BRANCHES OF

ACCOUNTING
CHAPTER 2
LEARNING OBJECTIVES:
• I will be able to differentiate the
different branches of accounting.
• I will be able to explain the types
of services rendered on the
different branches.
 Branches of Accounting
• Financial Accounting • Tax Accounting
• Management/Managerial • Cost Accounting
Accounting • Accounting Education
• Government Accounting • Accounting Research
• Auditing
 1. FINANCIAL ACCOUNTING
• Financial accounting is the broadest branch and is focused
on the needs of external users.
• Financial accounting is primarily concerned with the
recognition, measurement and communication of
economic activities.
• Financial accounting primarily handling the recording of
financial transactions of business.
• The final transactions are later summarized into
standardized accounting reports, more popularly known as
the financial statements, for the benefits of the internal
and external users.
• Financial accounting conforms with accounting
standards developed by standard-setting
bodies.
• In the Philippines, there is a Council created to
set these standards – Philippine Financial
Reporting Standard (PFRS) and Philippine
Accounting Standard (PAS)
 Financial Statements
1.Statement of Financial Position
2.Statement of Comprehensive Income
3.Statement of Cash Flow
4.Statement of Changes in Equity
5. Notes to Financial Statement
 STATEMENT OF FINANCIAL POSITION
• a.k.a. the Balance Sheet, literally presents the
company’s “position” to the resources it owns
(Assets), obligation claimed against it (Liabilities)
and the owner’s residual interest (Equity).
• This conveys information about the business
entity’s liquidity, solvency, stability, capital
structure and financial flexibility.
• It presents the financial position of an entity at a given
date. It is comprised of the following three elements:
oAssets: Something a business owns or controls (e.g. cash,
inventory, plant and machinery, etc.)
oLiabilities: Something a business owes to someone (e.g.
creditors, bank loans, etc.)
oEquity: What the business owes to its owners. This
represents the amount of capital that remains in the
business after its assets are used to pay off its outstanding
liabilities. Equity therefore represents the difference
between the assets and liabilities.
 STATEMENT OF COMPREHENSIVE INCOME
• a.k.a. the Income Statement/Profit and Loss Statement, reports the
company's financial performance in terms of net profit or loss over a
specified period. This is composed of the following three elements:
o Revenue: Earnings arising from the main line of operations of the
business.
o Income: What the business has earned over a period.
o Expense: The cost incurred by the business over a period of time
(e.g. salaries and wages, depreciation, rental charges, etc.)
• Net profit or loss is arrived by deducting expenses from revenue
 CASH FLOW STATEMENT
• presents the movement in cash and bank balances over a period.
The movement in cash flows is classified into the following
segments:
– Operating Activities: Represents the cash flow from primary activities of a
business.
– Investing Activities: Represents cash flow from the purchase and sale of
assets other than inventories (e.g. purchase of a factory plant)
– Financing Activities: Represents cash flow generated or spent on raising
and repaying share capital and debt together with the payments of interest
and dividends.
v
 STATEMENT OF CHANGES IN EQUITY
• This is a financial report that shows the reconciliation of the
beginning and ending balances of the equity accounts.
 NOTES TO FINANCIAL STATEMENT

• Comprising of summary of significant

accounting policies and other explanatory
information.
 Purpose of Financial Accounting
• General Purpose - External parties/user of
financial statements use this report to evaluate
the performance of the company.
• Specific Purpose – Internal parties/user of
financial statements use this report to guide
them in the decision-making process for the
company.
 2. MANAGEMENT ACCOUNTING
• A branch of accounting which focuses on the
preparation of financial reports used by managers in
their day-to-day decision-making.
• Reports generated using management accounting are
for internal users only.
• They can be done daily, weekly, or whenever managers
require a specific report.
• Management reports, typically contain
information regarding the amount of cash on
hand, the level of sales revenue for a
particular period, costs incurred, or even the
comparison of actual results with budgeted
amounts.
 FINANCIAL vs. MANAGEMENT
ACCOUNTING
• Management accounting differs from financial
accounting in the nature of information produced.
Financial accounting summarizes financial information
gathered within a specified period. Thus, financial
accounting provides information that is historical.
Meanwhile, management accounting information is
forward-looking. It contains forecasted information
used by managers in planning.
 ROLES OF
MANAGEMENT ACCOUNTANTS:
Advise managers about the financial implications of projects
Explain the financial consequences of business decisions
Formulate business strategy
Monitor spending and financial control
Conduct internal business audits
Explain the impact of the competitive landscape (It is an analysis of how a
business compares within the competitive climate. A competitive landscape analysis typically includes an analysis of
strategies through strengths and weaknesses, products and services and growth models.)

Bring a high level of professionalism and integrity to the

business
 Management accountants should possess the
following strategic business and management skills:
• Analysis – ability to analyze information and use it to make business
decisions
• Strategy – ability to formulate business strategies that will increase the
company’s wealth and create value for the company’s shareholders
• Risk – ability to identify the risks that can potentially have detrimental
effects to the company
• Planning – ability to apply accounting techniques in the planning and
budget creation phase of a business
• Communication – ability to identify what information the
management needs and also explain the numbers to non-financial
managers.
 3. GOVERNMENT ACCOUNTING
• According to Section 109 of Presidential Decree
1445, government accounting is defined as an
accounting system which encompasses the
process of analyzing, recording, classifying,
summarizing, and communicating all
transactions involving the receipt and
disposition of government fund and property
and interpreting the results thereof.
 Section 110: 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
• It is an unbiased examination and evaluation of the financial
statements of an organization.
• It is a process that includes numerous steps to determine
whether or not a company’s financial statements are
presented truthfully.
• AUDITORS – accountants who perform the auditing procedure.
They should be independent from the company being
examined.
• Audited Financial Statement – These are Financial Statements
underwent the process of auditing.
 5. TAX ACCOUNTING
• Taxes are the lifeblood of the government.
• Tax Accounting enables the taxing
authorities to collect taxes from the
business organizations.
 6. COST ACCOUNTING
• A branch of accounting that provides information for
management accounting and financial accounting.
• Cost accounting is very useful in manufacturing businesses
since they have the most complicated costing process.
• Cost accountants also analyze actual and standard costs to
help managers determine future courses of action regarding
the company's operations.
• Cost accounting will also help the owner set the selling price
of his products.
 Terms Used in Cost Accounting:
• Direct cost – costs that can economically be traced to a cost
object (e.g., materials, labor, etc.)
• Indirect cost – costs that cannot be traced to a cost (e.g., costs
of supplies used in the factory, salary of supervisor overseeing
factory operations, etc.)
• Fixed cost – costs that do not change within a relevant range of
activity (e.g., rent of a factory building, insurance costs, etc.)
• Variable cost – costs that change as the level of activity or
production increases (e.g., materials cost, labor cost, selling
cost, etc.)
 7. ACCOUNTING EDUCATION
• A branch of accounting that aims to educate the
students in the field of accountancy
• The Bachelor of Science in Accountancy (BSA) in the
Philippines is normally a 5-year program composed
of subjects in accounting, audit, administration, and
business laws and taxation. It also covers other
fields such as banking and finance, government,
non-profit organizations, and the academe.
 8. ACCOUNTING RESEARCH
• is research on the effects of economic events on
the process of accounting, and the effects of
reported information on economic events. It
encompasses a broad range of research areas
including financial accounting, management
accounting, auditing and taxation.
• a branch of accounting that deals with the
creation of new knowledge.
Quiz 2
• A management accounting skill which
refers to the ability to analyze
information and use it to make
business decisions.
• A management accounting skill which
refers to the ability to apply accounting
techniques in the planning and budget
creation phase of a business.
• A financial statement that shows the
reconciliation of the beginning and ending
balances of the equity accounts.
• Activities which represents the cash flow
from primary activities of a business.
• It is an element of one of the financial
statement which refer to something a
business owes to someone.
• It is an element of one of the financial statement
which refer to something a business owns or
controls.
• It is an element of one of the financial statement
which refer to what the business owes to its owners.
• A financial statement which reports the company's
financial performance in terms of net profit or loss
over a specified period.
• It is defined as an accounting system which
encompasses the process of analyzing,
recording, classifying, summarizing, and
communicating all transactions involving the
receipt and disposition of government fund and
property and interpreting the results thereof.
• A branch of accounting which is primarily
concerned with the recognition, measurement
and communication of economic activities.
• Accountants who perform the auditing
procedure.
• The lifeblood of the government.
• It is an unbiased examination and
evaluation of the financial statements of an
organization.
• Activities which represents cash flow from
the purchase and sale of assets other than
inventories.
•The standardized accounting reports
which are the summary results of the
business transactions.
•A branch of accounting that provides
information for management
accounting and financial accounting.
• A management accounting skill which refers to the
ability to identify the risks that can potentially have
detrimental effects to the company.
• A management accounting skill which refers to the
ability to identify what information the management
needs and also explain the numbers to non-financial
managers.
• A management accounting skill which refers to the
ability to formulate business strategies that will
increase the company’s wealth and create value for
the company’s shareholders.
• It is branch of accounting which focuses on the
preparation of financial reports used by
managers in their day-to-day decision-making.
• Cost that do not change within a relevant range
of activity.
• Costs that change as the level of activity or
production increases.
• A financial statement which literally presents the
company’s “position” to the resources it owns obligation
claimed against it and the owner’s residual interest.
• Activities which represents cash flow generated or spent
on raising and repaying share capital and debt together
with the payments of interest and dividends.
• It is an element of one of the financial statement which
refer to the cost incurred by the business over a period of
time.
 Keys 2
1. Statement of Financial Position
2. Financing Activities
3. Expenses
4. Asset
5. Equity
6. Statement of Comprehensive Income
7. Operating Activities
8. Statement of Changes In Equity
9. Investing Activities
10.Liability
QUIZ 3
 Enumeration
A.Branches of Accounting (1-8)
B.General and specific purpose
of financial accounting (9-10)
 Keys Quiz 3
1. Government Accounting
2. Financial Accounting
3. Auditor
4. Taxes
5. Auditing
6. Management Accounting
7. Fixed Cost
8. Variable Cost
9. Financial Statements
10. Cost Accounting
11.Risk
12.Communication
13.Strategies
14.Analysis
15.Planning
 Branches of Accounting (1-8)
• Financial Accounting
• Management/Managerial Accounting
• Government Accounting
• Auditing
• Tax Accounting
• Cost Accounting
• Accounting Education
• Accounting Research
9. Evaluate the performance of the company.
10.Decision-making process