WHAT IS ACCOUNTING ?
Accounting is the backbone of every organization. It refers to the systematic recordation of the financial transactions of a business.
Proper accounting allows a company’s management to better understand the financials of its business.
BRANCHES OF ACCOUNTS –
The technological advancement and industrial and economical development have resulted in the evolution of various types or branches of accounting over time. These are discussed below :
- FINANCIAL ACCOUNTING : Financial accounting involves recording and classifying business transactions, and preparing and presenting financial statements to be used by internal and external users.
There are four basic financial statements: the income statement, the balance sheet, the cash flow statement, and the statements of retained earnings. These financial statements form the base of how well a company is positioned financially in the market.
- MANAGEMENT ACCOUNTING : The accounting system which supplies the necessary information to the management relating to funds, costs, profits & losses etc, for rational decision making is called management accounting. This system uses historical as well as estimated data to generate useful reports and information to be used by internal management for decision making purpose.
3. COST ACCOUNTING : Cost accounting refers to the recording, presentation, and analysis of manufacturing costs & is very useful in manufacturing businesses since they have the most complicated costing process. Material (direct and indirect), labour (direct and indirect) and overhead (sales, distribution, administration, production, etc.) are the three major elements of cost accounting.
- TAX ACCOUNTING : The accounting system that deals with the tax return and its payment, instead of preparation of final accounts of the enterprise, is called tax accounting.
5. AUDITING : Auditing is one of the most crucial branches of accounting which involves the process of reviewing, examining, verifying and evaluating a firm’s financial accounts and the system of internal control. This process is carried out by auditors, who may be internal or external.
- FIDUCIARY ACCOUNTING: Fiduciary accounting involves handling of accounts managed by a person entrusted with the custody and management of property of or for the benefit of another person. Examples of fiduciary accounting include trust accounting, receivership, and estate accounting.
- FORENSIC ACCOUNTING : Forensic accounting deals with legal issues faced by business enterprises. Accountants in this area use their knowledge, skills and techniques to deal with legal matters such as dispute resolution, claim settlement, fraud investigation, court and litigation cases etc.
- SOCIAL ACCOUNTING : Social accounting is a type of accounting that a business performs to place a value on the influence its operations have on society. It requires that enterprises look closely at all that it does and what kind of impact its activities have on people, places, and the environment. In other words, it measures the social costs and benefits of various organizational activities.