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In order to satisfy the needs of different people interested in the accounting information, different branches of accounting have developed. Accounting can be broadly classified into three types.

1. Financial Accounting. It is the original form of accounting. Financial Accounting records business transactions taking place during the accounting period with a view to prepare financial statements.

American Institute of Certified Public Accountants has defined ‘Financial Accounting’ as “The art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are in part at least of financial character and interpreting the result thereof’.

Ultimate object of accounting is to measure the Profit or Loss of the concern and to ascertain the financial position of the business. Thus Profit and Loss Account is prepared for a particular period to determine the profitability of the concern and Balance sheet is prepared on a particular date to determine the financial position of the concern.

2. Cost Accounting. Cost Accounting is the process of ascertaining cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with the cost centers and cost units.

3. Management Accounting. The term Management Accounting refers to accounting for the management. Accounting which provides necessary information to the management for taking and implementing important decisions. Management accounting covers various areas such as cost accounting, budgetary control, inventory control, etc. This has been discussed in detail in the subsequent pages.