Branches of Accounting

Accounting Basics: Branches Of Accounting By Bob Schneider  Accounting can be divided into several areas of activity. activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not least because accounting professionals tend to organize themselves around these various specialties. Financial Accounting Financial accounting is the periodic reporting of a company's financial position and the results of operations to eternal  parties through financial statements, statements, which ordinarily include include the balance the  balance sheet !statement sheet !statement of financial condition", income statement !the profit and loss statement, or #$%", and statement of cash flows. flows . A statement statement of changes in owners' e&uity is also often prepared. Financial statements are relied upon by suppliers of capital  e.g., shareholders, bondholders and  ban(s  as well as customers, suppliers, suppliers, government agencies and policyma(ers. !To !To learn more on this read, What You  Need To To Know About Financial Financial Statements. Statements ."

There's little use in issuing financial statements if each company ma(es up its own rules about what and how to repor t. )hen preparing statements, American companies use *.S. +enerally Accepted Accounting #rinciples , or *.S. +AA#. The  primary source of +AA# is the rules published by the FASB FASB and its predecessors but +AA# also derives from the wor( done by the S- and the A/#A, A/#A, as well standard industry practices. !For more on this see, What is the difference between the IAS and GAAP?" GAAP? " Management Accounting )here financial accounting focuses on eternal users, management accounting emphasizes accounting  emphasizes the preparation and analysis of accounting information within the organization. According to the /nstitute of 0an agement Accountants, Accountants, it includes 12 designing and evaluating business processes, budgeting and forecasting, implementing and monitoring internal controls, and analyzing, synthesizing and aggregating information2to help drive economic value.1

A primary concern of management accounting is the allocation of costs indeed, much of what now is considered management accounting used to be called cost accounting. Although Although a seemingly mundane pursuit, how to measure cost is critical, difficult and controversial. /n recent years, management accountants have developed new approaches li(e activity  based costing !AB" and target costing, but they continue to debate how best to provide and use cost information for management decisionma(ing. Auditing Auditing is Auditing  is the eamination and verification of company accounts and the firm's sys tem of internal control. There is both eternal and internal auditing. auditing . -ternal auditors are independent firms that inspect the accounts of an entity and render an opinion on whether its statements conform to +AA# and present fairly the financial position of the company and the results of operations. /n the *.S., four huge firms (nown as the Big Four     #ricewaterhouseoopers, #r icewaterhouseoopers, 3eloitte Touche Touche Tomatsu, -rnst $ 4oung, and 5#0+  dominate the auditing of large corporations and institutions. The group was traditionally (nown as the Big -ight, contracted to a Big Five through mergers and was reduced to its present number in 6776 with the meltdown of Arthur Andersen in the wa(e of the -nron scandals. ! For further information see,  An Inside  Loo At Internal Auditors Auditors.."

The eternal auditor's primary obligation is to users of financial statements outside the organization. The internal auditor's  primary responsibility is to company management. According to the /nstitute of /nternal Auditors !//A", Auditors  !//A", the internal auditor evaluates the ris(s the organization faces with respect to governance, operations and information systems. /ts mandate is to ensure !a" effective and efficient operations !b" the reliability and integrity of f inancial and operational information !c" safeguarding of assets and !d" compliance with laws, regulations and contracts. Tax Accounting Financial accounting is determined by rules that see( to best portray the financial position and r esults of an entity. Ta accounting,, in contrast, is based o n laws enacted through a h ighly political legislative process. /n the *.S., ta accounting accounting involves the application of /nternal of  /nternal 8evenue Service rules at the Federal level and state and city law for the payment of taes at the local level. Ta accountants help entities minimize their ta payments. )ithin the corporation, they will also assist financial accountants with determining the accounting for income taes for financial reporting purposes. Fund Accounting

Fund accountingis used for nonprof it entities, including governments and notforprofit corporations. 8ather than see( to ma(e a profit, governments and nonprof its deploy resources to achieve ob9ectives. /t is standard practice to distinguish  between a general fund and special purpose funds. The general fund is used for daytoday operations, li(e paying employees or buying supplies. Special funds ar e established for specific activities, li(e building a n ew wing of a hospital. Segregating resources this way helps the nonprofit maintain control of its resources and measure its success in achieving its various missions. The accounting rules for federal agencies are determined by the Federal Accounting Standards Advisory Board, while at the state and local level the +overnmental Accounting Standards Board !+ASB" has authority. Forensic Accounting Finally, forensic accounting is the use of accounting in legal matters, including litigation support, investigation and dispute resolution. There are many (inds of forensic accounting engagements: ban(ruptcy, matrimonial divorce, falsifications and manipulations of accounts or inventories, and so forth. Forensic accountants give investigate and analyze financial evidence, give epert testimony in court and &uantify damages.

Accounting Basics /ntroduction to Accounting

Types of Accounting inShare As a result of economic, industrial, and technological developments, a number of specialized fields in accounting have emerged. The famous branches or types of accounting are:

1. Financial Accounting Financial accounting involves recording and classifying business transactions, and preparing and  presenting financial statements to be used by internal and e!ternal users. /n the preparation of financial statements, strict compliance with "enerall# acce$ted accountin"  $rinci$les or +AA# is observed. Financial accounting is primarily concerned in processing historical  data.

2. Managerial Accounting 0anagerial or management accounting focuses on providing information for use by internal users, the management. This branch deals with the needs of the management rather than strict compliance with generally accepted accounting principles. 0anagerial accounting involves financial analysis, budgeting a nd forecasting, cost analysis, evaluation of business decisions, and similar areas.

3. ost Accounting

Sometimes considered as a subset of management acc ounting, cost accounting refers to the recording, presentation, and analysis of manufacturin" costs. ost accounting is very useful in manufacturing businesses since they have the most complicated costing process. ost accountants also analyze actual and standard costs to help managers determine future courses of action regarding the company's operations.

!. Auditing  %!ternal auditin"  refers to the eamination of financial statements by an independent party with the purpose of epressing an opinion as to fairness of presentation and compliance with +AA#.  Internal auditin"  focuses on evaluating the ade&uacy of a company's internal control structure by testing segregation of duties, policies and procedures, degrees of authorization, and other controls implemented by management.

". Tax Accounting Ta accounting helps clients follow rules set by ta authorities. /t includes ta planning and  preparation of ta returns. /t also involves determination of income ta and other taes, ta advisory services such as ways to minimize taes legally, evaluation of the conse&uences of ta decisions, and other tarelated matters.

#. Accounting $ystems Accounting systems involves the development, installation, implementation, and monitoring of accounting procedures and systems used in the accounting process. /t includes the employment of business forms, accounting personnel direction, and software management.

%. 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. -amples of fiduciary accounting include trust accounting, receivership, and estate accounting.

&. Forensic Accounting Forensic accounting involves court and litigation cases, fraud investigation, claims and dispute resolution, and other areas that involve legal matters. This is one of the popular trends in accounting today.

Focusing on $peciali'ations /f you want to focus on a specialization, you may want to consider obtaining an accounting certification in your chosen field. /t will give you an edge over those who are uncertified. 3ue to the increasing population and demand for competitive professionals, you need to step it up a little to get recognized.

Some of the most famous certifications include the ertified #ublic Accountant !#A", ertified 0anagement Accountant !0A", ertified /nternal Auditor !/A", ertified Financial #lanner !F#", and ertified /nformation Systems Auditor !/SA".

Different Branches of Accounting: Accountng operaes wihin a broad socio-economic environmen, and so, he knowledge required of he accounan canno be sharply comparmenalized.I is herefore, dicul o discuss one area wihou relatng o oher areas of knowledge. !e place a grea emphasis on he concepual knowledge. "he accounan

should

no

only

know

bu

he

should

undersand.

#rom he above i is clear ha o de$ne accountng as such, is raher dicul. %any accounans have de$ned Accountng in very many languages. &owever, we can consider he following de$nitons' (.&.)hakravory' *Accounancy is he science of recording, classifying and summarizing ransactons so ha relaton wih ousiders is e+acly deermined and resul of operaton during a partcular period can be

calculaed,

and

he

$nancial

positon

as

he

end

of

he

period

may

be

shown.

.A.I.)..A.' Accounancy may be de$ned as he ar of recording, classifying and summarizing in a signi$can manner and in erms of money, ransactons and evens, which are in par, a leas of $nancial characer,

and

inerpretng

he

resuls

hereof.

/."aylor and 0hearing' Accountng may be de$ned as he ar and science of recording business ransactons in a mehodological manner so as o show' 1a2 he rue sae of a3airs of a business of a partcular period of tme and, 1b2 he surplus or de$ciency which has accrued during a speci$c period. I may be very aply pronounced now-a-days ha due o he specacular developmen in he research and analytcal aspecs, Accountng, in he presen day, has no con$rmed iself o only record-keeping bu has spread is branches o he farhes corners of commercial actvites. As such, Accountng o-day, may

be

divided

as

follows'

(.Book-Keeping ' rimary recording of he day-o-day ransactons of any business uni and heir subsequen postng ino he 4edger Accouns are he functons of his par of accountng. As his par of  he 5ob of he Accounan is only keeping he proper records, i is herefore ermed as 6ook-7eeping. .Accountng ' "o prepare he "rial 6alance and hereby o check he arihmetcal accuracy of he books and records, o prepare he 8evenue saemens of ro$ or 4oss Accouns, o prepare he saemen of  A3airs or 6alance 0hees, or , in oher words, o prepare he #inal Accouns and also o make plans and programmes for smooh running of his par of Accountng procedures and o ac accordingly are, in shor, he functons of he Accounan. "his of his work is generally ermed as accountng. 3.Cos Accountng:  In any manufacuring concern, i is necessary o keep he records of daily socks in

hand, heir issues and receips, paymen of wages, calculaed regarding overhead charges, $+ing he sale-price of he producs, o prepare he budge and hereby o help in cos conrol ec. "hese

functons

are

he

functons

of

he

)os

Accounan.

9. Managemen Accountng' "he presen-day %anagemen is very much dependen on he Accounan in all he levels of managerial actvites. 6y furnishing regular repors regarding various necessary informaton required daily by he managemen, he Accounan very ably helps in heir work. )os )onrol, :ualiy )onrol, 6udgeary )onrol, lanning ec.are herefore, he functons of he %anagemen

Accounan.

;. Decision Accountng' "his means ha par of he functons of he Accounan by which he prepares

and presens necessary informaton o he %anagemen for making decisions. "his functon is one which has developed a grea during he recen years. As and when here arises a partcular problem in any business uni, he accountng personnel are hereupon called o presen he necessary informaton in all possible deails and in a mos appropriae manner. ern of economy and he emergence of he !elfare 0aes, he presen-days ?overnmens in all he counries in he !orld are becoming more and more ineresed in collectng a+es no only form he corporae bodies of form he employed persons bu also from he self-employed men and professional personalites. "hese ypes of  persons are now required o mainain heir professional accouns &ousehold Income and @+pendiure Accouns

separaely.

. Govenmen Accountng' ?overnmen Accountng is quie di3eren from )ommercial Accountng. "his is because in !elfare 0aes is presen day !orld, any ?overnmen has o collec a+es, compue Batonal Income, $+ he ?ross Batonal roduc "arge, ascerain he 6alance of aymens positon ec.governmens, herefore have heir own sysem of Accountng which is called ?overnmen Accountng. C. Auditng' !heher he 6ooks of Accountng have been mainained correcly or no has o be proved. #or his purpose, he Accouns are o be checked by some quali$ed persons from he 6ook of rime enry up o he #inal Accouns every year. "his is also necessary for he bene$ of he share-holders as well as for he ?overnmen which will collec a+es on he basis of he ublished Accouns.

Branches of Accounting Accounting (efinition

;A systematic record of the daily financial events of a business leading to presentation of a complete financial picture is (nown as accounting< Accounting has been divided into three branches, financial accounting) cost accounting) and management accounting  and each branch of accounting is inter = related with other branch. >o one branch is perfect without other branch of accounting.  Financial Accounting

;The Accounting system concerned only the financials state of affairs and the financial results of operations. This is called financial accounting* . /t includes preparation of accounts ! Journal,  Subsidiary books, ledger and Trail Balance" on historical basis and #rovides Financial Statements !+rofit , loss Account and Balance $heet-.  /t presents a general idea of the wor(ing of the business and permits management to control in general way the ma9or functions of a business, viz. finance, administration, production and distribution.

The main ob9ect of Financial Accounting is to find out the profitability and financial position of the organization and it is provided to /nsiders !?wners and -mployees" and outsiders !creditors,  ban(s and Financial /nstructions" of the organization.  ost Accounting

ost Accounting means ;ascertain the cost of the product and to help the management in the control of cost