VARIOUS BRANCHES / TYPES OF ACCOUNTING

Financial accounting is a specialized branch of accounting that keeps track

of a company's financial transactions. Using standardized guidelines, the
transactions are recorded, summarized, and presented in a financial report
or financial statement such as an income statement or a balance sheet.
Companies issue financial statements on a routine schedule. The
statements are considered external because they are given to people
outside of the company, with the primary recipients being
owners/stockholders, as well as certain lenders. If a corporation's stock is
publicly traded, however, its financial statements (and other financial
reportings) tend to be widely circulated, and information will likely reach
secondary recipients such as competitors, customers, employees, labor
organizations, and investment analysts.
It's important to point out that the purpose of financial accounting is not to
report the value of a company. Rather, its purpose is to provide enough
information for others to assess the value of a company for themselves.

Cost Accounting, Cost and Costing

Cost Accounting is a business practice in which we record, examine, summarize,
and study the company’s cost spent on any process, service, product or anything else
in the organization. This helps the organization in cost controlling and making
strategic planning and decision on improving cost efficiency. Such financial
statements and ledgers give the management visibility on their cost information.
Management gets the idea where they have to control the cost and where they have to
increase more, which helps in creating a vision and future plan. There are different
types of cost accounting such as marginal costing, activity-based costing, standard
cost accounting, lean accounting. In this article, we will discuss more objectives,
advantages, costing and meaning of costs.

It is a process via which we determine the costs of goods and services. It involves the
recording, classification, allocation of various expenditures, and creating financial
statements. This data is generally used in financial accounting.

This helps us calculate the costs of the various goods. It also involves a suitable
presentation of this data for the purposes of cost control and guidance to
the management.
Management Accounting

Management accounting also is known as managerial accounting and can be defined

as a process of providing financial information and resources to the managers in
decision making. Management accounting is only used by the internal team of the
organization, and this is the only thing which makes it different from financial
accounting. In this process, financial information and reports such as invoice,
financial balance statement is shared by finance administration with the management
team of the company. Objective of management accounting is to use this statistical
data and take a better and accurate decision, controlling the enterprise, business
activities, and development.

Financial accounting is the recording and presentation of information for the benefit
of the various stakeholders of an organization. Management accounting, on the other
hand, is the presentation of financial data and business activities for the internal
management of the organization. In this article, we will learn what is management
accounting and its functions.

The only need for management accounting is that the data should serve its purpose,
which is helping the management take important business decisions.

Besides the above mentioned three branches of accounting, there are

many other branches which are in practice and very useful for various
purposes as mentioned below:
Account Structure
Before creating transactions and generating general ledger distributions for
these transactions, you must define the account structure. The account
structure includes segments that represent specific information about the
account. From the Account Structure page, you specify which segments will
exist in your account.
An account structure requires only one segment, an account code, which
can be one to 100 characters long using alpha-numeric characters.
Typically, account codes define cash, accounts receivable, and various
revenue accounts.

Rules regarding journal entries

When a business transaction requires a journal entry, we must follow these rules:

 The entry must have at least 2 accounts with 1 DEBIT amount and at least 1
CREDIT amount.
 The DEBITS are listed first and then the CREDITS.
 The DEBIT amounts will always equal the CREDIT amounts.

Cash book

The cash book is used to record receipts and payments of cash. It

works as a book of original entry as well as a ledger account. The
entries related to receipt and payment of cash are first recorded in
the cash book and then posted to the relevant ledger accounts.
Moreover, a cash book is a substitute for cash account in the
ledger. A company that properly maintains a cash book does not
need to open a cash account in its ledger.
Types of cash book

There are four major types of cash book that companies usually
maintain to account for their cash flows. These are given below:

1. A single column cash book to record only cash transactions.

2. A double/two column cash book to record cash as well as

bank transactions.

3. A triple/three column cash book to record cash, bank and

purchase discount and sales discount.

4. A petty cash book to record small day to day cash

expenditures.
Meaning of Management Accounting:
Management Accounting is the presentation of accounting
information in order to formulate the policies to be adopted by the
management and assist its day-to-day activities.

In other words, it helps the management to perform all its functions

including planning, organising, staffing, directing and controlling.

Some apt definitions of Management Accounting may be

noted:

The Institute of Cost and Management Accountants, London,

has defined Management Accounting as:
“The application of professional knowledge and skill in the
preparation of accounting information in such a way as to assist
management in the formulation of policies and in the planning and
control of the operation of the undertakings.”

Similarly, according to American Accounting Association:

“it includes the methods and concepts necessary for effective planning
for choosing among alternative business actions and for control
through the evaluation and interpretation of performances.”
Nature of management accounting:
Nature of management accounting guides to know main characteristics of
management accounting. Following are main points which shows the nature of
management accounting:

1. No Fixed Norms Followed

In financial accounting, we follow different norms and rules for creating ledgers and other account
books. But there is no need to follow fixed norms in management accounting.
Management accounting tool may be different from one organization to other organization. Using of
different tools of management accounting is fully dependent on the persons who are using it.
So, business policy of each organization affects rules and regulation of applying
management accounting.
2. Increase in Efficiency

It is the nature of management accounting that it is used for increasing in the efficiency of
organization. It scans the points of inefficiency through analysis of accounting information. By taking
action for improving, organization can increase the efficiency.

3. Supplies Information not Decisions

Management accountant supplies accounting facts and information and also provides interpretation,
but decision making is fully dependent on higher authorities. Management accounting is just guide.

4. Concerned with Forecasting

It is the temperament of management accounting that it is fully concerned with forecasting. In

management accounting, historical accounting information is analyzed through common size
financial statement, ratio analysis, fund flow analysis and accounting data tendency for knowing the
probability of next fact. So, all these things are especially useful for forecasting.

These forecasting may be related with following things

a) sales forecasting
b) production forecasting
c) earning forecasting
d) cost forecasting

Scope Of Management Accounting

The scope or field of management accounting is very wide and broad based and it includes
a variety of aspects of business operations. The main aim of management accounting is to
help management in its functions of planning, directing, controlling and areas of
specialization included within the admit of management accounting. The scope of
management accounting can be studied as follows:

1. Financial Accounting
Financial accounting forms the basis for analysis and interpretation for furnishing
meaningful data to the management. The control aspect is based on financial data and
performance evaluation, on recorded facts and figures. So, management accounting is
closely related to financial accounting in many respects.

2. Cost Accounting

Cost accounting is the process and techniques of ascertaining cost. Planning, decision
making and control are the basic managerial functions. The cost accounting system
provides the necessary tool for carrying out such functions efficiently. The tools includes
standard costing, inventory management, variable costing etc.
3. Budgeting and Forecasting

Budgeting means expressing the plans, policies and goals of the firm for a definite
period in future. Forecasting on the other hand, is a prediction of what will happen as a
result of a given set of circumstances. Forecasting is a judgement whereas the budgeting
is an organizational object. These are useful for management accounting in planning.

5. Inventory Control

Inventory is necessary to control from the time it is acquire till its final disposal as it
involves large sum. For controlling inventory, management should determine different
level of stock. The inventory control technique will be helpful for taking managerial
decisions.

6. Statistical Method

Statistical tools not only make the information more impressive, comprehensive and
intelligible but also are highly useful for planning and forecasting.

7. Interpretation Of Data

Analysis and interpretation of financial statements are important part of management

accounting. After analyzing the financial statements, the interpretation is made and the
reports drawn from this analysis are presented to the management. Interpreting the
accounting data to the authorities in the management is the principal task of management
accounting.

8. Reporting To Management

The interpreted information must be communicated to those who are interested in it. The
report may cover Profit and Loss Account, Cash Flow and Funds Flow statements etc.

9. Internal Audit And Tax Accounting

Management accounting studies all the tax matters to assist the management in
investment decisions vis-a-vis tax planning as a resource to enjoy tax relief.
Internal audit system is necessary to judge the performance of every department.
Management is able to know deviations in performance through internal audit. It also
helps management in fixing responsibility of different individuals.

10. Methods Of Procedures

This includes maintenance of proper data processing and other office management
services. It may have to deal with filing, copying, duplicating, communicating and
management information system and also may have to report about the utility of different
office machines.
Functions of management accounting:
The management process implies the four basic functions of: (1)
Planning. (2) Organising (3) Controlling, and (4) Decision-making.

Management accounting plays a vital role in these managerial

functions performed by managers.

(1) Planning:
Planning is formulating short term and long-term plans and actions to
achieve a particular end. A budget is the financial planning showing
how resources are to be acquired and used over a specified time
interval.

For example, what products are to be sold at what prices? The

management accountant develops data that help managers identify
the more profitable products.

(2) Organising:

Organising is a process of establishing an organizational framework

and assigning responsibility to people working in an organization for
achieving business goals and objectives. The type of organizational
structure differs from one business enterprise to another. In the
organising process, departmentalization can be done by setting up
divisions, departments, sections, branches.
(3) Controlling:

Control is the process of monitoring, measuring, evaluating and

correcting actual results to ensure that a business enterprise’s goals
and plans are achieved. Control is accomplished with the use of
feedback. Feedback is information that can be used to evaluate or
correct the steps being taken to implement a plan.

(4) Decision-making:

Decision-making is a process of choosing among competing alterna-

tives. Decision-making is inherent in each of three management
functions described above, namely, planning, organising and
controlling. A manager cannot plan without making decisions and has
to choose among competing objectives and methods to carry out the
chosen objectives and the same in organizing and controlling.

The decision-making process includes the following steps:

(i) Identifying a problem requiring managerial action.

(ii) Specifying the objective or goal to be achieved (e.g. maximising

return on investment).

(iii) Listing the possible alternative courses of action.

(iv) Gathering the information about the consequences of each

alternative.

(v) Making a decision, by selecting one of the alternatives.