Branches of Accounting and Users of

Accounting Information
Fundamentals of Accounting, Business and Management (ABM 1)
Types of Accounting – (Branches/Fields of
Specialization)
• Financial Accounting
• Cost Accounting
• Auditing
• Managerial Accounting
• Accounting Information Systems
• Tax Accounting
• Forensic Accounting
• Fiduciary Accounting
Financial Accounting

• Financial accounting involves recording and categorizing transactions for business. This data is
generally historical, meaning it’s from the past.
• It also involves generating financial statements based on these transactions. All financial statements,
such a balance sheet and income statement, must be prepared according to the generally accepting
accounting principles (GAAP).
• Public companies have to follow a set of rules set out by the government (this is the Securities and
Exchange Commission in the U.S.).
• Financial accounting is performed to conform to external regulations and is not for internal employees
to analyze and make financial decisions—managerial accounting is used for this purpose.
Cost Accounting

• Cost accounting is considered a type of managerial accounting. Cost

accounting is most commonly used in the manufacturing industry, an
industry that has a lot of resources and costs to manage. It is a type of
accounting used internally to assess a company’s operations.
• Cost accounting concerns itself with recording and analyzing
manufacturing costs. It looks at a company’s fixed (unchanging and
constant costs, like rent) and variable costs (changing costs, like shipping
charges) and how they affect a business and how these costs can be better
managed.
Auditing

• There are two types of auditing: external and internal auditing. In external
auditing, an independent third party reviews a company’s financial
statements to make sure they are presented correctly and comply with
GAAP.
• Internal auditing involves evaluating how a business divides up accounting
duties, who is authorized to do what accounting task and what procedures
and policies are in place. Internal auditing helps a business zero in on
fraud, mismanagement and waste or identify and control any potential
weaknesses in its policies or procedures.
Managerial Accounting

• Also known as management accounting, this type of accounting provides

data about a company’s operations to managers. The focus of managerial
accounting is to provide data that managers need to make decisions about a
business’s operations, not comply strictly with GAAP.
• Managerial accounting includes budgeting and forecasting, cost analysis,
financial analysis, reviewing past business decisions and more. 
Cost accounting is a type of managerial accounting.
Accounting Information Systems

• Known as AIS for short, accounting information systems concerns itself

with everything to do with accounting systems and processes and their
construction, installment, application and observation. This can include
accounting software management and the management of bookkeeping
and accounting employees.
Tax Accounting

• Tax accounting involves planning for tax time and the preparation of tax
returns.
• Tax accounting also helps businesses figure out their income tax and other
taxes and how to legally reduce their amount of tax owing. Tax accounting
also analyzes tax-related business decisions and any other issues related to
taxes.
Forensic Accounting

• This specialized accounting service is trending in accounting and is

becoming increasingly popular. Forensic accounting focuses on legal
affairs such as inquiry into fraud, legal cases and dispute and claims
resolution.
• Forensic accountants need to reconstruct financial data when the records
aren’t complete. This could be to decode fraudulent data or convert a cash
accounting system to accrual accounting. Forensic accountants are usually
consultants who work on a project basis.
AREAS OF ACCOUNTING PRACTICE

• Public Accounting
• Private Accounting
• Government Accounting
• Accounting Education
1. Public Accounting

• Accountants in public practice are working in accounting firms or

individually to provide audit and attestation, tax planning and
preparation, and advisory services to their clients.
• Accountants in public accounting serve clients on a project or
contractual basis.
2. Private Accounting

• In private accounting, also known as practice in commerce and industry, an

accountant serves only one company. Accountants in private accounting provide a
staff function which supports the company by performing accounting-related
tasks.
• Positions in private practice include entry-level jobs such as bookkeeper,
accounting clerk, financial analyst, internal auditor, and others. From there, new
entrants can work their way up the organizational chart and get to key
management positions such as Chief Internal Auditor, Controller (Chief
Management Accountant or Chief Accounting Officer), and Chief Financial Officer
(CFO).
3. Government Accounting

• Government agencies also need accountants. These agencies need

accounting information to help them plan, budget, forecast, and
allocate government funds. State auditors are also employed by the
government to ensure the proper use and allocation of the said funds.
4. Accounting Education

• This area is made up of accountants who are into teaching, research,

and training & development. Accountants can pursue a career as a
faculty member in a school, an author of an accounting book, a
researcher, a trainer, or a reviewer.
• Note that it is not unusual to work in more than one area. In
fact, many accounting professionals engage in more than
one scope of practice. One may be providing public accounting
services while having a part-time job in teaching. Another may
be employed by a multi-national company or by a government
agency while also working as a bookkeeping consultant to the
public.
USERS OF FINANCIAL STATEMENTS

• The objective of accounting is to provide information to users

for decision-making. But, who exactly are these "users of
financial statements"? What information do they need?
• The users of accounting information include: the owners and
investors, management, suppliers, lenders, employees,
customers, the government, and the general public.
1. Owners and investors

• Stockholders of corporations need financial information to help them

make decisions on what to do with their investments (shares of stock),
i.e. hold, sell, or buy more.
• Prospective investors need information to assess the company's
potential for success and profitability. In the same way, small business
owners need financial information to determine if the business is
profitable and whether to continue, improve or drop it
2. Management

• In small businesses, management may include the owners. In huge

organizations, however, management is usually made up of hired
professionals who are entrusted with the responsibility of operating the
business or a part of the business. They act as agents of the owners.
• The managers, whether owners or hired, regularly face economic decisions
– How much supplies will we purchase? Do we have enough cash? How
much did we make last year? Did we meet our targets? All those, and many
other questions and business decisions, require analysis of accounting
information.
3. Lenders

• Lenders of funds such as banks and other financial institutions are

interested in the company’s ability to pay liabilities upon maturity
(solvency).
4. Trade creditors or suppliers

• Like lenders, trade creditors or suppliers are interested in the

company’s ability to pay obligations when they become due. They are
nonetheless especially interested in the company's liquidity – its ability
to pay short-term obligations.
5. Government

• Governing bodies of the state, especially the tax authorities, are

interested in an entity's financial information for taxation and
regulatory purposes. Taxes are computed based on the results of
operations and other tax bases. In general, the state would like to
know how much the taxpayer makes to determine the tax due
thereon.
6. Employees

• Employees are interested in the company’s profitability and stability.

They are after the ability of the company to pay salaries and provide
employee benefits. They may also be interested in its financial position
and performance to assess company expansion possibilities and
career development opportunities.
7. Customers

• When there is a long-term involvement or contract between the

company and its customers, the customers become interested in the
company’s ability to continue its existence and maintain stability of
operations. This need is also heightened in cases where the customers
depend upon the entity.
• For example, a distributor (reseller), the customer in this case, is
dependent upon the manufacturing company from which it purchases
the items it resells.
8. General Public

• Anyone outside the company such as researchers, students, analysts

and others are interested in the financial statements of a company for
some valid reason.
THE END