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Unit 1: Introduction to Accounting

current assets and miscellaneous. Balance sheet is the reflector of the financial position of a Notes

business.

4. To provide the financial information to the various users: One more objective of the
accounting is to provide the required financial information to the different users – internal

as well as external users. Internal users of the financial statements are owners, shareholders,

management and external users of the financial statements are debenture holders, creditors,
investors, employees, government, etc.
1.3 Branches of Accounting

The main objectives of accounting are to record the business transactions and to provide the
necessary information to the internal and external users of the fi nancial statements. In order to

achieve the above objectives, the accounting is classified into followings branches:
1. Financial Accounting: It is the original form of accounting. It refers to the recording of
daily business financial transaction. Recording of the transaction is done in such a way that

the profit of the business may be ascertained after a definite period and the picture of the

financial position of the business may be presented.
2. Cost Accounting: As the name indicates, this accounting is related with the ascertainment of
cost of the product in a period. Under this system, record of raw materials used in production,
wages and labour paid and other expanses incurred on production are kept to control the
costs.
3. Management Accounting: The accounting which provides the necessary information to the
management is called management accounting. Under this, the analysis and interpretation

of the accounts, prepared by financial accounting, are done in a manner so that the managers
may forecast, plan for future and frame the policy.
4. Tax Accounting: Under tax accounting, the accountants prepare the accounts as per the
provisions of taxation. The accounts prepared as per taxation provisions may differ from the
accounts prepared as per fi nancial accounting.

5. Infl ation Accounting: The financial statements are prepared on the basis of historical cost

which do not present the true picture of the financial position and correct profit or loss of the

business due to inflation. Thus the fresh financial statements are prepared keeping in mind

the price level changes under infl ation accounting.
6. Human Resource Accounting: Human Resource Accounting means the accounting for human
being as now in an organization human being is treated as an asset like other physical assets.
It is recorded in the books like other assets. HRA deals with the measurement of costs on
recruiting, selecting, hiring, training, placing and development of the employees in one side
and on the other side it deals with the present economic value of the employees. For the
determination of the value of human being different methods are used under HRA.
7. Responsibility Accounting: Responsibility accounting is a special technique of management
under which accountability is established according to the responsibility delegated to the
various levels of management. A management information and reporting system is instituted
to give adequate feedback in terms of the delegated responsibility. Under this system, units

of an organization, under a specified authority in a person, are developed as responsibility
center and evaluated individually for their performance.

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