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“Now let us learn about the branches of accounting. Basically we have three categories or or branches of accounting. One is the financial accounting to cost accounting and three management. Why not one why we have three.
What is the basic reason for having three branches. Because the whole idea is the objective of one is different from another the objective of financial accounting is different to that of cost accounting to that of management accounting and that is the reason. Why we have three branches of accounting. So let us see one by one what are the objectives and how they are different let us start from financial accounting financial accounting has two objectives one to know the profit or loss number two to know the financial position of the organization.
So we will take up the first one so when we talk about financial accounting. Obviously the first one that comes into mind is to know the profit or loss at the end of a period. Say a quarter or a six month period for a year. We would like to know whether we have made profits or losses in the set period.
So financial accounting helps us to know that and then comes the second one to know the financial position of the organization at the end of the period in a financial position basically what we mean as on a given date. How much the business owns and how much the business moves to others in simple terms..
What are the assets owned by the business and what are the liabilities. Which the business owes to others that will talk about the financial position of the business. So to repeat the first objective is for a period. The second objective is as on a given date so at times.
We see the company declaring results at the end of a period. They are all basically the product of or the end result of financial accounting process and next we have the cost accounting in very simple terms the objective of cost accounting is to ascertain the cost when i say cost ascertainment. It in a very simple term talks about what is the cost of manufacturing and selling a product or providing service. You may wonder whether the objective is so simple yes to start with cost ascertainment is the objective.
But with the help of cost ascertainment various things can be done without knowing the cost. How will you fix the price. So. Costas attainment will help us in price fixation.
Unless you know the existing cost. How will you plan for cost to be calculated in future..
So it helps in cost planning. Unless you know the cost how can you control. It or how can you reduce it so it leads to cost control and cost reduction and unless you know the cost. How can you develop strategies to control.
It there comes the strategic cost to management. So even though we started with a very simple term cost as attainment. It leads to lot of other activities. And that is why cost accounting is so important and relevant and i explained this in the class.
Many times students get a doubt both financial accounting and cost accounting takes the same data. So why we require two things or exactly. How they differ let me give you an example assume you run a furniture business you sell tables chairs sofa sets and so on if i ask you what is a profit you have made in the last one year you will refer to financial accounting information. If i ask you what is the cost of one single chair.
That you have manufactured and kept ready for sale then you account refer financial accounting. Obviously you will come to cost accounting why because financial accounting talks in total financial accounting is wholesome in nature financial accounting gives the complete picture..
But if i want to know about one unit. If i want to know about a particular item. Then i need to come boil down to cost accounting. That s where the differences so now let us move on to management accounting.
Objective is to provide the management with information taken from financial and cost accounting. So as to facilitate decision making so if you ask me in the most simple terms can you tell me the objective. I will just say decision making management account helps the top management to take decisions say day in and day out lot. Many questions come into management.
Not many problems arises to find solutions to answer. Those questions top management. Requires management accounting. How a simple example should i export goods to foreign countries.
If so at what price management accounting will help you i have 10 products in my product line. Should..
I discontinued one or two and which one management accounting. They ll help me should i make this product or should. I outsource this production to somebody. Which will be beneficial to the business again management accounting will help you so management accounting.
Basically takes data from both financial accounting and cost accounting. And then uses the data to develop answers for day to day managerial problems. And that is why anybody who is good in management accounting. Should obviously be good in financial and cost.
Accounting also so to quickly sum up we have three branches financial cost and management and all these three have their ” ..
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