Scope of Accounting (Branches / Sub-fields of Accounting)
With the growth of business activities, accounting has expanded into several specialized branches. Each branch focuses on a specific type of financial information to help businesses manage their operations efficiently.
The major branches of accounting are explained below.
(1) Financial Accounting
Financial accounting is the main branch of accounting. Its primary purpose is to record business transactions systematically and prepare financial statements.
Financial accounting helps determine the profit or loss of the business and its financial position at the end of an accounting period.
The main financial statements prepared are:
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Trading Account
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Profit and Loss Account
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Balance Sheet
These statements provide useful information to management, investors, creditors, banks and government authorities.
Real Life Example
At the end of the financial year, a company prepares its Profit & Loss Account and Balance Sheet to know how much profit it earned and what assets and liabilities it has.
(2) Cost Accounting
Cost accounting focuses on determining the cost of producing goods or providing services.
The main objective of cost accounting is to find the total cost and per unit cost of production. It also helps management control costs and improve efficiency.
Cost accounting helps businesses in:
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Controlling production costs
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Determining selling prices
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Reducing unnecessary expenses
Real Life Example
A furniture manufacturer calculates the cost of wood, labour and machinery used to produce one chair. This helps determine the cost per chair.
(3) Management Accounting
Management accounting provides financial information to management for planning, controlling and decision-making.
It uses various tools and techniques to make accounting data more useful for managerial decisions.
Some common techniques used in management accounting are:
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Ratio analysis
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Budgeting
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Fund flow statement
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Cash flow statement
Real Life Example
If management wants to decide whether to open a new branch or launch a new product, management accounting provides financial data to support the decision.
(4) Tax Accounting
Tax accounting deals with preparing accounts for tax purposes.
It helps businesses calculate and comply with tax laws such as:
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Income Tax
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Goods and Services Tax (GST)
Tax accounting ensures that businesses pay the correct amount of tax and follow legal regulations.
Real Life Example
A company calculates its annual income and expenses using tax accounting to determine the income tax payable to the government.
(5) Social Responsibility Accounting
Social responsibility accounting measures the impact of business activities on society.
Since businesses operate within society and use its resources, they also have a responsibility towards society and the environment.
Social responsibility accounting helps measure contributions such as:
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Providing employment opportunities
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Supporting social welfare programs
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Environmental protection
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Ensuring product safety and quality
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Customer satisfaction
Real Life Example
A company investing in pollution control equipment or contributing to community development programs is performing social responsibility activities.
Accounting techniques help measure the cost and benefits of these contributions to society.