Midterm – Second Semester Week 2: February 1-5, 2021

I. INTRODUCTION

Good Day! Welcome to the 2nd week of our Correspondence Learning Modality for the
midterm. This week, you shall be given another lesson to study and another learning task/s to
submit.

Attached to this 2nd week module is the weekly Study and Assessment Guide.

DATE TOPIC ACTIVITIES OR TASKS

Review the nature of accounting.
February Read the different branches of accounting.
Branches of Accounting
1-5, 2021 Familiarize and compare the branches of accounting.
Accomplish Written Work #1 and submit outputs.

For this week, February 1-5, 2021 of this term, the following shall be your guide for the
different lessons and tasks that you need to accomplish. Be patient, read it carefully before
proceeding to the tasks expected of you. GOOD LUCK!

Content II. Branches of Accounting

 Financial Accounting
 Management Accounting
 Government Accounting
 Auditing
 Tax Accounting
 Cost Accounting
 Accounting Education
 Accounting Research

Learning Competencies At the end of the lesson, you should be able to:

 differentiate the branches of accounting; and

 explain the kind/type of services rendered in each of these
branches.

Activity  Essay (Written Work #1)

Essential Questions  What are the roles of an accountant in the business?

 What makes accounting different from other fields?
 How broad accounting is?

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 Value Statement  “Accounting for the most part, remains a legalistic and
traditional practice, almost immune to self-criticism by
scientific methods.”
--Kenneth E. Boulding
 “You have to understand accounting and you have to
understand the nuances of accounting. It’s the language of
business and it’s an imperfect language, but unless you are
willing to put in the effort to learn accounting – how to read
and interpret financial statements – you really shouldn’t select
stocks yourself.”
--Warren Buffett

References Textbook:
Sirug, W. (2016). Business Mathematics for Senior High School-
ABM Specialized Subject, A Comprehensive Approach.
Mindshapers CO., INC.

3G E-Learning LLC (2018). Business Mathematics. 3G E-learning

LLC, USA.

Lim, Y. et al. (2016). Business Mathematics. Sibs Publishing House,

Inc.

Lopez-Mariano, N. (2016). Business Mathematics. Rex Book Store.

Reyes, J. and Reyes-Bilog, Ma. Chere (2016). Business

Mathematics. Jimczyville Publications.
Anastacio, Dacanay, Aliling (2016). Fundamentals of Financial
Management. Rex Book Store.

Alota, R. et. al. (2017). Business Mathematics, A Comprehensive

Worktext for Senior High School. SoLINE Publishing Company Inc.

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 II. LEARNING CONTENT

What makes Accounting a unique profession? What purpose does it serve?

Accounting opens doors to every kind of business coast to coast and in every corner of
the globe. It is unique because it has always been considered as the language and basic tool of
business.

It has always concerned itself with determining how a business is doing and what is the
bottom line. But over the last two decades, the field of accounting has been changing dramatically
in response to such explosive trends as the computer revolution, increased government
regulations, frequent tax law changes, the globalization of business, and the on-going downsizing
and restructuring of corporations. In this increasingly complex and competitive business
environment, accounting skills are very much in demand and accounting has become a dynamic
career.

Accountants have shed their image of thick glasses to assume the more prestigious role
of financial experts, system professionals, management consultants, budget analysts, etc. The
demand for accountants appears to be growing and job opportunities in today’s business climate
is better than ever.

The purpose of accounting is to convert financial data and generate financial information
about the performance, financial position, structure and cash flows of a business. These financial
reports are then used to make decisions in business management, investment or financing
activities.

Financial reports used by external parties are made in conformity with certain accounting
standards, frameworks and regulatory requirements. There are additional reports for special
purposes, such as determining the profit on sale of a product, or the revenues generated from a
particular sales region. These are usually considered to be managerial reports, rather than
financial reports issued to outsiders and used by management in its decision making.

As such accounting is basically unique because it provides financial information to users

to make sound or necessary economic decisions. Through the various financial reports prepared,
it is able to convey the financial information. There is no doubt that accounting is the language of
business as the financial reports are the tools used to convey to all stakeholders the business
performance, financial structure and position including the sources and uses of its cash.

Who is a Certified Public Accountant (CPA)?

- A graduate in Bachelor of Science in Accountancy (BSA) who successfully passed the CPA
Licensure Examination.
- An accounting professional doing accounting, audit, tax, management consulting,
education, and research work.
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 - Practice of Accountancy (as enumerated in Republic Act 9298):
a. Private Accountant/ Management Accountant – an accounting professional
employed in a private company or organization.
b. Public Accountant/ Auditor – an accounting professional independent from private
organization and is usually employed in an auditing firm.
c. Government Accountant – an accounting professional employed in a government
agency.
d. Accounting Educator and Researcher – an accounting professional employed in a
university, college, or research organization.

BRANCHES OF ACCOUNTING

The field of accounting has a very wide coverage. This is because there are several types of
businesses operating in the business community, there are several interested users of financial
statements, and there are several regulatory bodies of the government that require accounting
reports.

Because of its wide coverage, a person practicing accountancy has to specialize in one area. It
would be detrimental to the person to be practicing all the different areas of accounting
simultaneously. In practice, an accountant usually practices in a certain field of accountancy
where his or her interest lies.

As any major area of discipline, accounting has different fields of specializations. A CPA may
decide to specialize in one or two or more of these fields:

Financial
Accounting
Accounting Management
Research Accounting

Accounting Government
Education ACCOUNTING Accounting

Cost
Auditing
Accounting
Tax
Accounting

Figure 2.1 – Branches of Accounting

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 What are the branches of accounting?

1. Financial Accounting
 It deals with the recording, classifying, reporting, and interpreting the financial position
and conditions of a company. A financial accountant reports the company's financial
position and conditions to external users. He is tasked to perform bookkeeping functions
and to prepare financial statements, which includes the balance sheet, income statement,
statement of changes in equity, cash flow statement, and notes to the financial
statements. He maintains the basic records which may serve as inputs for further
information use in the other branches of accounting.

 Financial accounting is the area mostly affected by the changes in accounting principles.
The financial statements should be prepared in accordance with the existing requirements
of Philippine Financial Reporting Standards. Impliedly, all items appearing on the face of
the financial statements should be in accordance with PFRS requirements.

 Financial accounting is primarily concerned with the preparation of the financial

statements for external users.

2. Management (or Managerial) Accounting

 Management accounting involves the application of analytical tools and techniques to
economic data in order to provide assistance to the management in the performance of
its basic functions. It deals with the accumulation and analysis of financial information to
be used by internal users, particularly the company's top executives. A managerial
accountant is tasked to do weekly, monthly, quarterly, and yearly reports based on actual,
future or forecasted values. He prepares sales forecasting reports, budgets, comparative
financial analysis, consolidation reports, among others. He also uses both qualitative and
non-qualitative information to guide decision-making, such as make-or-buy, continue-or-
discontinue operation, short-term or long-term financing, and the like.

 The management makes decisions based on the quantitative and qualitative information
available, and management accounting provides the quantitative information. The
management makes rational economic decisions with the end view of achieving the goals
and objectives of the organization.

3. Government Accounting
 The systematic process of recording, classifying, and summarizing all transactions
involving receipts and dispositions of government funds and property. It deals with the
development and communication of government reports of a financial nature. A
government accountant uses a fund accounting system. He is assigned to take charge of a
separate set of accounts for managing funds assigned to specific government units and to
measure the inflow and outflow of such funds.

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 4. Auditing
 Auditing is an independent verification and examination that assures fairness of
presentation of financial statements. Auditing serves as an assurance to the different
users that the financial statements prepared by the management are reliable. The person
that performs the examination of the financial statements is called an auditor. Usually, the
auditor expresses an opinion as to the fairness of the financial statements. The different
users rely heavily on the opinion of the auditor.

 Auditing can be broadly classified into internal audit or external audit.

a. Internal Audit. An examination of the various segments of an entity performed
throughout the year by the internal auditors who are employees of the business.
Internal audit is primarily concerned with the internal controls adopted by the
business to safeguard its assets, check the reliability of accounting information, and
promote operational efficiency. In most instances, the internal auditor is not
independent because he or she is connected with the business entity.
b. External Audit. It is performed by external auditors who are entirely independent from
the business. They are not employees of the business under examination nor do they
have financial interests in it. Since external auditors are not connected with the
business in all aspects, it is highly probable that they are independent in appearance
and mental attitude, and their opinion can be relied upon.

 Internal and external auditors prepare audit reports for the company’s use and for public
consumption, respectively.

5. Tax Accounting
 Tax accounting is primarily concerned with the application of and compliance with
taxation laws and regulations. Business entities and individual persons are mandated to
file tax returns for all types of transactions covered by taxation laws, and pay the
corresponding taxes. The amount of tax paid to the national government is computed
based on the tax laws and related revenue regulations.

 The taxes imposed and collected by the national government are broadly classified into
income tax, business tax, and transfer tax. The law that governs the imposition of national
taxes is Republic Act 8424, as amended, and has been codified as the National Internal
Revenue Code (NIRC). The taxes collected by the government are intended to defray the
expenses of the government. Without taxation, the state cannot survive.

 The primary concern of tax accounting is the proper application of tax laws and revenue
regulations in the computation of taxes due to the national government. Usually, the
amount of tax is computed based on the income or the value of the product, service, or
transaction.

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  The person who specializes in tax accounting is usually called a tax specialist or tax
consultant who determines the amount of income tax and other taxes to be paid by the
business. He is tasked to prepare and file returns for income and other taxes.

6. Cost Accounting
 Cost accounting is a technique for determining the cost of the product, service or process
through direct measurement, arbitrary assignment, or systematic rational allocation. It
deals with the accumulation of financial information related to manufacturing or
production costs. Hired by a manufacturing company, a cost accountant prepares reports
useful in budgeting and product pricing or costing, among other things. He is tasked to
prepare marginal costing reports, activity-based accounting reports, standard cost
accounting reports, lean accounting reports, cost-volume-profit analysis, and others.

 The primary concern of cost accounting is the determination of the cost of products or
services. The term “cost” refers to the amount being foregone or sacrificed in order to
attain certain benefits. The information on cost is necessary in setting up the price of the
product or service.

7. Accounting Education
 Accounting education is a teaching profession rendered by certified public accountants
(CPA) in various schools, colleges, and universities. It deals with teaching accounting to
students in the secondary, tertiary, or higher levels, to accountancy graduates about to
take the board examination, or to accounting professionals pursuing continuous
professional development as a requirement for the renewal of professional license. The
accounting teacher not only updates himself on accounting profession matters but also
undertakes professional development in the area of education. He is, therefore, attuned
with teaching and learning strategies and implements pedagogical methods to teach
accounting effectively. In the academe, he is involved in the three aspects of education;
namely, instruction, research, and community extension.

8. Accounting Research
 It deals with exploring new knowledge, redefining standards and implementing
guidelines, providing solutions involving accounting issues and concerns through a
systematic research process on accounting and accounting-related matters, such as
finance, economics, production and operations management, human resource
management, information technology, taxation and law, among others. It recognizes the
dynamic effect the reported financial information on economic events, and vice versa.

 Combining the models produced by the hard sciences in research and testing with
financial statements, stock prices, surveys, and experiments, we can gain a specific
perspective and basis on the following:
 Deciding and implementing new accounting and auditing standards.
 Presenting unusual economic transactions in the financial statements.

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  Learning how new tax laws impact clients and employers.
 Discerning how the accounting profession affects the capital markets through
academic accounting research.

 Researchers in the accounting field also apply the scientific method like their counterparts
in the sciences. With the constantly evolving field of accountancy, it is expected that
accounting research will continue to play a vital role in the future.

GENERALIZATION:

Financial Management Government Tax Cost Accounting Accounting

Auditing
Accounting Accounting Accounting Accounting Accounting Education Research
Deals with Focuses on the Accounting for Examines and Lays down the Finds out the Deals with the Continuous
the financial preparation of the receipt evaluates different cost of promulgation improvement
transactions reports for use and financial treatments of specific cost of accounting of
of a business. of managers in disposition of statements of the taxing objects to knowledge to accountancy
their decision- government a company. authorities help in the various field through
making. funds. regarding functions of interested research and
Definition
financial both financial parties that studies.
transactions. and will aid them
management in achieving
accounting. their
individual
goals.
Financial Management Periodic Auditor’s Tax returns to Cost of N/A Research
Statements Reports Financial report which be used by production Results
Type of Reports; contains the taxing Report; Other
Report Financial auditor’s authorities to Cost Reports
Generated Statements of opinion about determine the
the the financial amount of
Government statements. taxes payable.
To guide Helps Shows the Gives Helps in Finds the cost Educates Adds to the
external and management stewardship credibility to determining of a particular students in knowledge of
Purpose of internal users in decision- by the the financial the amount of object. the field of accountancy.
Information in their making. government statements of taxes payable. accountancy.
economic of public a company.
decisions. funds.
Periodic (e.g., Whenever Periodic (e.g., After every Periodic (e.g., Whenever N/A Varies
Frequency of annually, management annually, audit of a set annually, management
Reports quarterly, asks for a quarterly, etc.) of financial quarterly, asks for a
etc.) report. statements. etc.) report.
External and Internal users External and External Taxing Internal users Students and Primarily
Intended
Internal Users only. Internal Users Users. Authorities only. Members of Members of
Users
the Academe the Academe
PFRS and PAS None NGAS Philippine NIRC None None None
Standards or
Standard on
Basis of
Auditing
Presentation
(PSA)

**PFRS - Philippine Financial Reporting Standards

**PAS – Philippine Accounting Standards
**NGAS – New Government Accounting System
**NIRC – National Internal Revenue Cod

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