Basically, there are eight branches of accounting. Each and every branch of accounting has its specialized use. In this article, we will cover all eig
Basically, there are eight branches of accounting. Each and every branch of accounting has its specialized use. In this article, we will cover all eight branches of accounting.
Eight Branches of Accounting:
This branches of accounting is mainly concerned with the processing of historical data. Accountants in this branch keep the records of business transactions of their client or their firm and classify them. Finally, they present well recorded and classified records in proper financial statements.
Financial statements are of four types:
- The income statement
- The balance statement
- The cash flow statements
- The statement of retained earnings
While making these financial statements Generally Accepting Accounting principles are followed (GAAP). In some special cases like public companies, Rules set out by the government must be followed. This branch of accounting is mainly performed for the reference of external regulations. Financial statements deliver all the information about a firm about its position in the market. This information is widely used by the shareholders for their concerned works and also by general people to determine if they should invest in the company or not.
Companies in the UK must follow the UK GAAP or follow the rules described by the IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARDS).
This branch of accounting is mainly concerned with the regular supply of financial statements to the internal departments of a firm or a company. Financial reports and information provided by this branch of accounting are used by different managers within the firm or the company to make suitable decisions and help the company to earn more success and goodwill in the market. Reports in this branch can be made for a specific demand by a manager or any other functional area like sales, manufacturing, etc. same as financial accounting historical data is used to make such financial reports and statements. But the difference is that these reports and statements are not published for general people or any other external parties. These reports and statements are only made and used on the demand for internal departments or managers. And later these are used to make an evaluation of the profit of the products, departments or budgeting, etc.
Most of the population, even the known ones sometimes confuse cost accounting with financial accounting because they have some similarities. But they have many differences that make it a separate branches of accounting. Cost accounting works to bring about information to control operations. It helps to manage and increase the profit and efficiency of the business. It basically focuses on the cost of the business process, maintains and classifies the records of the cost of the overall business process. Cost accounting helps the company to know the total cost of production and decide a competitive market price with a well-deserved profit for the company too.
The three main sections of cost accounting are –
- Material (Direct or Indirect)
- Labour (Direct or Indirect)
- Overhead(Sales, Distribution, Administration, production, etc
As the name defines, this branch is specialized and responsible to ensure that the company or the firm follows the tax regulation described by the government. The basic work of this branch is to handle the tax-related matters of the company. To calculate the taxable income and all other works related to tax are done by this branch of accounting only. This department supply tax-related documents and statements to the officials whenever demanded. As companies want to be at a strong hand when it comes to the talk of taxation, so for this they must not default on the state as well as local taxes. The branch of tax accounting helps the company while filing all the taxes and also provides aids to reduce the future tax burden of the company. Governments of different companies keep updating their taxation policies and values. This branch is devoted to knowing all about the different taxes and being updated about new updated taxes so that later companies must not suffer through any legal default. Overall this branch of accounting is focused on advising businesses about different effects and implications of taxes and helps them to reduce the taxes legally.
ACCOUNTING INFORMATION SYSTEM(AIS)
This branch of accounting purposely collects, stores, and then finally processes all the information in a proper report which is used by the managers and other users to make decisions. This branch of accounting can be manual but today most of the accounting information systems are computer-based. The main six elements of an accounting information system are people, instructions and procedures, software, data, technological infrastructure, and internal control. A good accounting system is reliable, relevant, easy to understand, and easily accessible.
Three main functions of accounting information systems are –
- Effective and efficient collection and storage of data.
- Then using the stored data, making financial reports and statements, and supplying them for better decision making.
- To make sure over control for making effective and efficient collection and storage of the company’s highly confidential data and its processing.
This branch of accounting is very crucial. Every firm over the globe spends a lot of money on consent auditing. Auditing is basically the process of reviewing, verifying, and evaluating all the financial statements and records of the company. This can be done by an internal department or by an external department. The whole process is done by auditors and then they give a final report on whether the financial records and statements comply with the rules of UK GENERALLY ACCEPTING ACCOUNTING PRINCIPLES or with INTERNATIONAL FINANCIAL REPORTING STANDARDS. The reports processed by the internal auditors are used by the company to check whether the policies made are implemented properly or not while the reports processed by the external auditors are used by the people outside to know the actual status of the company.
The most sensitive branch of accounting, Fiduciary Accounting, is basically the process by which the trustee or feoffee of the trustee of an asset or something maintains and provides all the necessary information about the financial management of funds to the Government or to court. This branch accounting is very sensitive and must be performed by trustworthy experts only i.e. CPA or the equivalent.
This branch has three basic sub-branches –
- Estate Accounting
- Trust accounting
This branch is specialized in the work of investigating and solving the issues in the firm or the company. This branch deals with frauds and also complete the accounts in case they are incomplete. This branch of accounting is mainly handled by experts who work on a project basis to help the company. This branches of accounting can be said as a mixture of investigation, accounting, and auditing. Forensic accounting is very helpful and important to the company.