Financial Accounting is based on a systematic method of recording transactions of any business according to the accounting principles. It is the original form of the accounting process. The main purpose of financial accounting is to calculate the profit or loss of a business during a period and to provide an accurate picture of the financial position of the business as on a particular date. The Trial Balances, Profit & Loss Accounts and Balance Sheets of a company are based on an application of financial accounting. These are used by creditors, banks and financial institutions to assess the financial status of the company. Further, taxation authorities are able to calculate the tax based on these records only.
Cost accounting deals with evaluating the cost of a product or service offered. It calculates the cost by considering all factors that contribute to the production of the output, both manufacturing and administrative factors. The objective of cost accounting is to help the management in fixing the prices and controlling the cost of production. It also pin points any wastages, leakages and defects during manufacturing and marketing processes.
This branch of accounting provides information to management for better administration of the business. It helps in making important decisions and controlling of various activities of the business. The management is able to take decisions efficiently with the help of various Management Information Systems such as Budgets, Projected Cash Flow and Fund Flow Statements, Variance Analysis reports, Cost-Volume-Profit Analysis reports, Break-Even-Point calculation, etc.
Management accounting and financial accounting are not to be confused with each other. Both are different. Management accounting serves the needs of the management in decision makings regarding minimization of the cost factor and enhancing of profit making. Financial accounting serves the needs of shareholders, creditors and financial institutions for ascertaining the financial position of the company. Management accounting records are kept secret for the use of management only. They are not made public.
Auditing is a branch of accounting where an external certified public accountant known as Auditor inspects and certifies the accounts of a business for their accuracy and consistency. Sometimes internal auditing is also practiced where an employee of the same company audits the accounts on the regular basis and aids the management in keeping accurate records for audit purpose.
Tax Accounting deals with taxation matters. Its functions include preparation and filing of various tax returns and dealing with their legal implications. Tax accountants aid in minimizing tax payments and also help financial accountants in preparing financials for tax reporting to various authorities. Tax accounting involves consultancy regarding the effect of taxes on different aspects of business, minimizing tax through legal ways and also verifying consequences of tax payable on business.
It deals with keeping records for funds of non-profit business entities. Separate fund accounts are maintained for separate works like welfare schemes of different nature to ensure proper utilization of funds.
It is done for Central Government (National Government) and State Government budget allocations and utilization. Keeping records ensures proper and efficient utilization of the various budget allocations and safety of public funds.
Forensic Accounting also known as legal accounting enables calculating damages or settling disputes in legal matters. Investigations are done and calculations are carried out to evaluate the damages accurately.
It is the accounting and evaluation of a third party’s business and property maintained under the guardianship of another person.