Branches and Objectives of Accounting

Branches of Accounting

Various branches of accounting exist according to the economical development and technological advancements. Information needed by the internal users (Management and directors) and external users (Shareholders, creditors etc.). These accounting branches help to form reports and information in a different manner for different user. The three main branches of the Accounting are:

  • Financial Accounting
  • Cost Accounting
  • Management Accounting

Financial Accounting

The main motive of this type of accounting branch is to keep a proper record of all the financial transactions to observe the profit and loss of the business during the financial year. This also helps to know the actual financial position of a business to its owners and shareholders etc and at the end of the accounting period it provides the necessary and useful information to management as well as to the other parties and users who need the same. The applications which are based on financial accounting are Profit & Loss Account, Trial Balance and Balance sheet which are used by Banks, Creditors, and shareholders etc. to assess the actual financial position of the business.

Cost Accounting

In cost accounting the expenditures of various products manufactured by a company or firm has been ascertained and prices have been decided to these various manufactured products. Cost accounting is mostly used by manufacturing industries. It concerns with the internal economic events and operations of the manufacturing industry. It helps to control the costs and provide useful information related to costing to the management for decision making.

Management Accounting

It deals with the provision of important information to be provided for decision making within an organization. With the help of this branch of accounting, management is able to take future decisions to control various activities of the business. In Management accounting information in form of budget, cash flow and fund flow statements, break-even point analysis, and other analysis reports etc. can be used by the management to take rational policy decisions and to evaluate the impact of these decisions and actions.

Objectives of Accounting

As accounting is an information system, the main objective of this system is to provide relevant information to the internal and external users of the business. In case of external users, the information is provided in form of various financial statements. For example: Trial Balance, Profit and Loss Account and Balance Sheet. Besides this, additional information is provided to the management related to financial position of the business. Main objectives of accounting are as under:

  • Maintenance of Record of Business Transactions
  • Calculation of Profit and Loss
  • Presentation of Financial Position
  • Providing Information to the users

Maintenance of Record of Business Transactions

Accounting is used to maintain a systematic record of transactions related to business in the books of accounts. It is impossible for anyone to remember all transaction amounts accurately. Thus a systematic and complete record of all business transactions has been kept on daily basis. Recorded transactions help to remember details for future and can be acts as an evidence of the business done between company and its customers. All types of sales, purchases, receipts and payments etc. are known as business transactions.

Calculation of Profit and Loss of Business

Another objective of the accounting is to ascertaining the profit and loss of the business during the accounting period. Owners and Management of every business or firm wanted to know if they are earning profits or incurred losses from their business. The profit and loss of the business or a firm can be easily ascertained with the help preparing profit and loss account in which incomes and expenses incurred within the business are recorded for a particular period. If incomes are more than expenses, this indicates profit and loss represents excess expenses over incomes (revenue).

Presentation of Financial Position

Next purpose of accounting is to discover the financial position of the business with the help of balance sheet where assets and liabilities of the business have been evaluated at the end of accounting period. In Balance sheet, the proper record of resources that are owned by the business, known as assets and payments against these resources known as liabilities are recorded for the purpose.

Providing Information to the Users

The whole accounting process at the end generates accounting information and is communicated to the internal and external users in the form of many reports, statements, charts, graphs. These users need the information to make decisions related to business time to time. As discussed earlier, there are internal users mainly management needs the information about cost of sales and profitability for further planning, controlling and decision making while external users of a business have limited authority to obtain information on position of business in the form of Profit and loss account, trial balance and balance sheet.

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