3 BRANCHES OF ACCOUNTING

Economic and technological development has increased the production of goods and services worldwide. Consequently, this has increased the demand for accounting information.

This increase in demand for accounting information, however, comes with its problem.

It has required accounting to diversify. This is because various stakeholders in a business require accounting information for different reasons. 

This means accounting information has to be diversified to cater to the various needs of accounting information. This ensures that the accounting information remains relevant to each user of the information

For this reason, special branches of accounting have come to be. Among the better-known branches of accounting are financial accounting, managerial accounting, cost accounting, forensic accounting, and fiduciary accountant.

However, for today's topic, we would be limiting our discussions to just the three major branches of accounting, namely; financial accounting, management accounting and cost accounting.

Financial Accounting

Financial accounting is the branch of accounting that is concerned with the preparation of financial statements to provide information to various stakeholders of the business.

Financial accountants are charged with the responsibility of preparing financial statements for both internal and external users of the business.

Therefore, the financial statement prepared through financial accounting should be consistent and comparable. 

For this reason, financial accountant usually prepares financial statements using accounting concepts and conventions. If you are not yet familiar with these accounting concepts, refer to this post.

Financial accounting is a very important branch of accounting. 

Financial accounting is the first branch of accounting to be developed. It forms the foundation and basis for other branches of accounting. 

However, we must realize that financial accounting has two limitations.

Firstly, the information provided by financial accounting is complex in that it does not provide enough information about sub-unit within a business. This makes it less useful for making major internal business decisions.

Secondly, financial accounting is based on historical costs. This means that the financial information provided by financial accounting is historical and, therefore, does not account for future activity to be carried out. 

It is for this reason that management accounting was introduced.

Managerial Accounting

This branch of accounting is mainly concerned with recording accounting information required for successfully managing a computer.

It is tailor-made for the management of a business. It is, therefore, not suitable for external reporting.

Management accounting helps in the planning and control of the business. It reveals the strength and weaknesses of a business.

For this reason, management accounting reports usually detail the led as it provides full details of the profitability level of different products and segments of the organization. 

Unlike historical financial accounting, management accounting is forward-looking in that it makes future projections on forthcoming economic activity to be performed by the business. In short, it is future-oriented

Cost accounting 

As the name suggests, this is the accounting for various costs that may exist within an organization.

Cost accounting is the process of recording and analyzing the total of all the costs relating to the production of goods and/or the provision of a service.

Cost accounting is usually considered a variant of management accounting. And like management accounting, it is only suitable for internal reporting. 

Cost accounting shows the cost analysis of various segments and products in an organization.

Doing so, helps business managers know what segment of the business is profitable and non-profitable. This ensures that corrective measures such as varying production methods are adequately taken and thereby increase profit margins.

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