[Commerce Class Notes] on Classification of Accounting Pdf for Exam

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:

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. 

5. 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 

1. Real Account:

2. 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

3. 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.