SACS inc.

FABM-1 CH2

Branches of
Accounting
Sir Crisson Fermalino
FABM1 - CH2

Learning Objective

To differentiate the
branches of accounting and
explain thekind or type of
services rendered in each of
these branches.
OUR SERVICES
Understanding of the branches of accounting and solve
What are the branches exercises in the identification of these branches described
through the types of services rendered
of accounting?
1. Financial Accounting 2. Management Accounting

a branch of accounting a branch of accounting which

primarily handlingthe focuseson the preparation of
recording of financial financial reports used by
transactions of a business managers in their day-to-day
decision making

3. Government accounting 4. Auditing

“...all transactions involving an unbiased examination and

the receipt and disposition of evaluation of thefinancial
government fund and property statements of an organization
and interpreting the result
thereof.”
OUR SERVICES
Understanding of the branches of accounting and solve
What are the branches exercises in the identification of these branches described
through the types of services rendered
of accounting?
5. Tax accounting 7. Accounting education

records somefinancial Bachelor of Science in

transactions in a different Accountancy (BSA) in the
manner Philippines

6. Cost accounting 8. Accounting research

a branch of accounting that a branch of accounting that

provides information for deals with the creation of new
management accounting and knowledge
financialaccounting
Financial Accounting

Financial accounting is a branch of accounting primarily handlingthe

recording of financial transactions of a business. The financial
transactions are later summarized into standardized accounting
reports, more popularly known as the financial statements, for the
benefit of internal and external users.

Financial statements should provide information useful to a wide

range of users in their economic decisions. This is the main reason why
accounting standards such as the Philippine Financial Reporting
Standard (PFRS) and the Philippine Accounting Standards (PAS) are
created.

The PFRS and PAS supply guidelines on how companies should prepare
their financialstatements.
Financial Accounting

Are the financial statements prepared to accommodate

theinformation needs of persons who have no capability to
request or acquire information directly from the company?

If the answer is yes, the financial statements are called

general purpose financial statements.

Otherwise, the financial statements are called special purpose

financial statements.
GENERAL PURPOSE FINANCIAL STATEMENTS

Predominantly, external parties use general purpose

financialstatements to evaluate the performance of the company.

On the other hand, specific purpose financial statements

areutilized by internal parties to guide them in the decision-
makingprocess for the company.
Management Accounting
Management accounting xis a branch of accounting which focuseson
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 reports typically contain information regarding

theamount 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.

Reports generated using management accounting are for internalusers

only. As such, management reports need not followaccounting standards
such as the PFRS and PAS.
Management Accounting
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.
Role 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 decisions
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

Analysis Strategy Risks

Management accountants
should be able to identify
Management accountants Management accountants risksthat can potentially have
should be able to analyze should be able to formulate
detrimental effects to the
business strategies that will
information and use it to company. At the
increase the company’s wealth
make business decisions same time, management
andcreate value for the
accountants should give
company’s shareholders
recommendations on how to
manage such risks.
Management Accounting Skill Set

Planning Communication

Management accountants Management accountants

should be able to should be able to identify
applyaccounting techniques what information the
in the planning and budget management needs and also
creation phaseof a business explain the numbers to non-
financial managers
 MANAGEMENT

Ethical Code
Even though management reports do not followthe requirements imposed by accountingstandards like
the PFRS and PAS,management accountants are still expected tofollow the CIMA code of ethics
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, andcommunicating all transactions involving the
receipt and disposition of government fund and property and
interpreting the result thereof.”

Section 110 of the same decree lays down the objectives ofgovernment
accounting:

1. To provide information concerning past operations and presentc onditions

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 ofgovernment

agencies for the information and guidance of allpersons concerned.
The New Government
Accounting System
As citizens of the Philippines, we are very much concerned on the
stewardship of the government of public resources. We do not want
the country’s funds to be used for personal reasons by erring public
officials. Instead, we want these funds to be used for public projects
that will benefit many constituents.

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 thehandling of funds by the DPWH,
for example, people in that agencywill 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
thecountry for the upcoming year. The GAA has the force of law and
itstates how much an agency can spend for the year. If it is indicated
that ₱500M is available for the DPWH to implement its projects, the
agency cannot spend more than this amount

The COA is responsible for the keeping of the government’s general

accounts. Think of our government as one big, non-profitorganization.
The COA is tasked to keep and update the accounting books of the
whole organization. Moreover, the COA disseminates accounting rules
and regulations to be used by all agencies.

The government accounting process involves the Commission on Audit

(COA), the Department of Budget and Management (DBM),the Bureau of
Treasury (BTr), and all other government agencies.
Government
Accounting Process
In accordance with Section 2, Chapter 1, Title XVII, Book IV of the
Administrative Code of the Philippines, “The Department of Budget
and Management shall be responsible for the formulation and
implementation of the National Budget with the goal of attaining
ournational socio-economic plans and objectives. The Department
shallbe responsible for the efficient and sound utilization of
government funds and revenues to effectively achieve the country’s
development objectives.”

The BTr is responsible for the safekeeping of the national funds.

Itserves like a bank where the funds are kept. Although its main role is
the safekeeping of funds, the BTr is also responsible for
themanagement and control of the disbursements of such funds.
Furthermore, the agency is also responsible in maintaining accounts
of financial transactions of all natural government agencies.
Auditing
Auditing is an unbiased examination and evaluation of thefinancial
statements of an organization (Investopedia.com). 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 arespecifically called

auditors. Auditors, aside from having the competence to perform their
roles, should also be independent from the company being audited.
Independent auditors have no connection with the company. If an
employee of the company is the one who examines andevaluates the
financial statements, the fear of the users thatthe results are
manipulated will not be alleviated.
Auditing
An audit of the financial statements improves their
credibility.Financial statements that underwent the process of
auditingare called audited financial statements. A set of the
financialstatements will only be useful to users after it has
gonethrough the process of auditing.

Audited financial statements are accompanied by the auditor’sopinion.

The auditor’s opinion will be the basis whether or not the financial
statements are prepared truthfully and withoutany material errors.
Tax Accounting

The recording of financial transactions mentioned in theprevious

chapter follows specific guidelines provided bythe PFRS and PAS.
Tax accounting records somefinancial transactions in a different
manner. It adheres tosome guidelines in the PFRS and PAS, but it is
notrequired to implement everything written in suchstandards.

Tax accounting follows the pronouncements of the National Internal

Revenue Code (NIRC). The NIRC is totax accounting as the PFRS and
PAS are to financialaccounting.
 TAX

To illustrate the difference, let us look at a particularexample. Starbucks offers its customers a card that you
can use to pay for your orders. The process is simple.vYou 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
future transactions with Starbucks. Under the PFRSand PAS, Starbucks will not recognize the amount you
paid as revenue until you use the balance in your card inthe 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
Cost accounting is a branch of accounting that
providesinformation for management accounting
and financial accounting (Horngren et al. ).

For example, cost accounting helps measure the

cost ofa bicycle for a bicycle-selling company. This
informationsupports management in deciding how
many bicycles toproduce, the selling price of the
bicycle, or valuing the inventory of bicycles in the
company’s financial statements.
Cost Accounting
Terms used in Cost Accounting:

Cost – the resource sacrificed to achieve an

objective (e.g., money,resources, time, etc.)
Cost object – anything that you wish to find the
cost of (e.g., cost of a pair of jeans, cost of a pair
of Jordan XI shoes)
Cost driver – an activity that is a cause of the
incurrence of costs (e.g., thenumber of working
hours is related to the amount of salaries a
companypays)
Direct cost – costs that can economically be
traced to a cost object (e.g.,materials, labor, etc.)
Cost Accounting
Terms used in Cost Accounting:

Indirect cost - costs that cannot be traced to a

cost object (e.g., costs ofsupplies used in the
factory, salary of supervisor overseeing
factoryoperations, 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 productionincreases (e.g., materials
cost, labor cost, selling cost, etc.)
Accounting Education
The Bachelor of Science in Accountancy (BSA) in the Philippines
isnormally a 5-year course composed of subjects in accounting,
audit, administration, and business laws and taxation. Although the
subjects usually highlight the business environment, the scope ofthe
topics in BSA also covers other fields such as banking and finance,
government, nonprofit organizations, and the academe. Students of
the course are also trained to create and understandcomputerized
accounting systems to cope with the rapidly changing technology.

Most schools use a combination of diverse teaching techniques

toexplain accountancy to students. Some of these methods are
classroom discussions, case analysis, individual and group
reporting, feasibility studies, and lectures from renowned individuals
in the field. Other schools require students to undergo an internship
program equivalent to one subject. This is to enable the students
tohave a feel of the application of accounting in real life
ACCOUNTING EDUCATION

Admission Requirements for BSA

Must be a high school graduate

Must have a college entrance examination of above

average or depending on the specific rating set by
the school.

Aside from the college entrance examination, must

pass these parate aptitude test specific for BS in
Accountancy

Must pass the interview conducted by the

college admission officer
ACCOUNTING EDUCATION

Admission Requirements for BSA

Some schools require a high school QPA of 85% and

above with no grade less than 80% in all subjects

There are schools who require students to have an

85% or higher average rating in the National
Secondary Assessment Test (NSAT)

As set by CHED, all schools must conduct an English

Proficiency examination to all BS in Accountancy applicants

Admission for Philippine Educational Placement Test (PEPT)

passers mainly depends on the school’s discretion since
some colleges and universities offer only selected courses
ACCOUNTING EDUCATION

Board Exam
Before a BSA graduate can practice
accountancy, he/sheneeds to pass the
Certified Public Accountant Licensure
Examination. The CPA Licensure Exam is
a comprehensive test composed of 7
subjects. Each subject will be taken within
3 hours so the exam will be for 21 hours all
in all. A candidate should achieve a
general average of at least 75% with no
rating below 60% in any of the 7 subjects
in order to pass the exam.
 Deciding and

Accounting Research implementing new

accounting and auditing
standards
Accounting research, as the name suggests, is a branch of
accounting that deals with the creation of new knowledge.
Combining the models produced by the hard sciences in Presenting unusual
research and testing with financial statements, stock prices, economic transactions in
the financial statements
surveys, and experiments, we cangain a specific perspective
and basis on the following:

Learning how new tax laws

impact clients and
employers

Discerning how the

accounting profession
affects the capital markets
through academic
accounting research