FINANCIAL ACCOUNTING

Financial accounting is a systematic method of recording transactions of any business according to the accounting principles. It is the original form of the accounting process. The primary purpose of financial accounting is to calculate the profit or loss of a business during a period and provide an accurate picture of the business’s financial position as on a particular date. The Trial Balances, Profit & Loss Accounts, and Balance Sheets of a company are based on application of financial accounting principles. These are useful for creditors, banks, and financial institutions to assess the company’s financial status.

Further, taxation authorities can calculate the tax based on these records only. These are just the primary help, you can get from this accounting. Besides these, there are a lot of other things, like knowing about bank balances, account recievable balances, account wise summary, bank reconciliation, etc. The list is actually endless. Browse through the category – financial accounting for more topics under this branch of accounting.

COST ACCOUNTING

Cost accounting deals with evaluating the cost of a product or service offered. It calculates the cost by considering all factors, including manufacturing and administrative, that contribute to the output production. The objective of cost accounting is to help the management fix the prices and control the cost of production. It also pinpoints any wastages, leakages, and defects during manufacturing and marketing processes. Possibly, these short descriptions about these accounting branches may give overlapping understanding about each branch of accounting. Further, to understand the line of difference, we suggest reading – Cost Accounting vs. Financial Accounting – All You Need to Know.

MANAGEMENT ACCOUNTING

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 can make 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 management’s needs in decision-making regarding minimizing the cost factor and enhancing profit-making. On the other hand, financial accounting serves the needs of shareholders, creditors, and financial institutions to ascertain the company’s financial position. Management accounting records are kept secret for the use of management only. As a result, they are not made public.