What are the Various Branches of Accounting?

Users of Accounting

The company's financial information is needed by its different stakeholders, which include:

• Internal users – accounting managers, business owners, and workers
• External users – Creditors and lenders, investors, suppliers, government agencies, tax authorities, and so on are examples of such entities.

Internal Users

Financial statements are used by business owners to understand the overall performance of their company. They are interested in determining the profitability, the level of risk involved, and the effect of changing economic variables on their company.

External Users

Similarly, creditors and lenders are interested in learning about the trustworthiness and financial stability of the business to which they are financing. They want to determine whether the business will be able to repay the loan by analyzing its liquidity and overall profitability. Investors, on the other hand, need financial information in order to make an informed choice about whether or not to invest in a company.

This article discusses the different branches or kinds of accounting and their importance in depth.

Branches of Accounting

1. Financial Accounting

Financial accounting is a discipline of accounting that deals with the process of documenting, summarizing, and reporting the financial transactions of an organization. The goal is to record, compile, and display financial information in a systematic manner in order to determine the entity's financial performance for a particular accounting period.

This is done to provide consistency across the financial statements of companies in a particular region/country and to facilitate inter-company comparisons.

Financial Statements Prepared in Financial Accounting

As previously stated, financial information is provided to accounting information consumers via financial statements. These are primarily:

• income statement – emphasizes the outcomes of your company's activities and the causes behind its profitability or loss
• balance sheet – shows the entity's financial status, that is, what it owns and owes to third parties on a certain date
• cash flow statement – displays an entity's cash inflows and outflows on a particular date
• shareholder’s equity – drepresents changes in the value of the shareholder's equity

Furthermore, these financial statements represent five key aspects of a company entity's financial information. These are some examples:

1. revenues
2. expenses
3. assets
4. liabilities
5. equity

2. Cost Accounting

Cost accounting is a discipline of accounting that deals with the following topics:

• the process of accurately accounting for expenditures and categorizing expenses in order to determine the overall cost of a product/service
• as well as providing such information for management decision making

It entails the use of different costing methods, concepts, and standards to assist corporate organizations in developing budgets in order to manage expenses and be cost efficient.

Cost accounting methods that are often utilized include:

• Marginal Costing

A costing method in which expenses are classified as fixed or variable. In addition, the cost of generating more outputs is estimated, and the effect of changes in the amount or kind of such additional production on profit is examined.

• Budgetary Control

It entails creating budgets and comparing actual performance to budgeted performance in order to meet goals.

• Standard Costing

In order to do so, benchmark costs must be established and compared to the actual cost. Also addressed are differences between standard and real costs, as well as their sources and effects.

• Uniform Costing

It entails a number of companies operating under the same management utilizing the same costing ideas and techniques. The goal is to improve comparability between the charges determined by different companies.

As previously stated, the Cost Accounting Standards Board (CASB) has developed specific cost accounting standards for companies to follow in order to achieve consistency in cost measurement, categorization, and assignment.

It also involves classifying costs linked to the manufacturing of goods or services. Different factors are considered, including the type and location of expenditures, their connection to a cost unit or cost centre, the various operations of an organization, and cost behavior, among others.

Accordingly, these can be classified based on the:

• nature of expenses – material, labour and overhead costs
• relation to cost centre or unit – direct and indirect costs
• functions of the business entity – production, administration, research and development, selling and distribution
• cost behavior – fixed and variable cost
• costs needed for managerial decision – opportunity cost, marginal cost, differential cost, sunk cost etc

• nature of production or process – process cost, batch cost, operating cost etc

• time – historical cost etc

3. Management Accounting

Unlike financial and cost accounting, management accounting was developed thereafter. It is a discipline of accounting that combines accounting with management.

It collects financial and cost accounting information, then distributes it to managers at different levels of the organizational structure. These tools also assist in performing management tasks such as planning, controlling and decision making as well as assessing the execution of these functions.

The application of appropriate methods and ideas is what management accounting is, therefore.

• for processing historical and projected economic data of a business entity by the management
• using such analysis to set reasonable objectives and
• take rational decisions to achieve such objectives

Needless to say, management accounting is, therefore, undertaken to:

• plan and set objectives
• analyse the available financial information
• help people at managerial level to undertake effective decision making
• exercise control with the help of various management accounting tools like budgetary control

In addition, management accountants use a variety of methods in order to do their jobs efficiently. Among them are:

• Financial Statement Analysis

These financial statements are used to evaluate a company's financial performance. A number of financial statement analysis techniques exist, including the analysis of common-size statements, comparative statements, ratio and cash-flow analyses, and others.

• Financial Planning

To do this, a business must decide in advance what financial commitments are required to accomplish its objectives. For this reason, management must establish rules on working capital requirements, funding sources and use.

• Control Techniques

In order to ensure that projected performance translates into actual performance, budgetary management and standard costing tools are employed.

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