Classification of Accounting

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What are the Different Classifications of Accounting?

Accounting is a vast field of study that deals with money management. Naturally, there are different classifications of accounting 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. You can come to know about the interesting facts for each and how they affect the money management. 

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Cost Accounting

The type of accounting that deals with keeping records, analysing and summarising the costs for a service product is known as cost accounting. An organisation 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 labour, material and miscellaneous expenses to calculate the total costs.


Moreover, the above elements as costs for a company which can either be direct or indirect. The modern classification of accounts gives way to several kinds of cost.


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. Labour 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 organisation fully manages management accounting. It relates to the organisational decision making on 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:

1. Cost Accounting Based

  • Analysis of the profit and cost volume

  • Analysis of the standard costs and variance

  • The method of differential and incremental costing

2. 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

3. Future Data Information Based

Segregation of management accounting through budget control and project evaluation. 

4. 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. 

FAQ (Frequently Asked Questions)

Q1. How Can Management Accounting Segregation Be Done?

Ans. 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. 

Q2. What are the Leading Cost Accounting Techniques?

Ans. Apart from the knowledge about classifying in accounting, you need to know about the cost accounting techniques. It has six aspects like:

  • 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 organisation 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 analysed together. 

  • Absorption Costing: In this technique of cost accounting, the cost of projects is considered along with manufacturer processing. 

  • Uniform Costing: Analysing the uniform costs is executed to get the data on cost accounting.