FABM 1

Note 2:
Branches of Accounting

INTRODUCTION ( 5 MINUTES)
Introduce the following 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.

MOTIVATION (5 MINUTES)
Draw a big tree with eight branches. As you discuss the topic, write the particular
branch of accounting you are discussing on each branch.
Label the root of the tree as ’Accounting’.

INSTRUCTION (30 MINUTES)

Branches of Accounting
Discuss the branches of accounting: According to Investopedia,
(http://www.investopedia.com/university/accounting/accounting2.asp:
“Accounting is divided into several branches to better serve the needs of different
users with varying information needs.
These branches sometimes overlap and they are often closely intertwined.”

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. This
information is communicated in a complete set of financial statements. It is
assumed under this branch that the users have one common information need.

Financial accounting conforms with accounting standards developed by standard-

setting bodies. In the Philippines, there is a Council created to set these standards.
Examples of these financial reports include:
• the balance sheet (statement of financial condition)
• income statement (the profit and loss statement, or P&L)
• statement of cash flows

Financial accounting is primarily concerned with processing historical data.

Although financial accounting generally meets the needs of external
users, internal users of accounting information also use these information for their
decision-making needs.

Management (or Managerial) Accounting

Management accounting emphasizes the preparation and analysis of accounting

information within the organization. The objective of
managerial accounting is to provide timely and relevant information for those
internal users of accounting information, such as the managers
and employees in their decision-making needs. Oftentimes, these are sensitive
information and is not distributed to those outside the business
- for example, prices, plans to open up branches, customer list, etc.
Managerial accounting involves financial analysis, budgeting and forecasting, cost
analysis, evaluation of business decisions, and similar areas.
Government Accounting
Government accounting is the process of recording, analyzing, classifying,
summarizing, communicating and
interpreting financial information about the government in aggregate and in detail
reflecting transactions and other
economic events involving the receipt, spending, transfer, usability and disposition
of assets and liabilities. This branch of accounting deals with how the funds of the
government are recorded and reported.

Ask the learners the following questions:

• What are the sources of income of the government? Possible Answer: Taxes paid
by Filipinos
• Where do these taxes go? Possible Answer: Roads, Hospitals, for education and
others
Government accounting deals with these transactions, the recording of inflow and
outflow of funds of the government.

Auditing
There are two types of auditing: external and internal auditing. External auditing
refers to the examination of financial statements by an independent CPA (Certified
Public Accountant) with the purpose of expressing an opinion as to fairness of
presentation and compliance with the generally accepted accounting principles
(GAAP). The audit does not cover 100% of the accounting records but the CPA
reviews a selected sample of these records and issues an audit report.
Internal auditing deals with determining the operational efficiency of the company
regarding the protection of the company’s assets, accuracy and reliability of the
accounting data, and adherence to certain management policies. It focuses on
evaluating the adequacy of a company's internal control structure by testing
segregation of duties, policies and procedures, degrees of authorization, and other
controls implemented
by management.

Tax Accounting
Tax accounting helps clients follow rules set by tax authorities. It includes tax
planning and preparation of tax returns. It also involves
determination of income tax and other taxes, tax advisory services such as ways to
minimize taxes legally, evaluation of the consequences of tax
decisions, and other tax-related matters.

Cost Accounting

Sometimes considered as a subset of management accounting, cost accounting

refers to the recording, presentation, and analysis of manufacturing costs. 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. For
example, if the cost accounting records shows that the total cost to produce one
can of sardines is PHP50, then the owner can set the selling price at PHP60.

Accounting Education

This branch of accounting deals with developing future accountants by creating

relevant accounting curriculum. Accounting professionals can
become faculty members of educational institutions. Accounting educators
contribute to the development of the profession through their effective teaching,
publications of their research and influencing students to pursue careers in
accounting. Accounting teachers share their
knowledge on accounting so that students are informed of the importance of
accounting and its use in our daily lives.

Accounting Research

Accounting research focuses on the search for new knowledge on the effects of
economic events on the process of summarizing, analyzing,
verifying, and reporting standardized financial information, and on the effects of
reported information on economic events. Researchers
typically choose a subject area and a methodology on which to focus their efforts.
The subject matter of accounting research may include information systems,
auditing and assurance, corporate governance, financials, managerial, and tax.
Accounting research plays an essential
part in creating new knowledge. Academic accounting research "addresses all
aspects of the accounting profession" using a scientific method.

Practicing accountants also conduct accounting research that focuses on solving

problems for a client or group of clients. The
Accounting research helps standard-setting bodies around the world to develop new
standards that will address recent issues or trend in global
business.

Seatwork
Prepare power point questions and ask learners to identify what branch of
accounting renders this service:
1. Preparation of general-purpose financial statements Answer: Financial
2. Evaluation of the performance of a sales department Answer : Managerial
3. Develop standards to address a new business set up Answer: Accounting
Research
4. Review tax compliance of the business Answer: Tax Accounting
5. Evaluate whether a branch of the business complies with the collection and
deposit policy of the company Answer: Auditing (Internal)
6. Review whether the financial statements are presented fairly and in compliance
with accounting standards Answer: Auditing (External)
7. Report on the spending of government funds Answer: Government Accounting
8. Report on the total cost of materials and labor used in the production Answer:
Cost Accounting
9. Conducting lectures on accounting topics Answer: Accounting Education
ENRICHMENT (10 MINUTES)
Ask the learners what branch of accounting do you want to focus on and why?