Meaning and Scope of Accounting

Sub-fields of Accounting

Accounting is a fairly wide term and encompasses within it many meanings and types of recording and analyzing activities. These various types of accounting are known as subfields of accounting. They include financial accounting, management accounting, human resource accounting, etc. Let us take a brief look at these.

Financial Accounting

Financial accounting largely concerns itself with the preparation and interpretation of financial statements and accounts of a company. It is mainly aimed at providing external users (such as shareholders, creditors, tax authorities etc) with the financial information that they require. The process begins with bookkeeping.

We say that financial accounting is historical in nature. It only records and summarises transactions after they have already taken place. And the final step of financial accounting is the preparation of the final accounts, which is the Profit & Loss Statement (also known as the Income Statement) and the Balance Sheet. This is done at the end of the financial year to determine the overall net profit or loss of the company. Financial accounting also summarizes the financial position of the company at the year-end.

Financial accounting generally uses the double entry system. It implements the principles of the Accounting Standards (AS) to maintain their financial records. Various accounting techniques are used to maintain these financial records via journals, ledgers, trial balance etc. The ultimate aim is to provide the users (stakeholders of the company) with all the financial information they may require in a fair and systematic manner.

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Management Accounting

Quite simply put, management accounting is concerned with such accounting information which is useful to the management and the managers. It is any accounting information (reports, accounts, budgets etc) that is useful to the management of a firm to more efficiently carry out its functions of directing, planning, controlling, etc.

So in management accounting, the information is grouped and organized in a way desired by the managers who are the users of this information. So such reports, budgets, memos make the information easier to understand and analyze for the managers. Thus they can plan their managerial activities accordingly and take better and smarter decisions as well.

Also, the different levels of management have different needs. So one of the main functions of management accounting is to modify the data according to the needs of the top, middle and lower levels of management. For example, the top level managers will need more concise information while the lower level managers will require more detailed information.

Cost Accounting

Cost accounting is the process of accounting and ultimately controlling the costs related to a product or job or process or an operation. It allocates the expenditures of the company to their correct product/service/job to help determine the exact cost of such a cost center. And cost accounting also organizes and presents this information suitable for the purpose and use of the management.

Cost accounting deals with all three aspects of cost ascertainment, the controlling of cost and eventually cost reduction. This will help the management in avoiding wastage, determining the selling price of a product/service, calculating the break-even point, and overall better decision making functions. Cost accounting is also very important for budgeting and implementing budgetary control for the organization.

Human Resource Accounting

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Human resources are argued to be the most important resources of an organization. Without human resources, a company simply cannot function. However, in the conventional form of accounting, there is no scope for the accounting of these resources or a way to measure their costs and benefits. Human Resource Accounting was a concept developed in the 1960’s that aimed to change that.

One of the main objectives of human resource accounting is to determine the cost of recruiting, developing, training and maintaining the human resources of an organization. It can even provide for the appreciation or the depreciation of the human resources. This will basically allow management to monitor the effectiveness and the efficiency of their employees. And now that the information is available, they can make better decisions regarding their human resources.

Over the years accountants have come up with many methods of Human Resource Accounting like the historical method, opportunity cost method, replacement cost method, present value method etc. All these have their own benefits and limitations and the organization will choose the one best suited to them.

Social Responsibility Accounting

An organization does not function in a vacuum. It is a part of a society and the economy. In fact, every company benefits from the society by using its resources and inputs. So a company should also be responsible for the welfare of such a society and must make some contribution towards the same.

So social accounting is associated with determining the social costs of the company and the social benefits it contributed. It is one of the ways a company can inform the general public about the welfare activities the company does and the benefit of such activities to the society. It attempts to express in quantitative terms the gain/welfare the company’s social programmes are causing to the society in general.

Solved Example for You

Q: Human Resource Accounting deals with the accounting of physical assets. True or False?

Ans: This statement is False. Human Resource Accounting deals with the accounting of human assets, which are considered to be the most important assets of the company. So their valuation and contribution to the company must also be recorded.

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4 responses to “Meaning of Accounting”

  1. santosh says:

    hi I am a Commerce Student

  2. Ngerere says:


  3. INDRANIL says:


  4. ARAZA says:


    i like the way they explained the topic its very interesteing and easy.


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