What are the different branches or types of accounting?

Last Update – Aug 2025

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Businesses in UK depends on different types of accounting to manage their finances effectively. Business owners are able to choose the right approach for their needs when they have the right understanding of these various accounting processes.

With each type a specific purpose is fulfilled that helps different people to know their company finances. From financial accounting that reports to investors to management accounting that guides internal decisions, these branches work together.

Selecting the appropriate accounting process is crucial for compliance and growth, be it a startup or an established company. As the right combination can make the difference between business success and failure. This guide explores the main branches and their specific uses in the UK market.

Branches or Types of Accounting:

• Financial Accounting
• Management Accounting
• Cost Accounting
• Tax Accounting
• Auditing
• Forensic Accounting
• Fiduciary Accounting
• Fund Accounting
• Social Accounting

Financial Accounting:

Financial accounting is the branch of accounting concerned with the supplying of financial information about a company to external stakeholders, such as shareholders, financers/creditors and the government.

The financial accounting function of a company engages itself in preparing the periodic financial statements which are then made available to the public and stakeholders.

Financial accounting creates four main reports:

• Balance sheets (what the company owns and owes).
• Income statements (how much money came in and went out).
• Cash flow statements (how cash moved through the business).
• Statements of retained earnings (profits kept in the business).

All UK companies must follow International Financial Reporting Standards (IFRS) or UK Generally Accepted Accounting Practice (GAAP) when preparing these reports.

Management or Managerial Accounting:

Contrary to financial accounting, management accounting involves the supply of financial information within the internal departments of an organisation.

Management accounting focuses on analysing finances to prepare internal financial reports and records that assist the managers of different departments in the decision-making process to help drive business value.

Management accounting includes:

• Planning budgets and comparing actual results.
• Analyzing costs and benefits of business decisions.
• Measuring how well different departments perform.
• Forecasting future financial needs.

Management reports are kept within the company and help managers improve budgeting and asses the performance of products or departments. Management accounting is one accountancy outsourcing service that Outbooks excels at.

Cost Accounting:

Cost accounting, often considered a subset of management accounting, specifically addresses the costs associated with producing goods or services. This helps businesses understand their cost structure and optimise pricing strategies.

It involves the recording, classifying and summarising of the cost data via a completely quantitative approach. It includes the management of the overall costs involved in running a business.

Cost data is used by the company management to plan and control cost operations. Cost accounting aims to track the production cost and the fixed costs of a company.

Cost Accounting elements

Cost Type	Description	Examples
Direct Materials	Raw materials directly used in production	Steel, fabric, components
Direct Labour	Wages for workers directly involved in production	Assembly line workers, craftsmen
Manufacturing Overhead	Indirect costs of production	Utilities, depreciation, supervision
Administrative Costs	General business operation expenses	Office rent, management salaries

Also, Read – How much does it cost to outsource accounting services?

Tax Accounting:

Tax accounting ensures companies follow the tax regulations and stay compliant with the government. It handles the tax-related matters of the business and entails the calculation of the taxable income.

Tax accountants play a key role in managing tax filings and planning ahead to reduce the company’s future tax burden. They are also responsible for sharing accurate financial information with tax officials when required. Their work helps businesses stay on the right side of the law.

Since tax rules change often and vary across countries, accountants must stay constantly updated. They also advise on how taxes impact different business activities and how to legally minimise them. In some cases, they help resolve tax-related legal issues as well.

Key Tax Accounting responsibilities: (infographic)

• Preparing accurate tax returns.
• Ensuring compliance with HMRC requirements.
• Implementing tax planning strategies.
• Managing VAT, Corporation Tax, and other obligations.

According to AccountingWEB, nearly 30% of UK firms already use AI for tax compliance, with another 23% planning implementation by 2025.

Auditing:

Auditing involves the systematic and independent examination of a company’s financial records, statements and internal control systems. It ensures accuracy, reliability and compliance with accounting standards, helping maintain public and stakeholder trust in financial reporting.

Businesses invest heavily in audits because they offer assurance that financial data is credible. The audit process includes examining, verifying and evaluating financial accounts and internal controls to identify any errors, fraud or misstatements that could mislead users of financial information.

Types of Auditing:

• External auditing conducted by independent firms that evaluate company accounts and provide unbiased opinions on financial statement accuracy.
• Internal auditing performed by company employees to assess internal controls and policy compliance.
• Forensic auditing specialised in investigating financial fraud and preparing evidence for legal proceedings.
• Compliance auditing focused on ensuring adherence to regulatory requirements and industry standards.

External auditors provide assurance to investors, regulators and creditors by evaluating whether financial statements comply with IFRS or UK GAAP.

Internal auditors, on the other hand, work within the company to assess whether operations follow management policies and ethical practices.

Forensic Accounting:

Forensic accounting is often said to be an amalgamation of accounting, auditing, and investigation. It involves the analysing of information and records of a company’s accounts for use in a court of law.

It also involves quantifying the damages in matters of embezzlements, frauds, and falsification of accounts as well as in cases of personal insurance, injury, business dispute, divorce and marital clashes, environmental harms, and cybercrimes, among others.

Anything that involves court litigation, investigation and dispute resolution comes within the ambit of forensic accounting. Forensic accountants may be called in if anything suspicious surfaces during the external audit of a company.

Also, Read – Payroll Outsourcing Services?

Fiduciary Accounting:

Fiduciary accounting is the process by which a fiduciary or a trustee of a property or an asset communicates regular information about the financial administration of the related funds to the parties in interest or even the government.

The fiduciary has the responsibility of periodically keeping the principals informed about the transactions and investment policies being followed.

Fiduciary accounting comes under the direct scrutiny of the law and court, thus it has to be accurate, precise and carefully documented. It has to be transparent, as the fiduciary has been entrusted with the responsibility of somebody else’s property or similar assets.

Trust accounting, estate accounting, and receivership are some types of fiduciary accounting.

Fund Accounting:

Fund accounting is a part of non-profit entities, such as governments and not-for-profit establishments. Fund accounting is not a means of attaining profits but achieving the objectives of the parent firm.

General funds are distinguished from special funds, as general funds are used for day-to-day activities such as paying wages, whereas special funds are used for specific objectives and undertakings, such as hosting a special event.

Non-profit firms often struggle with scarce funds and less financial resources, thus, it is absolutely essential to have an effective accounting system in place to ensure resources are carefully allotted.

Social Accounting:

Social accounting aims to incorporate the realisation of social and environmental impact on the day-to-day accounting activities of organizations. In the corporate setup, social accounting is closely related to the Corporate Social Responsibility (CSR) concept.

Social accounting analyses and measures the impact of an organization on society and the environment. It also measures the social costs and benefits of organisation’s activities.

Just like any other branch of accounting, social accounting is also a method of quantifying the performance of a company, but in terms of social accountability.

Outbooks offers all types of Accountant outsourcing services for Accountancy firms

How to choose the right types of accounting?

The right types of accounting for your business depend on several factors:

• Business size: Small businesses usually need financial and tax accounting. Large companies need multiple types.
• Industry requirements: Some industries have special accounting needs. For example, construction companies often use project accounting.
• Legal requirements: All businesses need financial accounting for legal compliance. Public companies need additional auditing.
• Management needs: Growing businesses benefit from management accounting for better decision-making.

Also read: Own your time by automating and outsourcing your accounting processes

Frequently Asked Questions

Conclusion

Understanding diverse accounting types remains crucial for UK businesses in 2025. Each type serves specific purposes, from meeting legal requirements through financial accounting to supporting internal decisions via management accounting approaches.

Success depends on selecting the right combination of accounting types that align with business needs, organisational size and industry requirements.

Whether businesses need basic financial and tax accounting or require comprehensive reporting across multiple accounting disciplines, the appropriate approach helps manage finances effectively while maintaining compliance with UK regulations.