Topic 2

Branches of Accounting

Learning Objectives:
 Discuss the different branches of accounting.
 Appreciate the type of accounting services required in different businesses.

Branches of Accounting
1. Financial Accounting – deals with the reporting of past activities and events and is intended
primarily for the external users, i.e. customers, owners.
 Results in the preparation of financial statements.
o Balance sheet
o Income statement
o Cash Flows
o Changes in Equity
o Notes to financial statements
 Primarily created for outsiders – investors, creditors, government agencies, and the
public.
o Financial statements should provide information useful to a wide range of users
in their economic decisions.
 General purpose financial statement.
o This is the main reasons why accounting standards such as PFRS and PAS are
created.
o They supply guidelines on HOW companies should prepare their financial
statements.
o Standardized financial statements allow the users to COMPARE THE RESULTS
of different companies.

2. Management Accounting – It focuses mainly on the information which can be useful to internal
users, i.e. management when it performs its basic functions or when making decisions.
 Focuses on the preparation of financial reports used by managers in their day-to-day
decision making.
 Exclusively for internal use.
 Budgets, Variance Analysis, Return of Investment, and Payback Period

MANAGEMENT REPORTS
 Can be done daily, weekly or whenever managers require a specific report.
 Contain information regarding the following:
o Amount of cash on hand
o Level of sales revenue for a particular period
o Cost incurred
o Comparison of actual results with budgeted amounts
 Financial Accounting vs. Management Accounting

 Financial accounting summarizes financial information within a specified period. Thus,

provides information that is HISTORICAL.
 Management accounting information is FORWARD-LOOKING. It contains forecasted
information used by managers in planning.

3. Government Accounting - Encompasses the process of analyzing, recording, classifying,

summarizing and communicating all transactions involving the receipt and disposition of
government fund and property and interpreting result thereof (Section 109 of Presidential Decree
1445).
 Proper custody of public funds.
 Department of Budget and Management (DBM), Bureau of Internal Revenue (BIR),
Bureau of Finance (BOF), Commission on Audit (COA)

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  01 January 2002 – New Government Accounting System (NGAS)
 01 January 2015 – Philippine Public Accounting Sector Standard (PPSAS)

OBJECTIVES OF GOVERNMENT ACCOUNTING

 To provide information concerning past operations and present conditions.
 To provide a basis for guidance for future operations.
 To provide for control of the acts of public bodies and offices in the receipt, disposition
and utilization of funds and property.
 To report on the financial position and the results of operations of government agencies
for the information and guidance of all persons concerned.

4. Auditing – deals with the verification of the fairness of the accounting reports prepared and
whether they are in accordance with the generally accepted accounting principles.
 It is an unbiased examination and evaluation of the financial statements of an
organization.
 Includes steps to determine whether or not a company’s financial statements are
presented truthfully.

TYPES OF AUDITING
 Internal Auditing – Insider (employees) – concerned with the Accounting System of the
company
 External Auditing – Outsider (third-party) – Gives an opinion on the fairness of Financial
Statement (FS)
o Audited FS – output of an external auditor.
o Independent Auditor Report – report prepared by an external auditor.

TAKE NOTE:
 An audit of the financial statements improves their credibility
 Audited financial statements – financial statements that underwent the process of auditing
 Audited financial statements are accompanied by the author’s opinion
 Author’s opinion will be the basis whether or not the financial statements are prepared
truthfully and without material errors.

5. Tax Accounting – deals with the determination of the different taxes imposed upon a business by
the government whether local or foreign.
 Enables the taxing authorities to collect taxes
 Produces tax returns to be filed to the appropriate government agencies

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  Follows the guidelines of the National Internal Revenue Code (NIRC)
 It adheres to some guidelines in the PFRS and PAS, but it is not required to implement
everything.
 Tax Planning (how to lessen tax payments)
o Tax Avoidance – legal
o Tax Evasion – illegal

6. Cost Accounting – deals primarily with the determination of the cost of goods manufactured and
sold.
 Determine cost of producing goods and services
 Determine selling price
 Costs
o Manufacturing/Product Cost – cost directly involved in the manufacture of
product.
Direct Material (DM), Direct Labor (DL), Factory Overhead (FOH)
o Non-manufacturing/Period Cost – costs that are not included in computing the
product cost.
Selling Expense & Admin Expense
7. Accounting Education – branch of accounting in academic field. It focuses on the education,
seminars, and training of educators and students.
 Upgrading the quality of teaching.
 Continuing Professional Development (CPD)
 Programs:
o BS in Accountancy
o BS in Management Accounting
o BS in Internal Audit
o BS in Accounting Information System

8. Accounting Research – Research on the effects of economic events on the process of accounting,
and the effects of reported information on economic events.
 Deals with the creation of new knowledge
o Deciding and implementing new accounting and auditing standards
o Presenting unusual economic transactions in the financial statements
o Learning how new tax laws impact clients and employers
o Discerning how the accounting professions affects the capital markets through
academic accounting research
 Deals with continued research studies
 Professional growth and advancement
 New accounting procedures, principles and standards.

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