VARIOUS BRANCHES OF ACCOUNTING

Various branches of Accounting are mentioned below.  such as-;

1) Financial Accounting

2) Cost Accounting

3) Management Accounting

1) Financial Accounting

Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. It is concerned with recording of business transactions in the books of accounts in such a way that operating result of a particular period and financial position on a particular date can be known. That is Financial Accounting enable to prepare Profit and Loss Account and Balance sheet which reveals the operating result and finanacial position of business entity of a particular period.

The purpose of finanacial accounting is not to report the value of a company rather it’s purpose is to provide enough information to others to assess the value themselves.

In the case of listed companies , it is mandatory to prepare and publish the financial  statements periodically. So inverstors in various parts of the world getting a chance to assess the operating results and financial position of the company.

In Finanacial Accounting , finanacial statements are prepared based on the the international accounting standards and Generally Accepted Accounting Principles ( GAAP).

In india finanacial statements are prepared based on Ind AS( Indian Accounting standard).

2) Cost Accounting

It relates to collection, classification and ascertainment of the cost of production or job undertaken by the firm. Cost accounting basically deals with determining  cost of units manufactured and service rentered. So it helps  manager to take decisions regarding the price of a prodcuct and  it helps to fix the price of the finished goods. Like wise it helps to ascertain the product wise profitability of a manautacturing unit.

That means with the help of cost accounting ,the managers can measure cost per unit and profit per unit and It enables to  introduce new cost reduction techniques  to minimize the manufacturing cost. Like wise It helps to reduce the cost per unit and increase the profit per unit. Ultimately  helps to reduce the cost of production and improves the profitability of  the entity.

3) Management Accounting

It relates to the use of accounting data collected with the help of financial accounting and cost accounting for the purpose of policy formulation, planning, control and decision making by the management.

Here managers collect the information by using cost accounting and finanacial accounting techniques and use these information for decision making and policy formulation.

Management accounting enables managers to take decision

WHO ARE THE USERS OF FINANCIAL INFORMATION .....????

The basic objectives of accounting is to communicating financial information about a business entity to it’s users on time,such as shareholders, managers, investors, government and other local bodies etc. Accounting information  basically helps users to make better financial decisions.

All these informations are collected from properly maintained books of accounts and related documents  by way of  preparing some reports such as balance sheet, profit and loss account, cash flow statement, debtors analysis ,creditors analysis etc.

Users of financial information can be classified in to two categories such as-; 

    

     1)   Internal users

     2)   External Users

 Internal users

Internal users are those individuals or groups who are within the organization or business entity like owners, management, employees and trade unions etc. They are the primary users of accounting information.

Now we can discuss in detail regarding these.

  

     a)   Management

     The main duty of management is to take proper business decisions to improve the efficiency and performance of a business entity. Day to day business operations of an entity is under the supervision of various levels of management such as top level, medium level, lower level management etc. Each levels of managers require separate set of information depend on their level of activity. So as to generate such information management  will analyze and interpret the accounting information of the entity and monitor the performance of the entity continuously. In short accounting information helps managers to take proper decision on proper time.

    b)   Owners

Ultimately owners are the investors of the business entity and their interest is to know about the profitability and financial soundness of their business.  They need to know wthether  this business is able to generate profit in future and whether  it’s  eligible  for the  growth potential in future. Owners are ultimately concern about the return on their investment.

    c)    Employees and Trade Union

      Trade union and employees are always look in to the financial position of the business         entity to ensure the job security and ask for  higher remuneration and other benefits in   future.

      Most of the companies declare their bonus to employees depends on the volume of profit in that year. That mean if the company having profit and it reached in a targeted level, then that company will declare bonus to employees.

     But sometimes companies not willing to declare bonus to employees even though they had enough profit,in such cases trade unions will ask for bonus and other employee’s rights  to the management based on the accounting information of that entity.

External Users

External users are those individuals or groups who are outside the organisation like creditors, investors, banks and other lending institutions, present and potential investors, Government, tax authorities, regulatory agencies and researchers etc…. They are the secondary users of Accounting information.

 a) Creditors, Banks other Financial institutions

Before supplying goods to the purchaser, seller  required to verify the credit worthiness of the purchaser. All the credit terms are set by creditors according to the assessment of their customers' financial health and stability.

Like wise banks and other lending financial institutions, before granding the loan , required to verify the repaying the capacity of borrower. So as to verify the financial position of the borrower, banks required to verify last few years finanacial statements and other related documents. Moreover most of the bank insisting their borrowers  to submit the finanacial statement on periodical intervals that is say every 6 months, every 3 months or monthly etc.

 b)  Present Investors

Present investors need to know the position, progress and prosperity of the business inorder to ensure the safety of their investment. Investors also considers the rate of return and payback period of their investments

c) Potential Investors

Potential Investors want to make sure that they can earn a reasonable return on their investment before they commit any financial resources to the company. Potential investors also verify the financial position, growth potential  and future viability of that entity. All these analysis are done based on the published accounting information and analysist study. Ultimately based on the accounting information and it’s analysis study, potential investors will decide whether to invest in the business or not. 

      

     d)  Government and Tax Authorities  

                 

     Government and tax authorities required to know the earnings of the business, inorder to assess the tax liabilities of that business. So as per laws of the state ,every company required to submit the income statement and position statement and other related documents prescribed by the prevailing law to the government or  Tax authorities concerned.

     e)    Regulatory Agencies

Every country there is some  regulatory Agencies  Which controls the operations of the business and ensure that all the activities are carried out under the rules framed for this behalf.

Reserve bank of india (RBI), Central Board of Direct Taxes(CBDT),Controller and Auditor General of India (C&AG) etc.. are some of the requlatory agencies in indian.

  

     f)   Researchers

Some of the researchers also using accounting informations for their research work.