 3 (iv) 5
Question-2. Financial Accounting is concerned only
with …………… of the business.
(i) Financial affairs (ii) ascertainment of cost of
unit produced (iii) Processing of data for managerial
decision.
Con…
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Question-3. Cost Accounting is concerned
with the ……………
(i) Financial affairs (ii) ascertainment of
cost of unit produced
(iii) Processing of data for managerial decision.
Question-4. Management Accounting deals
with the ………….
(i) Financial affairs (ii) ascertainment of
cost of unit produced (iii) Processing of data
for managerial decision.
Con…21
Question-5. Accounting is based on fundamental
……………..which are universally accepted.
(i) truth rules and procedures (ii) business rules
(iii) social norms
Question-6. When the same rule is followed year
after year this is called ………….. convention of
Accounting.
(i) going concept (ii) dual aspect concept
(iii) consistency convention.
Con…
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Question-7. As per ………. business will run for
ever.
(i) going concept (ii) money measurement
concept (iii) accrual concept.
Question-8. There is two aspect of every
transaction under the ……………of Accounting.
(i) dual aspect (ii) money measurement concept
(iii) accrual concept.
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