Accounting refers to the process of recording the financial transactions of a business. It is used to make necessary decisions about the firm related to the finance of a company. As the demand by interesting parties like owners, creditors, taxation authorities, government agencies etc is increasing day by day, the various branches of accounting or areas of it come into existence in order to meet this demand. The branches and areas that come under accounting are:
1. Financial Accounting.
2. Cost Accounting.
3. Managerial Accounting.
So what are these branches? Let’s discuss them briefly here-
Financial Accounting: A branch under accounting in which the true result i.e. profit or loss of business operations in a specific period of time and the financial position of business is concerned. The main objective behind the creation of this branch is preparing accurately an organization’s financial account which involves income statements, balance sheet and statement of cash flow. The function involved in financial accounting revolves around in measuring the business activities of any company and communications related to the investors and creditors activities that is used in decision making by organization.
Managerial Accounting: Also known as Management Accounting under which the identification, measuring, analyzing, interpreting and communicating financial information is performed to pursue organization’s goals. Managerial accounting was formed to focus on internal managers. Under which the managers plan for the future and makes decision for the company. Managerial accounting helps in determining the company’s plan whether is accurate or not. Understanding cost behavior, cost that company pays and what profit they achieve from it, operational budgeting such operations come under the managerial accounting.
Cost Accounting: It is considered as form of managerial accounting which aims to determine the cost associated with manufacturing or providing the services by viewing the expenses within the supply chain. It functions in identifying the money where the company has spent in, how much the organization earns, and where they are facing the loss. As it is a form of managerial accounting, it helps in making the improvement in internal cost control.
As it is important to look over carefully to the financial records in any business thus the need to create a separate branch under accounting was felt. Each area of accounting has its own specialized use. Accountants tend to specialize in one area or branch so that it would be more systematic and will be accurate for the accountants to deals with the company’s firm related to finance.