What are the Different Classifications of Accounting?
Accounting is a vast field of study that deals with money management. Naturally, there are different classifications made by experts. These classifications help students to cover the area adequately and learn the concepts clearly. Here are the details of the modern classification of accounts. Having explicit knowledge about it can help you cover the whole section.
There are mainly three subfields of accounting, such as Cost Accounting, Management Accounting, and Financial Accounting. All of these are discussed in detail.
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Cost Accounting
The type of accounting that deals with keeping records, analyzing, and summarizing the costs for a service product is known as cost accounting. An organization can access the classification of the expenses in cost accounting easily. Cost accounting can be vital for any company as it helps the executives observe the levels of costs in different production aspects and take necessary decisions. They take the help of some prominent elements such as labor, material, and miscellaneous expenses to calculate the total costs. Moreover, the above elements are costs for a company that can either be direct or indirect. The modern classification of accounts gives way to several kinds of costs.
Types of Costs and Their Details
Variable Cost: The quantitatively dynamic cost is also known as Variable Cost. Generally, it is directly proportional to production. Labor and Material costs are the two variable costs
Fixed Cost: The costs that are static in contrast to the level of production are known as fixed costs such as wages and salaries.
Semi-variable Cost: The cost which can be variable or fixed depending upon the element is known as semi-variable cost. There are two other costs known as Sunk cost and Opportunity Cost that are related to the production level and semi-variable cost.
Financial Accounting: As per the classification of accounting principles, Financial Accounting is another subtype of accounting. As it is evident by the name, it deals with the finances of the business company over a specific time period.
The document-based data that comes under financial accounting are income bills, statements, and balance sheets. The executives can derive reports related to company transactions from financial accounting. An executive has to follow financial principles to get reports of financial accounting. He has to follow the facts mentioned in GAAP to make the reports.
Multiple types of companies like International Public companies, International Financial Reporting, and others are all related to GAAP. The methodologies that the executives can follow are Cash Basis, Accrual Basis, and the hybrid between the two. The advantage of proper financial accounting in a company is that it can enhance complete transparency. Moreover, it can ease the process of making the annual reports too.
Management Accounting: The executive board of the organization fully manages management accounting. It relates to organizational decision-making in different aspects. It is mainly done based on the reports on cost accounting and financial accounting and other data. It holds an important place in the case of the classification of accounting.
Management Accounting Segregation
The details of the management account segregation are given below:
Cost Accounting Based
Analysis of the profit and cost volume.
Analysis of the standard costs and variance.
The method of differential and incremental costing
Financial Accounting based
Analysis of all the data present in the financial statements
Analysis of the cash flow statements
Analysis of the return on capital
Future Data Information Based: Segregation of management accounting through budget control and project evaluation.
Mathematics Based: Segregation with the help of operation research, network analysis, and linear programming.
Final Words: So these are the details about the classification of accounting. All large business companies hire the best team when it comes to accounting as the outcomes show the fields where the company investments are done already or may happen in the future.
Why is Accounting Important?
For running any business smoothly and efficiently one should maintain accounts. Accounting helps you to track income and expenditures and provides investors, administration, and government with quantitative financial information which can be used in making business.
The goal of accounting is to collect data and to prepare reports on financial statements, about the performance of the firm, whether it is running smoothly, its financial situation, and the cash flows of a business.
By taking all these things in consideration decisions are made for the progress of the firm. They not only help to manage the business of the firm but also to make future decisions like to invest more money in it or lend money etc.
Rules of Accounting
Accounts are of three types
Real Account:
In real account debit the items which come in credit what goes out.
Real accounts are examples of Assets of businesses like cash machinery buildings.
Personal Account:
In personal accounts, receivers are debited and givers are credited in the balance sheet.
An example of some personal accounts might be Preeti account Sharma account
Nominal Accounts:
In nominal accounts, all expenses and losses are debited and all incomes and gains are credited. The nominal accounts are applicable to the Income, losses, and profits of a firm.
For example salary, wages, purchases, sales, etc.
Need and Objectives of Accounting
To record transactions in a systematic manner.
Assessment of loss and profit of a firm.
Tax filing.
Providing important information to the administration.
Effective Control over the Business
How Can We Maintain a Daily Account Check at Home?
We can maintain accounts even at home.
Your expenditure or expenses should not be more than your income.
Your cash inflows should be high when compared to your expenses.
Always have an adequate balance in your accounts.
Keep vigilance on your expenses and cut down on unnecessary expenditure along with your actual income.
FAQs on Classification of Accounting
1. How do accountants help businesses regarding the payment of taxes?
One of the main objectives of Accounting is to provide the information for filling up the tax every year. Returns-of-income tax, wealth tax, sales tax, GST, etc should be taken into consideration. For more information about accounting, we can also see the vedantu website and app which provide study materials having full clarity about each concept. Students can also prepare for the examinations from practice questions.
2. What are various kinds of accounts in accounting?
There are different types of accounts in accounting :
Real account
Personal account
and Nominal Account.
Real accounts are of two types Intangible and tangible. A few examples of real accounts are facets of business like cash, land plant, and machinery, examples of personal accounts are like Preeti, Pankaj examples of nominal accounts are like salaries, wages, sales, and purchase.
3. What happens if a company or firm doesn't maintain accounts?
Maintaining accounts for every form is really very important to analyze the growth of the business. The accounts show the detailed information of entire transactions of a firm regarding whether it is going in profits or losses. It also helps the business to make some quick decisions regarding the firm so that the changes can be made within the time, for betterment. hence it is really very important for every firm or business to maintain accounts.
5. What kind of account is a bank account?
Maintaining accounts time-to-time helps business personnel in quick decision-making accounts help them to analyze the transactions regarding their expenses, benefits, and losses. Business people can make quick decisions and implement changes regarding various aspects required. Hence maintaining accounts definitely helps to make quick decisions in business.
5. What kind of account is a bank account?
The bank account is a real account but not a personal or nominal one. We can have various types of bank accounts.
Various Types of Bank Accounts
Existing Account: An existing account is also called a current account.
Savings Accounts: These are accounts maintained by people to save their money for future plans.
Salary Account: It is an account where you have all details about your salary.
Fixed Deposit Account: These types of accounts are based on tenure.
Other types of accounts are Recurring deposit accounts, NRI accounts Demat accounts, etc.
6. How can management accounting segregation be done?
The management accounting segregation is done in four ways. First, the executives access the information of financial accounting followed by the cost accounting. There are several data analysis processes they carry out to extract the necessary data.
Some other data are extracted through mathematics and the information of the future data. These are all done following the statistical processes to make a final financial-accounting report of the company. All these processes should be executed in the correct order to get the best outcome in the form of computer-driven data. Apart from the executive teams, some supervisors continuously observe the process.
7. What are the leading cost accounting techniques?
Apart from the knowledge about classifying in accounting, you need to know about the cost accounting techniques. It has six aspects:
Standard Costing: The process of cost accounting, where the pre-documented post for production is contrasted with the actual production cost, is known as standard costing.
Marginal Costing: With the help of marginal costing, a firm can derive the cost for additional unit production.
Historical Costing: Historical costing is simply the comparison between the current costing and that some years before. It helps the organization determine the increase or decrease of the production cost with time.
Direct Costing: The process of cost accounting, where only the direct costs are taken into account with respect to the product and indirect costs to profit and analyzed together.
Absorption Costing: In this technique of cost accounting, the cost of projects is considered along with manufacturer processing.
Uniform Costing: Analyzing the uniform costs is executed to get the data on cost accounting.