Define the term accounting and explain the difference between the two main branches of accounting.

Accounting can be defined as a service provided to those who need financial information. It is also defines as ‘the process of identifying, measuring, recording and communicating economic transactions’.

There are two main branches of accounting:

1. Financial accounting is concerned with classifying, measuring and recording the economic transactions of an entity in accordance with established principles, legal requirements and accounting standards. It is primarily concerned with communicating a true and fair view of the financial performance and financial position of an entity to external parties at the end of the accounting period.

    

2. Management accounting is concerned with collecting and analyzing financial and other quantitative information. It is primarily concerned with communicating information to management to help effective performance measurement, planning, controlling and decision making.

    

    Therefore, the main differences between the two branches of accounting are that financial accounting is guided by a regulatory framework and focuses on meeting the needs of external users (those not involved in managing the business), and management accounting is unregulated and focuses on meeting the needs of internal users. However, both branches of accounting draw on the same data sources to generate financial information.