Branches of Accounting: Financial, Cost & Management | Class 11 Notes

Branches of Accounting

Comprehensive Study Notes for Class 11 Accountancy

01. Financial Accounting

Financial accounting is the original and most widely used branch of accounting. Its primary focus is on the systematic recording of financial transactions of an entire organization.

• Primary Goal: To ascertain the Profit Earned or Loss Incurred during a specific accounting period (via the Profit & Loss Account).
• Financial Position: To present the true financial health of the business through a Balance Sheet.
• Reporting: It provides standardized information to External Users such as shareholders, creditors, banks, and tax authorities.
• Constraint: It is historical in nature, meaning it records transactions that have already occurred.

02. Cost Accounting

As businesses grow in complexity, knowing the total profit is not enough. Managers need to know the cost of specific activities. This led to the emergence of Cost Accounting.

• Cost Ascertainment: Calculating the exact cost of a product, process, project, or service (e.g., the cost of producing 1kg of cement).
• Cost Control: Identifying areas of wastage and implementing measures to reduce unnecessary expenses.
• Price Fixation: Helping the management determine the competitive selling price of a product based on its production cost.
• Target Audience: Primarily for Internal Management to improve operational efficiency.

03. Management Accounting

This is the most modern branch of accounting. It is not bound by rigid rules or legal requirements; instead, it is tailored to the needs of the people running the business.

• Decision Making: It uses data from Financial and Cost accounting to provide insights for future strategy.
• Tools Used: Techniques like Ratio Analysis, Budgetary Control, and Fund Flow Statements are used here.
• Future Orientation: Unlike financial accounting, this branch is focused on Forecasting and Planning for the years ahead.
• Internal Focus: The reports are highly confidential and used only by the Top Level Management.

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Comprehensive Comparison Table

Basis	Financial Accounting	Cost Accounting	Management Accounting
Objective	To report the financial results of the business to the owners and outsiders.	To ascertain and control the cost of products or services.	To assist the management in planning and decision-making.
Users	Both Internal and External users (Banks, Investors, Govt).	Internal Users (Factory Managers, Production Heads).	Internal Users (CEO, Directors, Board Members).
Format	Follows strict legal formats (Schedule III of Companies Act).	No legal format; based on the needs of the industry.	No fixed format; depends on the specific requirement.
Focus	Historical (records what has happened).	Present and Past (ascertaining current costs).	Future (planning and forecasting).

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Teacher's Insight

In your exams, remember this hierarchy: Financial Accounting tells you IF you made money, Cost Accounting tells you WHERE you spent the money, and Management Accounting tells you WHAT to do with the money next!