CHAPTER 1

COMMON BRANCHES OF ACCOUNTING

FINANCIAL ACCOUNTING focuses on the information needs of EXTERNAL USERS, while
MANAGEMENT ACCOUNTING focuses on the information needs of INTERNAL USERS.
FINANCIAL ACCOUNTING – is the branch of accosting that focuses on general purpose of
financial statements. It is governed by the Philippine Financial Reporting Standards (PFRSs).
General purpose financial statements are those statements that cater to the
common needs of external users, primarily the potential and existing investors, and
lenders and other creditors.
accounting research topic - impact of fair value measurement on the financial statements

FINANCIAL ACCOUNTING VS. FINANCIAL REPORTING

Although both focuses on general purpose of financial statements, financial reporting endeavors
to promote principles that are also useful to “other financial reporting”
other financial reporting – comprises information provided outside the financial
statements that assists in the interpretation of a complete of financial statements or
improves users’ ability to make efficient economic decisions.

FINANCIAL STATEMENTS VS. FINANCIAL REPORT

FINANCIAL STATEMENTS – structured representation of entity’s financial position and result
of its operations. They are the end product of the accounting process and the means by which
information gathered and processed are periodically communicated to users.
FINANCIAL REPORT – includes the financial statements plus other information provided
outside the financial statements that assists the interpretation of complete set of financial
statements or improve users’ ability to make efficient economic decisions.
FINANCIAL STATEMENTS FINANCIAL REPORT
1. Statement of financial position 1. Statement of financial position
2. Statement of profit or loss and other 2. Statement of profit or loss and other
comprehensive income comprehensive income
3. Statement of changes in equity 3. Statement of changes in equity
4. Statement of cash flows 4. Statement of cash flows
5. Notes 5. Note
6. Additional statements of financial 6. Additional statements of financial
position position
7. Other information
FINANCIAL REPORTING is the provision of financial information about an entity that is useful
to external users, primarily the investors, lenders, and other creditors, in making investments and
credit decisions.
PRIMARY OBJECTIVE OF FINANCIAL REPORTING
To provide information about an entity’s *economic resource (assets), claims to those resources
(liabilities and equity), and changes in those resources (income, expenses, and other changes)
SECONDARY OBJECTIVE FINANCIAL REPORTING
To provide information useful in assessing the entity’s management stewardship (how efficiently
and effectively the entity’s management has discharged its responsibilities to use the entity’s
economic resources.
(*The term ‘entity’ refers to the ‘reporting entity’. A reporting entity is one that is required, or
chooses, to prepare financial statements, for statements for example a ‘business’

MANAGEMENT ACCOUNTING – involves the accumulation and communication of

information for use by internal users. An offshoot of management accounting is management
advisory services which includes services to clients on matters of accounting, finance, business
policies, organizations procedures, product costs, distribution, and many other phases of business
and operations.
accounting research topic – inventory management and its effect on earnings

GOVERNMENT ACCOUNTING – accounting for the government and its instrumentalities,

focusing attention on the custody of public funds, the purpose or purposes to which those funds
are committed, and the responsibilities and accountability of the individuals entrusted with those
funds.

AUDITING - involves the inspection of an entity's financial statements or business processes to

ascertain their correspondence with an established criteria.
accounting research topic – internal controls and modern technology

TAX ACCOUNTING – the preparation of tax returns and rendering of tax advice, such as
determination of tax consequences of certain proposed business endeavors.

COST ACCOUNTING - systematic recording and analysis of the costs of materials, labor, and
overhead incident to the production of goods rendering of services.

ACCOUNTING EDUCATION - teaching accounting and accounting-related subjects in an

organized learning environment. Process of facilitating the acquisition of knowledge and skills
regarding one or more of the other branches of accounting.

ACCOUNTING RESEARCH - careful analysis of economic events and other variables to

understand their impact on decisions.
accounting research topic – becoming a certified public accountant

BRANCHES OF TYPE OF ACCOUNTING

USERS OF SERVICE
ACCOUNTING SERVICE PROVIDED
• All businesses are
financial accounting in
their record-keeping,
these records provide
• General record information that also
keeping (maintenance used in the other
of Journals and branches of
Ledgers) accounting
Financial Accounting
• Preparation of general • Business prepares
purpose financial general purpose FS at
statement. (FS) least manually for the
use of lenders,
investors, or
government regulatory
bodies.
• Required by
• Preparation of management to aid
Management Accounting specifically them in performing
management reports. their management
functions.
• General record-
keeping and
• Required by the
preparation of
Government Accounting government and its
financial reports for
agencies
the government and
its agencies
• Expression of an
• Business with gross
opinion (Independent
quarterly revenues
Auditor’s Report
P150,000 are required
Auditing attached to audited
to have their financial
FS) on the
statements audited by
correspondence
an independent
between management
 assertions and Certified Public
established criteria. Accountant (CPA)

• All businesses are

required to file tax
returns
• Preparation of tax
• Some tax payers may
returns
Tax Accounting require the
• Preparation of tax
professional advice of
advice
a tax practitioner
regarding the
management of taxes.
• Businesses use cost
accounting to analyze
the cost of their
• Analyses of the cost products or services
Cost Accounting
products or services. and the effects of those
cost in, among others,
earnings, and pricing
policies.
• Required by business
students, business
owners, accounting
• Teaching of
practitioners in their
Accounting Education accounting and related
Continue Professional
subjects
Development (CPD),
and other interested
parties.
• Required by business
• Accounting research owners, professional
Accounting Research papers, articles, and organizations, and
similar publications other interested
parties.