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Fundamentals of Accounting 1

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TOPIC: BRANCHES OF ACCOUNTING

 BOOKKEEPING
 Financial Accounting
 Management Accounting
 Government Accounting
 Auditing
 Taxation
 Cost Accounting
 Accounting Education
 Accountancy Research
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 OBJECTIVES

▰ Identify and discuss the career opportunities open to accountants

▰ Distinguish between managerial accounting and financial
accounting
▰ Discuss the significance of doing professional advocacies
▰ Define ethics and explain ethical dilemma.
▰ Explain why ethics is crucial in accounting

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 Content: BRANCHES OF ACCOUNTING

The work that accountants undertake ranges far beyond that of simply summarizing
information to calculate how much profit a business has made, how much it owes, and
how much is owed to it. Although this work is still very important, accountants are
involved in other types of work. Of course, other information specialists (such as
market researchers and operations analysts) have also been drawn into the preparation
of management information, and at one time, some observers expected accounting to
be taken over by these newer and mores scientifically-based disciplines. However, this
has not happened. There are three main reasons:

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 There are three main reasons:

1. Financial information supplied to external users still has a dominant influence

on internal management information.
2. Other information specialists have been reluctant to become involved in
detailed accounting matters; and
3. . Accountants have been quick to absorb new methods and techniques into their
work.
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 The branches of accounting and their brief
descriptions are discussed as follows:

BOOKKEEPING

Bookkeeping is a mechanical task involving the collection of basic financial

data. The data are first entered in the accounting records or the books of
accounts, and then extracted, classified and summarized in the form of
income statement, balance sheet and cash flows statement. The bookkeeping
procedures usually end when the basic data have been entered in the books of
accounts and the accuracy of each entry has been tested. At that stage, the
accounting function takes over Silay Institute, Incorporated
Accounting tends to be used as a generic term covering almost anything to do
with the collection and use of basic financial data. It should, however, be
more properly applied to the use to which the data are put once they have been
extracted from the books of accounts.

Bookkeeping is a routine operation, while accounting requires the

ability to examine a problem using both financial and non-financial data.
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Books of Accounts

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 Financial Accounting

Financial accounting is focused on the recording of business

transactions and the periodic preparation of reports on results of operations,
changes in equity, financial position and cash flows. Financial accountants
accord importance to generally accepted accounting principles (GAAP).
Financial accounting is the more specific term applied to the preparation and
subsequent publication of general-purpose financial statements.

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 Management Accounting

Management accounting is a profession that involves

partnering in management decision-making, devising planning
and performance management systems, and providing expertise
in financial reporting and control to assist management in the
formulation and implementation of an organization’s strategy
(Institute of Management Accountant (IMA)).
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Management accounting is the process of identification,
measurement, accumulation, analysis, preparation, interpretation and
communication of information used by management to plan,
evaluate and control within an entity and to assure appropriate use of
and accountability for its resources (Chartered Institute of
Management Accountant (CIMA)).

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Management accounting is an integral part of the management process. It
provides information primarily to internal management. It measures,
analyses and reports financial and non-financial information which is then
used by management for planning, control and decision-making.

Example of non-financial information as follows:

percentage of defects, number of customer complaints, warranty
claims, budgeted hours, employee satisfaction, customer satisfaction,
product or service quality and reputation.
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 Managerial accounting and financial accounting are
contrasted as follows:
Managerial Accounting Financial Accounting
Output Internal Reports Financial Statements
Primary Users Internal Users (like managers) External Users (like stockholders, creditors
and government agencies)

Restrictions No mandatory rules for preparing reports Must follow GAAP when preparing financial
statements

Type of information Financial and non-financial information; Financial information; objective information
subjective information possible

Time Orientation Emphasis on the future ( planning and Historical orientation, past retrospective
decision-making)

Degree of Aggregation Based on very detailed information; Information about the overall firm
parts/segmented performance; more aggregated

Timing As required Monthly, quarterly, annually

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 Government Accounting

Definition and Objectives. According to Sec. 109 of Presidential

Decree 1445, government accounting encompasses the
processes of analysing, recording, classifying, summarizing
and communicating all transactions involving the receipt and
disposition of government funds and property, and interpreting
the results thereof.
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 Government accounting shall aim to:

1. produce information concerning past operations and present conditions;

2. provide a basis for guidance for future operations;

3. provide for control of the acts of public bodies and officers in the receipt,
disposition and utilization of funds and property; and

4. report on the financial position and the results of operations of

government agencies for the information of all persons concerned.
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There are three types of governmental
organizational units in our country, namely:

1. National government

2. Local government

3. Government corporations

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 They maintain their own accounting systems.

New Government Accounting System (NGAS). NGAS is

a simplified set of accounting concepts, guidelines and procedures
designed to ensure correct, complete and timely recording of
government financial transactions, and production of accurate and
relevant financial reports.
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Accounting Responsibility.

Accounting responsibility emanates from the Constitution, laws,

policies, rules and regulations. The offices charged with the responsibility are
the Commission of Audit (COA), the Department of Budget and
Management (DBM), the Bureau of Treasury (BTr) and the government
agencies discharging the functions of the government to enable it to attain its
commitment to the Filipino people.
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 The Commission of Audit (COA) is an independent
constitutional commission that keeps the general accounts of the
government, promulgates accounting rules and regulations, and
submits to the President and Congress an annual report of the
government.
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 The Department of Budget and Management (DBM) shall
be responsible for the formulation and implementation of the National
Budget with the goal of attaining our national socio-economic plans
and objectives. The Department shall be responsible for the efficient
and sound utilization of the government funds and revenues to
effectively service the country’s development objectives.
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 The Bureau of Treasury (BTr) is the principal custodian of
all national government funds. The BTr receive and keep government
funds, manage and control the disbursements. Also, it maintains
accounts of financial transactions of all national government agencies
and instrumentalities.

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National Budget. The national budget is the government’s
estimate of its income and expenditure. It is what the government
plans to spend for its program and projects and where the funds
will be sourced, whether from revenues or borrowings. The major
phases in the budgeting process are as follows:
Preparation
Authorization or legislation execution and
Accountability
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General Appropriations Act (GAA). The GAA is the
approved national budget for the year. This is in consonance
with Section 29 (1), Article VI of the 1987 Constitution, “No
money shall be paid out of the
Treasury except in pursuance of an appropriation by
law.”

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 Auditing

Auditing is a systematic process of objectively obtaining and

evaluating evidence regarding assertions about economic
actions and events to ascertain the degree of correspondence
between those assertions and established criteria and
communicating the results to interested users.

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Auditing is the accountancy profession’s most significant service to the public.
An external audit is the independent examination that ensures the fairness and
completeness of the financial statements that management submits to users
outside the business entity. The result of the examinations is embodied in the
independent auditor’s report. Note that the required financial statements have
been prepared by management so they must be evaluated to ensure that they do
not present a distorted picture.
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External auditors are appointed from outside the entity. The
external auditor’s job is to protect the interests of the users of the
financial statements.

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 Taxation

Taxes are the lifeblood of the government and their prompt and
certain availability are an imperious need (Commissioner vs.
Pineda, 21 SCRA 105). Taxation is the process or means by
which the sovereign, through its law making body, raises
income to defray the necessary expenses of the government.
Taxation, as a power of the State, is inherent in sovereignty.
This inherent power gives the government the right to tax
citizens and properties within its jurisdiction.
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Tax accounting includes the preparation of the relevant tax returns
and the consideration of the tax consequences of proposed business
transactions or alternative courses of action. As typically known,
accountants involved in tax work are responsible for computing the
amount of tax payable by both business entities and individuals but
their work is more complex.
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 Accountants with this specialization aim to comply with existing
tax statutes but are also in constant legal search for ways to minimize tax payments.
It is not necessary for either companies or individuals to pay more tax than is
lawfully due. If tax experts attempt to reduce their clients’ tax liabilities strictly in
accordance with the law, this is known as “tax avoidance”. Tax avoidance is a
perfectly legitimate exercise, but tax evasion (the non-declaration of sources of
income on which tax might be due) is a very serious offense.
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 Cost Accounting

Cost accounting is the collection, allocation, and control of the costs to

produce or supply a product or service. This accumulation and explanation of
actual and prospective cost data is important to control current operations (i.e.
to lower costs and thus, increase profits) and to plan for the future.

Cost accounting can be viewed as the intersection between managerial and

financial accounting. Both managerial and financial accounting use the
“production cost” data accumulated using the cost accounting system of the
entity. 31
For example, the determination of the product or service cost is
essential for pricing decision because management needs to
ascertain that the revenue of the product or service can cover its
costs and make a profit for the entity. The same production cost
data is used to value inventory on the balance sheet (a financial
accounting concern).
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 Accounting Education

“-shall constitute in a person in an educational institution which

involve teaching of accounting, auditing, management advisory services,
finance, business law, taxation, and other technically related subjects:
Provided, That members of the Integrated Bar of the Philippines may be
allowed to teach business law and taxation subjects.”

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The primary goal of accounting education is “to produce competent
professional accountants capable of making a positive
contribution over their lifetimes to the profession and society in
which they work.”
Accounting education guarantees the continued development of the
profession by endeavouring to clarify and address emerging issues
through research and sharing the results obtained with their
colleagues. Considered as “unheralded” heroes, they make others
understand the body of accounting knowledge .
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In addition, they painstakingly prepare candidates for the tough CPA Board
Exams. With the advent of information technology, this sector is being
challenged to focus accounting education from the “transfer of knowledge”
approach to the more effective “learning to learn” approach. Other CPAs
from the other sectors are encouraged to do part-time teaching to be able to
impart their workplace experiences.

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Accountancy Research

Accountancy research is the systematic process of collecting

and analyzing information to increase one’s understanding of the
functions of a professional accountant and contributes to the
solution of problems besetting the practice of the profession.

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Accountancy research can be classified into functional
classification and sectoral classification. The mainstream
accountancy research is primarily concerned with the
functioning of accountancy

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Thus, the most rationale classification of accountancy research is
based on the functional areas of the profession namely:
Financial accounting,
Management accounting,
Auditing and assurance,
Tax and other functional areas (such as
fraud prevention and investigation, corporate governance, internal
auditing, risk management, sustainability reporting, and the like).
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The sectoral classification is based on the sectors of professional
accountancy practice which are:
Education or academe
Commerce and industry
Public practice and
Government
Accountancy research can also be classified as basic and
applied.
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THANK YOU!

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