Page 11 - DMGT104_FINANCIAL_ACCOUNTING

Unit 1: Introduction to Accounting

2. It exhibits the financial track path and the position of the organization. Notes
3. Being business in the dynamic environment, it is required to face the ever changing
environment. In order to meet the needs of the ever changing environment, the
policies are to be formulated for the smooth conduct of the business.
4. It equips the management to discharge the obligations at every moment.
5. Obligations to customers, investors, employees, to renovate/restructure and so on.

1.1.4 Scope of Accounting

The Scope of accounting is divided into following two parts:
1. Branches of Accounting
2. Accounting as a science or an art

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 financial 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 expenses 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 financial accounting.

5. Inflation 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 inflation 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

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