Sub Fields of Accounting
To understand the meaning of accounting and how the different subfields of accounting fit together, it is essential to know what they are.
The various subfields of accounting are as given below:
Financial accounting is the measurement, recording and reporting of an organization’s financial activity. The scope of financial accounting covers the preparation and interpretation of financial statements and communication to the users of the accounts.
The primary purpose of financial accounting is to report and evaluate an organization’s financial activities. The second purpose is to present a reliable picture of the organization’s performance and to help manage the organization’s resources efficiently and effectively.
Financial Accounting is historical because it records transactions that have already occurred in the past. The last step of financial accounting is preparing and presenting Profit and Loss A/c and Balance Sheet. It primarily helps determine the net result of an accounting period and the financial position on a given date.
Management accounting is the practice of providing data that helps senior management assess the performance of their managers and competent people within a department or company. The data is used to determine and communicate key performance indicators (KPIs) and the effectiveness of individual managers and departments.
Management Accounting is concerned with internal reporting to the managers of a business enterprise. To discharge the functions of stewardship, planning, control and decision-making, the management needs a variety of information.
The different methods of grouping information are preparing reports as desired by the managers for discharging their attest functions are referred to as management accounting. An essential component of management accounting is cost accounting, which deals with ascertaining cost and control.
The terminology of cost accounting published by the Institute of Cost and Management Accountants of England and Wales defines cost accounting as:
“the process of accounting for cost begins with the recording of income and expenditure or the base on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling costs.”
Cost accounting is an integral part of any business. It helps companies manage and report their expenses to stakeholders. In this process, a business must first understand how it allocates costs throughout the various stages of its business. Cost accounting then ensures accurate tracking and management of all costs incurred throughout all the operational phases of a company. It also helps prepare a well-organized and accurate financial report to support future activities. It allows a company to monitor their cost of operations.
In today’s business environment, the importance of cost accounting can’t be underestimated. It helps ensure that business decisions are based on facts, not assumptions. The main objective of cost accounting is to make sure a company makes good and timely decisions on financial and other issues. It is, thus, significant activity in the life of any organization. This article will discuss the critical elements of cost accounting and how it works.
Human Resource Accounting
Human Resource Accounting (HRAC) is the process of accounting for all available information related to the employees of an organization, their salaries, titles, positions, job descriptions and duties. HRAC also includes payroll processing and benefits administration. This term is often used by human resources professionals interested in learning more about how financial statements can be used to measure the performance of human resources functions.
HR accounting is an attempt to identify, quantify and report the investments made in the human resources of a business organization. As modern accounting is based on the Money Measurement Concept, human resource is not presently accounted for. Hence HR accounting is essential to quantify the contribution of human resources.
The aim of human resource accounting is to study the performance of the human resource in the organization. The performance of the human resources of an organization is measured in terms of profit and loss. The profitability of an organization is directly related to the cost of the resource to the organization, and the return on the cost of the resource.
Social Responsibility Accounting
Social Responsibility Accounting is a concept in which the stakeholders hold firms accountable in terms of environmental and social factors. Social responsibility accounting is a way to hold firms responsible for their activities to satisfy stakeholders. It also means that firms must pay the cost associated with these externalities when there are externalities. This accounting helps companies differentiate themselves from competitors in an increasingly competitive environment.
The demand for social responsibility accounting stems from increasing social awareness about the undesirable by-products of economic activities. Social responsibility accounting is concerned with accounting for social costs incurred by the enterprise and social benefit created.