BRANCHES OF

ACCOUNTING

PREPARED BY : PROF. JONAH C. PARDILLO

 LEARNING OBJECTIVES

After reading this chapter, you should be able to:

 Differentiate the branches of accounting;

 Explain the kind/type of services rendered in each of these branches.

 Financial Accounting

 is a branch of accounting that is primarily concerned with the measurement and communication
of information that summarizes and reports the financial condition and operating results of a
business enterprise.

 The art of recording financial transactions and events in a systematic manner in the books of
account is known as book-keeping. The recorded information has to be classified, analyzed and
presented in a manner in which business results and financial position can be ascertained.
 Cont…

 Financial accounting provides, as objectively as feasible the diverse information needs of both the
internal and external data-users who may have conflicting interests in the business affairs.

 Important requirement of financial accounting is that, the information should be recognized, measured,
and reported in conformity with generally accepted principles. These accounting principles apply to all
types and all sizes of business organizations.
 Management Accounting

 The object of management accounting is to supply relevant information at appropriate

time to the management to enable it to make decisions and effect control.

 Management accounting, it is a useful tool to achieving the functions of management,

which are:
o to make both short-range and long-range plans

o To measure the success in carrying out these plans

 Cont…

o To identify the areas that require special attention

o To choose from among the available alternative courses of actions

o To be able to meet the business’ goals, management also utilizes the cost accounting method
and forecasting techniques.
 Government Accounting

 Government accounting which uses “Fund Accounting”, deals with the administration or use
of public funds to bring about service to the community. Its objective is more on how the
funds are used to service the people rather than to earn profit. Aside from the government.
Fund Accounting is also applicable for non-profit organizations such as the Red Cross which
is a charitable institution.
 Government Accounting

 Government accounting is another career field where one works as accountant, auditor budget
officer or electronic data processing head of any of the government agencies. Examples of
government agencies requiring the services of professional accountants are the Commission
on Audit (COA), Bureau of Internal Revenue (BIR), Bangko Sentral ng Pilipinas (BSP),
Government Service and Insurance System (GSIS) and Bureau of Custom (BOC).
 Auditing

 Deals with independent verification and examination of the accounting records for the
purpose of giving an opinion on the fairness of its presentation. It is required that an auditor
must first pass the Licensure Examination given by the Board of Accountancy in order to
practice as a Certified Public Accountant (CPA).

 An auditor is a person who is licensed to make an independent review of the financial records
of the firm.
 Cont…

 an internal auditor is an employee of the business enterprise.

 Internal auditors have the responsibilities of evaluating the efficiency of operation and
determining whether the business’ policies are being followed consistently in all
organizational levels of operations.

 Audited financial statements are required not only by the government and financing
institution but also by the stockholders of the corporation.
 Tax Accounting

 Tax accounting is the accounting process that focuses on tax issues including filing tax returns
and planning for future tax responsibilities as opposed to the preparation of financial statements.

 The CPA is frequently retained to prepare the clients’ periodic income tax returns that will be
filed with the Bureau of Internal Revenue (BIR). A CPA may also help a taxpayer-client in
making plans about certain future transactions, such as the acquisition of a new equipment, so
that the taxes that the business has to pay could be legally kept at a minimum amount.
 Cont…

 A CPA could help his tax-payer client on areas involving alternative courses of action that
would have a material effect on the tax that the business enterprise will pay to the government.

 To be able to render tax services, a CPA must have extensive knowledge of tax statutes,
regulations, and tax court decisions, aside from having a thorough knowledge of accounting.
 Cost accounting

 Cost accounting deals with the following:

 determining the costs of products, processes, projects, etc. in order to report the correct amounts on the financial
statements, and

 assisting management in making decisions and in the planning and control of an organization.

 For example, cost accounting is used to compute the unit cost of a manufacturer's products in order to report the
cost of inventory on its balance sheet and the cost of goods sold on its income statement. This is achieved with
techniques such as the allocation of manufacturing overhead costs and through the use of process costing,
operations costing, and job-order costing systems.
 Cont…

 Cost accounting assists management by providing analysis of cost behavior, cost-volume-profit

relationships, operational and capital budgeting, standard costing, variance analyses for costs and
revenues, transfer pricing, activity-based costing, and more.

 Cost accounting had its roots in manufacturing businesses, but today it extends to service businesses. For
example, a bank will use cost accounting to determine the cost of processing a customer's check and/or a
deposit. This in turn may provide management with guidance in the pricing of these services.
 Accounting Research and Education

 Is another professional field where the accountant assumes the role of researcher, teacher, and reviewer.

 A researcher investigates and makes a study creating, applying, relating or improving accounting theories
and business concepts that will suit the changes taking place in a particular business or industry.

 An accounting professor is responsible for the formation of competitive accountants and consultants and
teaches subjects such as accounting, auditing, management advisory services, finance, financial
management, business law, taxation and other technically related subjects. An accounting reviewer helps
prepare the candidates for the CPA Licensure Examination.
 Accounting Research and Education

 An accounting professor is responsible for the formation of competitive accountants and

consultants and teaches subjects such as accounting, auditing, management advisory services,
finance, financial management, business law, taxation and other technically related subjects.

 An accounting reviewer helps prepare the candidates for the CPA Licensure Examination.

 A CPA may also render professional services to his clients like: Preparation of financial
forecasts or feasibility studies.
 THE END

References:

Kimwell, M.B., “Fundamentals of Accounting”

Manuel, Z.C “Accounting Process, Basic Concepts and Procedures, Int’l Ed.”