📚 Branches or Types of Accounting
Accounting is not just about recording transactions; it’s a multifaceted discipline that evolves with the increasing complexity of modern businesses. Managers, investors, and governments require different types of financial insights to make informed decisions. To meet these diverse needs, several specialized branches of accounting have developed, each focusing on a unique purpose—from reporting profits to society, controlling costs, to even valuing human resources.
Below are the major branches of accounting explained in detail. Click on each branch to explore its purpose, importance, and scope.
It deals with recording, classifying and summarising business events which have already occurred. That's why it is called as Historical Accounting or Post-mortem Accounting. It aims at ascertaining profit and loss for the period ended and financial position as on the last date of the accounting year. It is confined to the preparation of financial statements for the use of outsiders like investors, creditors, financial institutions, and regulatory agencies. The preparation of financial statements is based on generally accepted accounting principles and is constrained by legal provisions and accounting standards.
It is the classifying, recording and appropriate allocation of expenditure for the ascertainment of costs of products or services, and for the presentation of suitably arranged data for purposes of cost control and guidance of management. It deals with detailed study of cost with reference to cost ascertainment, cost classification, cost reduction and cost control. Emphasis is given on historical cost as well as future decision-making costs.
It is the presentation of accounting information in such a manner as to assist management in the creation of policy and day-to-day operation of the undertaking. It relates to the managerial use of accounting information for running the business efficiently and effectively. Techniques used include budgetary control, standard costing, and C-V-P analysis.
This branch of accounting helps in ascertaining different types of taxes such as income tax, GST, excise duty, etc. For the ascertainment of taxes, different provisions of various Acts are considered. Tax accounting focuses on taxes rather than public financial statements. It is governed by the internal revenue code and directs companies and individuals on preparing tax returns.
Government Accounting is non-commercial accounting in which budgets and encumbrances form part of the accounts and access is restricted for specified purposes. It is called Public Governance Accounting in the UK. It includes budgets, reserve fund, contingency fund, etc., and is used by Central, State, and Local governments.
Every business benefits from society's infrastructure and facilities. Social Responsibility Accounting measures how businesses fulfill their responsibilities towards society. It records the social costs incurred and benefits created by the business. CSR activities are measured through this branch and are subject to social audit.
Also called Macro Accounting, it deals with the accounting of the transactions of a national economy. It measures the economic activities of a country or region and is developed by economists and statisticians. It is not based on GAAP and relies heavily on non-commercial data sources.
HRA applies economic and accounting concepts to the area of personnel. It involves identifying and measuring data about human resources and communicating this information to interested parties. It helps in determining the return on investment in human resources and extends standard accounting principles to people valuation.
This technique records transactions at adjusted values according to price indices, neutralizing the impact of inflation. Techniques include Current Purchasing Power (CPP), Replacement Cost Accounting (RCA), Current Value Accounting (CVA), and Current Cost Accounting (CCA). It highlights the true financial impact of price changes.