Three Branches of Accounting: Costing. Financial, and Management Accounting

Any business or trade needs to maintain records for various purposes.

The owner of a business wants to know how much profit is being made and what the assets and liabilities are at any time. 

The government requires proper record-keeping and tax payments. 

The manager is concerned about how to control costs and increase the company's profit. 

Therefore, accounting principles must provide accurate information to satisfy all these people. 

To meet the above-stated needs of different groups of people, multiple branches of accounting have developed according to their basic purposes. 

The three most important branches of accounting are Cost Accounting, Financial Accounting, and Management Accounting.

Let us now discuss these branches one by one.

Cost Accounting

Cost accounting deals with the segregation of costs. It analyses the cost of the finished product through various intermediary and final output stages. 

For example, it deals with the cost of the raw material, semi-finished goods, and finished goods one-by-one and side-by-side. Finished product cost includes other costs also, like administrative, marketing costs, and selling expenses, and elements like interest and depreciation. So all the required information needs to be kept accurately to determine the cost at each stage. This is possible through cost accounting records.

The total costs incurred, like salaries, wages, and administrative expenses, are maintained product-wise and stage-wise for each process and product. This facilitates calculating costs at different stages and for each product individually. Only then can their management control the costs at each level and determine the price for selling their products.

Financial Accounting

This branch is responsible for maintaining accounting records such as the Cash Book, Bank Book, Main Ledger (General Ledger), Customer and Sales Books, Purchase Ledger, etc. These records must be maintained accurately to prepare the company's Profit & Loss Account and Balance Sheets, which enable the Taxman to verify whether the tax is being properly calculated and deposited. It also enables the management and Board of Directors to understand the company's financial position.

Management Accounting

This is also an important accounting branch. This branch deals with the preparation of various monthly, weekly, and yearly reports, like Cash Flow, Funds Flow, and Budget. They are compared with actual expenses. These reports provide information to management regarding the progress of the company, its financial status, and enable them to take important decisions for the efficient running of the business.

Other Branches of Accounting:

Besides these main branches of accounting, there are other branches like Government accounting, Tax accounting, Audit accounting, Fiduciary accounting (dealing with accounts on behalf of minors), and Fund accounting, and other branches