Fabm1 Module 1 Week 2

Learning Outcomes
At the end of this lesson, you will be able to:
• Differentiate the branches of accounting.

• Explain the kinds/types of services rendered in each of these branches.
In the previous chapter discussed the definition of accounting and on how it became the
“Language of Business”. Indeed, the most important contribution of accounting into business is
that it helps the business owners in making important economics decisions. Since business
owners have various economic decisions to make, it is imperative that the language of business
that they use must be versatile or multi-lingual so that information needs of business owners can
be provided by the accounting system. And this lesson we will discuss the branches of
accounting and why is considered as a multi lingual language of business.
Branches - a part of something larger.

Auditing – conduct an official financial examination
Auditor – is a person or a firm appointed by a company to execute an audit
. Let us see how much you remembered the Introduction to Accounting by answering the pre-
test.
Pre-Test
Fill in the blanks

Complete the meaning of the following acronyms by filling the box with the missing letters
1. CPA
C T F E D P B C A O U T A T
2. AICPA
A E I A N I S I T E O
C E T F E D P I C A C U T S
3. PRC
P R S I O A L R G L T I N C M I I
4. PICPA
P I I I N I T U E O F
C R I I E D P U L C A
5. WTO
R D T A E O A N I T I N
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND

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Read the Information Sheet very well then find out how much you can remember and how much
you learned by doing the exercises.
Information Sheet
Branches of Accounting
The purpose of accounting is to provide a means of recording, reporting, summarizing, and
interpreting economic data. In order to do this, an accounting system must be designed. A system
design serves the needs of users of accounting information. Once a system has been designed,
reports can be issued and decisions based upon these reports are made for various departments.
Since accounting is used by everyone in one form or another, a good understanding of
accounting principles is beneficial to all.
“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,

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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.
• 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.
Educational Accounting
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

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part in creating new knowledge. Academic accounting research "addresses all aspects of the
accounting profession" using a scientific method.
Exercises
Definition of Terms:
Instructions: Complete the crossword puzzle below. Spaces between words are considered in answering the
puzzle.
Across:
3. The examination of financial statements by an independent CPA
5. Certified Public Accountant
7. Helps clients follow rules set by tax authorities.
8. Useful in manufacturing businesses since they have the most complicated costing process.
9. Developing future accountants by creating relevant accounting curriculum.
10. Typically choose a subject area and a methodology on which to focus their efforts
Down.
1. Emphasizes the preparation and analysis of accounting information within the
organization.
2. Deals with how the funds of the government are recorded and reported.
4 It focuses on evaluating the adequacy of a company's internal control structure by testing
segregation of duties.
6 Bureau of Internal Revenue.
Resources
Wild, J. (2009). Principles of Accounting 19th ed. McGraw Hill Publishing

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Haddock, M., Price, J., & Farina, M. (2012). College Accounting: A Contemporary Approach 2nd Ed.,
New York: McGraw-Hill/Irwin

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Learning Outcomes

At the end of this lesson, you will be able to:

• Differentiate the branches of accounting.

Branches - a part of something larger.

Fill in the blanks

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND

“Accounting is divided into several branches to better serve

Management (or Managerial) Accounting

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND

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