What is The Definition of Accounting?
Accounting can be defined in a very broad manner as it has different meanings. Accounting refers to recording as well as analyzing different activities. When it comes to dividing accounting into different parts, there are different types available. These are known as subfields of accounting. These include some of the terms such as financial accounting, human resources accounting, management accounting, and much more. Here in these notes, we are going to talk about the different sub fields of accounting so that the students can study these notes and score good marks in the examinations.
What is Financial Accounting?
The term financial accounting mostly is used to denote the preparation along with the different interpretations of accounts and financial statements regarding a particular company. The main aim of financial accounting is to provide the users such as tax authorities and shareholders with certain financial pieces of information that they need. Bookkeeping is a very important part of financial accounting. The nature of financial accounting is mostly historic which means it keeps track of transactions that are already completed. Preparing the final draft of accounts would be the last step of financial accounting and it produces the Income statement or the Profit & Loss Statement with the help of the double-entry system.
What is Management Accounting?
To put it in simple words, management accounting deals with accounting knowledge that can be used for managers and the management of a company. Some of the main examples of such are accounts, budgets, reports, and much more. These pieces of information are extremely useful to managers in order to carry out certain functions such as planning, directing, and controlling in a more efficient manner. The information from these reports is carefully sorted and organized by management in order to further use them. It makes the process of analysis a lot easier. You can refer to the subfields of accounting notes for further knowledge.
What is Cost Accounting?
The process which is used in order to count and ultimately control the certain costs which are in relation to a job or product or a process is known as cost accounting. This particular process accounts for all the expenditures which are done by the company for their services and products. So, this generally helps out in determining the entire cost of a project. Cost accounting also plays a very important role in making things easier to understand for the management. There are three different aspects which are dealt with by cost account. These aspects are cost ascertainment, cost controlling and cost reduction. Hence, this process is extremely useful when it comes to helping the management to avoid certain wastage of funds. Another one of the functions of cost accounting is to ascertain the selling price that a product or a service might have. The calculations of break-even point and the execution of better functions are also ascertained by the cost accounting field. Apart from that, cost accounting helps in budgeting and budget controlling.
What is Human Resource Accounting?
Some of the most crucial resources for any particular organization or company would have to be its human resources. Without this particular field, the company is definitely unable to function in a correct manner. However, when it comes to having a more conventional approach to accounting, there isn’t much scope concerning the accounting of human resources or how to measure the benefits and costs associated with that. However, that all changed in the year 1960 when human resources accounting came into existence. A very important objective that human resources accounting has is in determining the exact cost which is essential for recruiting, training and development of human resources, not to mention, maintaining them as well. With the assistance of human resources accounting, management will easily be able to ensure that they can fully appreciate and depreciate the employees that they have.
What is Social Responsibility Accounting?
Every single organization is a part of the economy or a certain society. Not to mention that the company is always benefited from the society that it is a part of. With the help of inputs and resources, the company can exercise most functions. Hence, the welfare of any society must be on the agenda of a company. This is where social responsibility accounting comes to play. This type of accounting is responsible for calculating all the social expenditures that a company goes through. Some of the main examples are welfare activities and some of the other functions.
FAQs on Subfields of Accounting: Overview and Applications
1. What are the main subfields of accounting that a commerce student should know?
Accounting is a broad discipline with several specialised subfields. For a commerce student, the primary subfields to understand are:
- Financial Accounting: Focuses on recording, summarising, and reporting a company's financial transactions to external stakeholders like investors and creditors.
- Cost Accounting: Deals with ascertaining and controlling the costs of products or services to aid in pricing and cost management.
- Management Accounting: Provides financial and non-financial information to a company's internal management for decision-making, planning, and performance evaluation.
- Social Responsibility Accounting: Involves identifying, measuring, and reporting the social and environmental effects of a company's operations.
- Human Resource Accounting: Aims to identify and measure the value of a company's human resources (employees) as assets.
2. What is the primary purpose of Financial Accounting?
The primary purpose of Financial Accounting is to create accurate and systematic records of a business's financial activities. Its key goal is to prepare financial statements, such as the Profit & Loss Account and the Balance Sheet, for a specific period. These statements provide a clear picture of the company's profitability and financial position to external users, including investors, creditors, government agencies, and the public, helping them make informed economic decisions.
3. How does Cost Accounting help a business in making decisions?
Cost Accounting is vital for business decision-making as it provides detailed information on the costs associated with producing goods or services. It helps management in three key ways: it determines the per-unit cost, which is crucial for setting selling prices; it provides data for controlling costs by identifying wastage and inefficiencies; and it helps in evaluating the profitability of different products, projects, or departments, thereby guiding strategic choices.
4. What is the difference between accounting and bookkeeping?
A common point of confusion is the difference between bookkeeping and accounting. Bookkeeping is the initial step and involves the systematic recording of daily financial transactions. It is clerical in nature. Accounting, on the other hand, is a much broader concept. It uses the data from bookkeeping to analyse, interpret, summarise, and report financial information to stakeholders. In essence, bookkeeping is the 'recording' part, while accounting is the 'analysis and reporting' part.
5. Why are Financial Accounting and Management Accounting considered two distinct branches?
Financial Accounting and Management Accounting are distinct because they serve different purposes and audiences. Financial Accounting is for external users (like investors) and must follow strict rules like Generally Accepted Accounting Principles (GAAP). It is historical in nature. In contrast, Management Accounting is for internal users (managers) to aid decision-making. It is future-oriented, does not have to follow mandatory rules, and includes both financial and non-financial data.
6. What is the importance of Social Responsibility Accounting for a modern business?
In today's world, Social Responsibility Accounting is increasingly important because it helps a business demonstrate its commitment to society and the environment. It involves accounting for the social costs incurred (e.g., pollution control) and social benefits created (e.g., community programs). This practice enhances the company's public image, builds trust with stakeholders, and helps management make decisions that are not just profitable but also ethically and socially sustainable.
7. What is the main system used in Financial Accounting as per the CBSE curriculum?
As per the CBSE curriculum for the 2025-26 session, the main system used in Financial Accounting is the double-entry system. This fundamental principle of accounting states that every financial transaction has an equal and opposite effect in at least two different accounts. It is based on the accounting equation: Assets = Liabilities + Capital, ensuring that the books are always in balance.
