There are extensive description of Branches of
Accounting are as follows:
General Accounting – It provides a record of business transactions
in financial terms and also the periodical preparation of financial statements
from these records. It furnishes accounting information for the owners, for management,
for Government, for creditors and for other interested groups in any
organization. The General Accounting includes; Book-Keeping (the actual
recording process) and also report preparation including interpretation. General
Accounting can also be called Financial Accounting. With the growth of trade,
commerce and industry in the last few centuries, the need for specialized
accounting activities was felt much. The specialized fields like Auditing,
Costing, Tax Accounting, Mechanized Accounting, etc., are the offshoots of
modern development in the field of Accountancy. Of various specialized fields
of accounting, the following can be mentioned:-
Auditing – It involves the verification
of the records and the reports prepared by the accountants of an enterprise, in
order to check errors and frauds and to authenticate the financial statements.
It represents a field of accounting activity that reviews independently the ‘general’
accounting. Auditing is usually done by an independent accountant who examines
records and reports and issues a statement of opinion regarding their accuracy
together with a report containing confidential advice to the management. Auditing
is a great safeguard of absentee capitalism.
Cost Accounting – Costing accounting
emphasizes the determination of business costs, especially unit costs of
production and distribution. It stresses costs of products and processes rather
than the proprietorship of the enterprise as a whole. Financial accounting or
General accounting provides information with which management can exercise
financial control over assets but it lacks in furnishing the operating
management with data pointing to control of operations. Since a major efforts
in all accounting is the determination of costs, all accounting is cost
accounting, in the true sense of the terms. What has come to be known as cost
accounting is heavily oriented to the determination of factory costs, hence
factory inventories and unit costs of products. In the beginning the impetus was
provided for by a desire to obtain more accurate inventory valuations. Costing
enables a business to find out not only what various jobs or process have cost
but also what cost they should have; it indicates where losses and wastes are
accruing before the work is finished; therefore immediate action may be taken,
if possible, to avoid such losses or wastes. Costing helps to a great extent in
formulation of Business Policy regarding the alternative methods and procedures
of production. And efficient system of costing is an important factor for
industrial control. The introduction of Standard Costing and Budgetary Control
method as tools of costing has further widened the horizon of uses of costing.
Budgetary Accounting – It refers to a systematic forecasting of
business operations in financial terms. It presents in an account form the
transactions planned for the coming period and summarizes these transactions in
accounting statements. It deals with contemplated rather than actual
transactions.
Management Accounting or Managerial Accounting – It is based upon
the concept of accounting as a method of management or as a tool by which
managerial effectiveness is enhanced. Although it deals primarily with the same
financial data, it is not confined to financial data alone. It seeks to assure
scientific managerial planning and sound managerial decisions by furnishing
historical data and projections of the consequences of alternative decisions. It
seeks to make managerial control more effective by encouraging planning and
keeping the plan constantly before management’s attention, comparing
performance with the results anticipated. It provides built in checks and
balances and continuous review and appraisal to prevent error and fraud and to
enable management to correct mistakes and improve methods. While financial
accounting is chained to history, administrative accounting is free 6to
conjecture. In fact, the utility of administrative accounting depends in large
measure upon the discernment with which the accountants predict the future,
whereas the utility of financial accounting depends upon the justice of the
accountant’s representation of the results of past actions.
Tax Accounting – It refers to the determination of the correct
liability for taxes, especially income taxes and social security-taxes and
preparation of necessary returns. Tax accounting is almost a separate field of
knowledge in itself. Income tax accounting cuts across both accounting and law.
It is probably 80 per cent accounting, since the data for tax returns are
secured from accounting records and since accounting knowledge is required in
the preparation of these data for presentation on the tax returns. That it is
20 per cent law results from the fact that statutory provisions must be met and
court decisions must be contemplated in the preparation of return and in their
negotiation with agents of the Internal Revenue Services. After a tax case has
reached the courts, the percentages are perhaps reversed.
Industrial Accounting – It refers to the integration of Financial
Accounting and Cost Accounting for managerial planning and control of an
industry. Actually in the area of Industrial accounting we find the integrated
roles of ‘general’ accounting, ‘cost’ accounting and ‘management’ accounting.
Industrial accounting is used to describe the modern conception of accounts as
a tool of management. It helps the management in (a) measuring the operating
results; (b) controlling business expenditures so as to maximize profits; and
(c) formulating business policies. In practical experience, the business policy
is determined by a compound of facts, customs and the social philosophy of the
management. If as ought to be the case, facts dominate in the determination of
business policy, the Industrial accounting by presenting the facts as to the
financial condition and the operating results importantly influences the
business decisions. Its importance lies in the fact that it aids management in
Planning, Control, Motivation and Direction; thus a close relationship exists
between Industrial accounting and Industrial management. In these days of large
scale production, complexity in management, ever-increasing threat of changes
in price levels and ever mounting competition in the business fields, Industrial
Accounting plays a vital role as a “Language of business”.
Government and Municipal Accounting – It specializes in the
transaction of political units, such as states and municipalities. It seeks to
provide useful accounting information with regard to the business aspect of
Public Administration. The main accounting problem in governmental units is to
maintain records to Tax returns and preparation of budgets for future revenue
and expenditure. Detailed studies of Government and Municipal Accounting are
made in a separate chapter.
Social Accounting – Social Accounting
is to deal with measurement of Social and National Income and National wealth.
Economics studies man in his relation to income and wealth, and as such Social
Accounting is closely connected with Economics. Social Accounting has been used
in Economics for a very long time in connection with measurement of National
Dividend i.e., National Income. However, the application of Double Entry System
of Accounting to the Accounting to the problem of measurement of National Income
and National Wealth is of recent origin. In Social Accounting neither personal
liking should be considered, nor should it be influenced by Income tax
requirements. It should be essentially based on scientific, impersonal and
broad outlook.
Social
Accounting is to deal with the macro-model rather than micro-model. Mutual help
and cooperation of Economists and Accountants that Social Accounting or
National Income Accounting can be developed as an all proof technique for
measurement of National Dividend and National Wealth.
In
Social Accounting it is not possible to record all the national transactions
taking place every day. So, Double Entry technique can be applied in the
pattern it is used for preparation of consolidated Balance Sheet. Actually
Social Accounting seeks to measure social income and disposal thereof in terms
of social consumption and social savings. In social accounting we are not
interested in money, as money is not assets from social point of view whereas
it is quite good assets in private hands. So, in Social Accounting Real Income,
Real Consumption, Real Savings and Real Capital are to be found out rather than
these items in monetary terms. But for expression in common terms money must be
taken as a unit. That is why the unit is to be taken at standard money values
or stable money value. Depreciation is also considered on replacement cost
basis rather than on Historical cost basis.
In
discussing social accounting reference must be made to the Keynesian Formulae
of Savings and Investment. Accounting to Keynes, National Income (Y) is
equivalent to National Consumption (C) plus National Investments (I), as the
income may be either consumed or invested consumed or invested. On the other
hand, National Savings (S) is the difference between National Income and
National Consumption, as saving is always the excess of the income over
expenditure.
Thus, Y=C+I ……………………………………………….. (1)
S=Y-C ............ ………………………………………..
(2)
Now
from (2) - Y=-S-C
Or,
Y=C+S ........................... …………………………….. (3)
Now
from (3) and (1) C+S=C+I
Or,
S=I .................................................………………. (4)
The
technique of private accounting is very largely related to record and statement
in terms of historical costs and historical revenues. Social accounting, on the
other hand, may require a development of this technique in terms of either a
current money measure or a standardized money measure of real things,
particularly when it comes to such questions as national capital aggregates,
asset and inventory formations and so on. Social accounting does very largely
resolve itself into a matter of the aggregation of private accounting
statements, particularly in relation to the business enterprise sector of the
national economy.
The
national income and other similar aggregate are obtained from the complete
system of social accounts particular to any one national economy by a process
of selecting and bringing together a number of the constituent entries in the
accounts. Thus, the national income is calculated by combining the income
shares of the factors of production in the forms of wages and salaries,
interest, operating surpluses and next dividends received from the rest of the
world. Again, a statement of the national income in terms of income payments
may be built up with a clear indication of the relation between national income
and gross national product, with a breakdown of the gross national product in
terms of an expenditure classification.
Once more it should not be overlooked
that complete adoption of accounting technique to the point of the preparation
of an aggregated national balance sheet will give a reasonably clear indication
of the make-up of the national capital. This balance sheet deals with the
business enterprise sector only, but clearly it should not be impossible to
devise similar balance sheet forms for the other sectors, and then to bring
these balance sheets together and then in the shape of one such document for
the whole national economy. Thus, it is plain that a Social Accounting set up
on the lines which have been indicated should promote a clear understanding of
the elemental groups of transactions entering into the calculation of
significant national aggregates, and their inter-dependence on one another.
Professor
Richard Stone of Cambridge University remark, “Social Accounting is concerned
with the statistical classification of activities of human beings and human
institutions in ways which help us to understand the operation of the economy
as a whole.”
Social
accounting is only used in contradistinction to private accounting, and helps
to compute national income.
