FABM1-Chapter 2

FABM 1
Chapter 2 — Branches of Accounting
A field of accounting called forensic accounting deals with activities that solve cases
of theft and fraud. Forensic accounting combines accounting, auditing, and investigative
skills in conducting investigations. Forensic accounting is used to study the numbers of a
company to find any inconsistency and to unearth wrongdoings of company employees.
There are 8 branches of accounting as follows:

1. Financial accounting
2. Management accounting
3. Government accounting
4. Auditing
5. Tax accounting
6. Cost accounting
7. Accounting education
8. Accounting research
Financial Accounting
is a branch of accounting primarily handling the recording of financial transactions of a
business. The financial transactions are later summarized into standardized accounting
reports, more popularly known as the financial statements. Likewise, standardized
financial statements are also useful for creditors. Creditors will be able to assess the
riskiness of a company through the well-presented financial statements.
General Purpose Financial Statements

Primary Users of General Purpose Primary Users of Special Purpose
Financial Statements Financial Statements
Investors Top management (e.g., Board of directors

Creditors of a company, CEO, CFO, COO)
Shareholders/Stockholders
Government Agencies Department managers (e.g., sales
Auditors manager, production manager)
Other interested outside parties
Other internal parties
Predominantly, external parties use general purpose financial statements to evaluate

the performance of the company. On the other hand, specific purpose financial
statements are utilized by internal parties to guide them in the decision-making process
for the company.
Management Accounting
is a branch of accounting which focuses on the preparation of financial reports used by
managers in their day-to-day decision-making. Additionally, unlike financial reports that are
generated quarterly, semi-annually, or annually, management reports can be done daily,
weekly, or whenever managers require a specific report. Management accounting
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
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information is forward-looking. It contains forecasted information used by managers in

planning.
Roles of Management Accountants

According to the Chartered Institute of Management Accountants(CIMA), chartered
management accountants perform the following roles:
● Advise managers about the financial implications of projects
● Explain the financial consequences of business
● Formulate business strategy
● Monitor spending and financial control
● Conduct internal business audits
● Explain the impact of the competitive landscape
● Bring a high level of professionalism and integrity to the business
Management Accounting Skill Set

1. Analysis
2. Strategy
3. Risk
4. Planning
5. Communication
Ethical Code
Management accountants are still expected to follow the CIMA code of ethics.
Government Accounting
According to Section 109 of Presidential Decree 1445, government accounting
defined as an accounting system which "encompasses the process of analyzing,
recording, classifying, summarizing, and communicating all transactions involving the
disposition of government fund and property and interpreting the result thereof
Section 110 of the same decree lays down the objectives of government accounting
1. To provide information concerning past operations and present conditions
2. To provide a basis for guidance for future operations
3. To provide for control of the acts of public bodies and offices in the receipt, disposition,
and utilization of funds and property
4. To report on the financial position and the results of operations of government
agencies
New Government Accounting System (NGAS)

One of the main features of the NGAS is that it enhances responsibility accounting in
all agencies. Simply stated, responsibility accounting relates financial results to a
particular responsibility center (i.e., agency). If there is a problem with the handling of
funds by the DPWH, for example, people in that agency will be the ones accountable.
This system of placing accountability in each agency discourages misappropriation and
misuse of public funds.
Government Accounting Process

Government accounting starts after the declaration of the General Appropriations
Act (GAA). The GAA is the enacted budget of the country for the upcoming year. The
GAA has the force of law and it states how much an agency can spend for the year . If it
is indicated that P500M is available for the DPWH to implement its projects, the agency
cannot spend more than this amount.
The government accounting process involves:

Commission on Audit (COA)
COA is responsible for the keeping of the government's general accounts. Moreover,
the COA disseminates accounting rules and regulations to be used by all agencies.
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Department of Budget and Management (DBM)

In accordance with Section 2, Chapter 1, Title XVII, Book IV of the Administrative
Code of the Philippines: The Department shall be responsible for the efficient and sound
utilization of government funds and revenues to effectively achieve the country's
development objectives.
Bureau of Treasury (BTr)

The BTr is responsible for the safekeeping of the national funds. It serves like a bank
where the funds are kept.
Auditing
Auditing is an unbiased examination and evaluation of the financial statements of an
organization. Auditing is a process that includes numerous steps to determine whether or
not a company's financial statements are presented truthfully. Accountants that perform
the auditing procedure are specifically called auditors.
An audit of the financial statements improves their credibility. Financial statements
that underwent the process of auditing are called audited financial statements. Audited
financial statements are accompanied by the auditor's opinion.
Tax Accounting
Taxes are the lifeblood of the government. Without the taxes the citizens pay, the
government cannot perform its functions. Tax accounting records financial transactions in
a different manner. It adheres to some guidelines in the PFRS and PAS. Tax accounting
follows the pronouncements of the National Internal Revenue Code (NIRC).
Example: Starbucks offers its customers a card that you can use to pay for your
orders. The process is simple. You ask the cashier to load the card; you pay for the
amount of load; and then your card will reflect the balance available for you to use. You
can use the card for the future with Starbucks. Under the PFRS and PAS, Starbucks will
not recognize the amount you paid as revenue until you use the balance in your card in
the future. Under the NIRC, Starbucks recognizes the revenue when the company
received the payment from you. Thus, if Starbucks recognizes the revenue, it is taxable.
Cost Accounting
is a branch of accounting that provides information for management accounting and
financial accounting. For example, cost accounting helps measure the cost of a bicycle
for a bicycle-selling company. This information helps in deciding how many bicycles to
produce, the selling price of the bicycle, or valuing the inventory of bicycles in the
company's financial statements.
Terms Used in Cost Accounting

Cost - the resource sacrificed to achieve an objective
Cost object - anything that you wish to find the cost of
Cost driver - an activity that is a cause of the incurrence of costs
Direct cost - costs that can economically be traced to a cost object
Indirect cost - costs that cannot be traced to a cost object
Fixed cost - costs that do not change within a relevant range of activity
Variable cost - costs that change as the level of activity or production increases
Accounting Education
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. Although the subjects usually highlight the business environment, the
scope of the topics in BSA also covers other fields such as banking and finance,
government, non- profit organizations, and the academe. Students of the course are also
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trained to create and understand computerized accounting systems to cope with the
rapidly changing technology.
Accounting Research
is a branch of accounting that deals with the creation of new knowledge.
Researchers in the accounting field also apply the scientific method like their
counterparts in the sciences. With the constantly evolving field of accountancy, it is
expected that accounting research will continue to play a vital role in the future.

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FABM 1

Chapter 2 — Branches of Accounting

There are 8 branches of accounting as follows:

General Purpose Financial Statements

Investors Top management (e.g., Board of directors

Predominantly, external parties use general purpose financial statements to evaluate

information is forward-looking. It contains forecasted information used by managers in

Roles of Management Accountants

Management Accounting Skill Set

New Government Accounting System (NGAS)

Government Accounting Process

The government accounting process involves:

Department of Budget and Management (DBM)

Bureau of Treasury (BTr)

Terms Used in Cost Accounting

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