The 3 Main Branches of Accounting

This is the original and most common branch of accounting.

• Purpose: To systematically record all financial transactions (buying, selling, paying salaries) and calculate the final profit or loss for the year.
• Final Products: It produces the Trading and Profit & Loss Account, and the Balance Sheet.
• Audience: It is primarily prepared for External Users (like investors, banks, creditors, and the government) so they can judge the financial health and historical performance of the company.

As factories and manufacturing grew during the Industrial Revolution, businesses needed to know exactly how much it cost to make a single product.

• Purpose: To ascertain, analyze, and control the exact cost of producing a good or providing a service.
• Application: If a factory makes shoes, Cost Accounting calculates the exact cost of leather, rubber, electricity, and labor that went into one single pair of shoes. This helps the business fix the selling price.
• Audience: It is prepared strictly for Internal Users (the factory managers).

This is the newest branch of accounting, developed to help high-level executives make future business strategies.

• Purpose: To present the data gathered from Financial and Cost accounting in a simplified, analytical way to help management make quick decisions.
• Tools Used: Ratio analysis, cash flow statements, budgeting, and forecasting.
• Example Decision: Should the company buy a new machine or rent it? Should they launch a new product line or shut down a loss-making department?
• Audience: It is prepared strictly for the Internal Management (CEO, Board of Directors).