Fundamentals of Accountancy, Business and

Governor Pack Road, Baguio City, Philippines 2600 Management – 1

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 2 – FABM-1 Subject Teacher:

BRANCHES OF ACCOUNTING
Learning Objectives:
At the end of the module, the students must be able to:
a. explain the types of services rendered on the different branches
b. differentiate the different branches of accounting
c. identify the type of decisions made by each group of users
d. describe the type of information needed by each group of users

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.
Throughout time, accounting expanded to the following different fields of specializations:

1. Financial Accounting
Financial accounting is the broadest branch and is focused on the needs of external (outside) users
and is primarily concerned with processing historical data. Although financial accounting generally
meets the needs of external users, internal users of accounting information also use this information
for their decision-making needs. 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 that are reported periodically. These financial statements are
standardized and general to ensure understand ability and comparability with financial statements
of other enterprises. Financial accounting conforms to accounting standards called generally
accepted accounting principles (GAAP). Examples of these financial reports include the balance
sheet (statement of financial condition), income statement (the profit and loss statement, or P&L),
and statement of cash flows.

2. Management (or Managerial) Accounting

Management accounting emphasizes the preparation and analysis of accounting information within
(internal) 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 are not distributed to
those outside the business. Example of the said sensitive information are prices, plans to open up
branches, and customer list. Managerial accounting involves financial analysis, budgeting and
forecasting, cost analysis, evaluation of business decisions, and similar areas.

3. Cost Accounting (Sometimes considered as a subset of management accounting)

Cost Accounting is the process of accounting for costs from the point at which its expenditure is
incurred or committed to the establishment of the ultimate relationship with cost units. It is 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 show that the total cost to produce one
can of sardines is ₱50, then the owner can set the selling price at ₱60.

4. 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.

5. Auditing
There are three types of auditing: external, internal, and government auditing.
a. External auditing refers to the examination of financial statements by an independent CPA
(Certified
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 Fundamentals of Accountancy, Business and
Governor Pack Road, Baguio City, Philippines 2600 Management – 1
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 2 – FABM-1 Subject Teacher:

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.

b. 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.

Internal Audit is subdivided into Operational Audit and Compliance Audit. Operational Audit also
known as management audits and performance audits is the examination of all or part of an
organization for the purpose of determining the effectiveness and/or efficiency of its operations. On
the other hand, Compliance Audit is performed to determine whether the auditee is following
specific procedures or rules set down by some higher authority. This may be performed for both
private businesses and a government unit.

c. Government Auditing involves the determination of whether government funds are being
handled properly and in compliance with existing laws and whether programs are being
conducted efficiently and economically. In the Philippines, government audit is usually performed
by the Commission on Audit (COA).

6. 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. Tax accounting has also expanded to tax auditing with the purpose of
checking the organization’s compliance with established tax laws, rules and regulations to ascertain
their exposures to penalties and violations.

7. 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.

8. 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

9. Fund Accounting
This is used by non-stock non-profit organization including government. This is an art of recording,
classifying, controlling and ensuring that funds are used in accordance with the specifications set by
the donors.
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 Fundamentals of Accountancy, Business and
Governor Pack Road, Baguio City, Philippines 2600 Management – 1
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 2 – FABM-1 Subject Teacher:

Funds are usually distinguished into types:

a. General Fund- fund used for day to day operations of the entity.
b. Special Fund- fund that is segregated for a certain purpose such as funds for victims of
typhoon Yolanda and COVID19 frontliners.
The purpose of segregating these funds is to help the entity in maintaining control of its resources and
to measure success in attaining its various objectives.

10. Forensic Accounting

Forensic Accounting is the action of identifying, recording settling, extracting, sorting, reporting, and
verifying past financial data or other accounting activities for settling current or prospective legal
disputes or using such past financial data for projecting future financial data to settle legal disputes.
It focuses on the analysis and investigation of financial evidence as testimonies on court for the
computation of damages to affected parties.

11. Accounting System

Accounting system involves the development, installation, implementation, and monitoring of
accounting process. It includes the employment of business forms, accounting personal direction,
and software management.

USERS OF FINANCIAL INFORMATION (based on relation to the business)

CLASSIFICATION
USERS PURPOSE FOR USING ACCOUNTING INFORMATION
OF USERS
Investors and Investors and stockholders need information on risk and return
Stockholders for their investments. Accounting information aids in whether
they buy, hold or sell investments in the business.
Creditors/ Creditors need information to help them in assessing the
External Users Lenders business ability to repay its loan and interest when they fall
due.
- individuals and Suppliers Similar with creditors, suppliers assess the business ability to
organizations repay its obligation upon maturity.
outside a Government Generally, Accounting information is for the purpose of
company who and its taxation and licensing. They usually need information for the
want financial agencies regulation of the activities of the business, determine future
information about taxation policies and as a basis for computation of country’s
the company. national income and other similar statistics.
These users are not Public May provide the public with the trends and recent
directly involved in developments in the prosperity of the company. This is
managing and important especially when the company makes substantial
operating the contribution to a local economy by providing employment
business and patronizing products and raw materials from local
suppliers.
Customers Customers assess whether the business will continue
inexistence. This is especially needed where customers have a
long-term involvement with, or dependent on, the business.
Internal users Owners Accounting information is needed to assess whether their
- individuals inside capital investment are profitable or not, and whether to grant
a company who or not additional compensation to their employees.
plan, organize, Managers Accounting Information assists the managers in carrying out
and run the their day to day functions. Mangers need to face regular
business. These decisions.
users are directly Employees Employees need to know the stability and profitability of their
involved in company. They are interested in the ability of their employer
managing and to provide remuneration, employment opportunities,
operating the retirement and other benefits. Accounting information is also
business. needed by the Labor Unions as basis for negotiating
additional
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 Fundamentals of Accountancy, Business and
Governor Pack Road, Baguio City, Philippines 2600 Management – 1
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 2 – FABM-1 Subject Teacher:

USERS OF FINANCIAL INFORMATION (based on the Conceptual Framework*)

CLASSIFICATION OF USERS USERS PURPOSE FOR USING

ACCOUNTING INFORMATION
Primary Users Existing and potential investors
-the main users to whom the Creditors/ Lenders
general purpose financial Refer to the table above
reports are directed
Users other than primary users Includes the management,
employees and others not
included as primary users of the
financial statements.

* Conceptual Framework is a structure assumptions, principles or rules developed by accounting

standard-setting bodies such as the International Accounting Standards Board (IASB) in the UK and
Financial Accounting Standards Board (FASB) of the US, which guides the preparation of financial
statements that are relevant and useful to users of financial information.

SUMMARY OF THE DIFFERENCES BETWEEN INTERNAL AND EXTERNAL USERS

Internal users of accounting information are those who are involved in planning, organizing and
running the business. They need more detailed information on a timely basis in order to support their
decisions.
Examples of these internal users are managers, employees and owners.

The external users of accounting information are those individuals or organizations outside a
company who are interested in its financial information.

Examples of these external users are potential investors, suppliers and government agencies.
Internal and external users can also be classified as primary or secondary users.

Primary users are the direct receivers of the general financial statements. The other users are classified
under secondary users.

ACTIVITY 2: BRANCHES OF ACCOUNTING

Instruction: Determine three businesses within your community then fill-out the table given below.Use
one whole sheet of paper. The three businesses should not belong to the same branch of
accounting. In addition, the Users to be placed should also be different in each business you
determined. Only one branch and one user are needed for each business.
Follow the format below (use number one as an example):
Community Address: ________________________________________
Name of the Branch of Accounting related to Users of accounting information of the
Establishment and why business and why
1. University of Accounting Education Teachers
the -UC offers ABM. Thus, teachers -Teachers need to know whether the
Cordilleras- knowledgeable on accounting institution still has the ability to pay and
SHS related subjects are needed to provide salaries and benefits of teachers
teach the major subjects. and other employees. This helps them in
assessing the possibility of losing their job or
having more opportunities for the coming
days.

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 Fundamentals of Accountancy, Business and
Governor Pack Road, Baguio City, Philippines 2600 Management – 1
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 2 – FABM-1 Subject Teacher:

2.

Rubric: 3 businesses; 24 points

Poor Fair Very Good Excellent
CRITERIA
1 point 1 point 2 point 3 points
Organization Presentation The essay is quite The essay is organized Essay is well
does not comply organized and with minor errors on organized as to
with the the thought has the order of format and order
requirements. satisfactory conceptual of conceptual
coherence. discussion. discussions.
Completeness/ The answer is Answer is quite Answer is responsive Answer is very
Substance unresponsive at responsive but but with minor flaws in responsive and it
all. lacks essential the explanation of discusses with
theories or the concepts in point. definiteness the
concepts. theories/
concepts in point.
Cleanliness and NO erasures and the
presentation of paper is folded
paper and properly (crosswise)
answers as instructed.
Total points: 8 points each

References:
 Banggawan, R., Asuncion, D.(2017).Fundamentals of Accountancy, Business and
Management 1. Aurora Hill, Baguio City: Real Excellence Publishing.
 Ferrer, R., Millan, Z.(2017). Fundamentals of Accountancy, Business and Management 1.
Bakakeng Sur, Baguio City: Bandolin Enterprise.
Other References you may use:
 Ong, F.(2016). Fundamentals of Accountancy, Business and Management 1. South Triangle,
Quezon City: C & E Publishing.
 Baysa, G., Lupisan, M.(2011). Accounting for Partnership and Corporation. Mandaluyong City:
Millenium books, Inc.

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