Chapter 2: this branch that the users have evaluation of business decisions,

one common information need. and similar areas.

Branches of
Financial accounting conforms
Accounting and 3. Government accounting - is the
with accounting standards
process of recording, analyzing,
Users of Financial developed by standard-setting
classifying, summarizing,
bodies. In the Philippines, there is
Information communicating and interpreting
a Council created to set these
financial information about the
standards.
government in aggregate and in
KYLA MAE P. BALLESTEROS, CPA detail reflecting transactions and
Examples of these financial other economic events involving
reports include: the receipt, spending, transfer,
This chapter discusses the • the balance sheet (statement of usability and disposition of assets
followings: financial condition) and liabilities.
Branches and Areas of Accounting • income statement (the profit and
Users of Financial Information This branch of accounting deals
loss statement, or P&L)
with how the funds of the
• statement of cash flows
Chapters Objectives: government are recorded and
At the end of this chapter, reported.
Financial accounting is primarily
students must be able to: Questions:
concerned with processing
1. Differentiate the branches of - What are the sources of income
historical data. Although financial
accounting. of the government?
accounting generally meets the
2. Explain the kind or type of - Where do these taxes go?
needs of external users, internal
services rendered in each of these - Taxes paid by Filipinos
users of accounting information
branches. - Roads, Hospitals, for education
also use these information for
3. Enumerate the users of financial and others
their decision-making needs.
information and identify the
specific needs of each. 2. Management (or Managerial) 4. Auditing
Accounting - emphasizes the There are two types of
BRANCHES OF ACCOUNTING preparation and analysis of auditing: external and internal
Accounting is divided into several accounting information within the auditing.
branches to better serve the needs organization.
of different users with varying External auditing refers to the
information needs. These The objective of managerial examination of financial
branches sometimes overlap and accounting is to provide timely statements by an independent
they are often closely and relevant information for those CPA (Certified Public Accountant)
intertwined.” internal users of accounting with the purpose of expressing an
information, such as the managers opinion as to fairness of
1. Financial Accounting – is the and employees in their decision- presentation and compliance with
broadest branch and is focused on making needs. Oftentimes, these the generally accepted accounting
the needs of external users. are sensitive information and is principles (GAAP). The audit does
not distributed to those outside not cover 100% of the accounting
Financial accounting is primarily the business - for example, prices, records but the CPA reviews a
concerned with the recognition, plans to open up branches, selected sample of these records
measurement and communication customer list, etc. and issues an audit report.
of economic activities. This
information is communicated in a Managerial accounting involves
Internal auditing deals with
complete set of financial financial analysis, budgeting and
determining the operational
statements. It is assumed under forecasting, cost analysis,
efficiency of the company
regarding the protection of the *cost to produce one can of 9. Non-Profit Accounting – refers
company’s assets, accuracy and sardines is PHP50, then the owner to the practice of record-keeping
reliability of the accounting data, can set the selling price at PHP60 and reporting for organization
and adherence to certain which are motivated not be the
management policies. It focuses desire to profit but by the desire
7. Accounting Education
on evaluating the adequacy of a to provide services needed by
This branch of accounting
company's internal control humanity for free. Non-profit
deals with developing future
structure by testing segregation of accounting is distinguished by the
accountants by creating relevant
duties, policies and procedures, accounting emphasis on donor
accounting curriculum. Accounting
degrees of authorization, and restrictions.
professionals can become faculty
other controls implemented by
members of educational
management. 10. Forensic Accounting – is the
institutions.
action of identifying, recording,
Accounting educators contribute settling, extracting, sorting,
5. Tax accounting - helps clients
to the development of the reporting, and verifying past
follow rules set by tax authorities.
profession through their effective financial data or other accounting
It includes tax planning and
teaching, publications of their activities for setting current or
preparation of tax returns.
research and influencing students prospective legal disputes or using
It also involves determination of to pursue careers in accounting. such past financial data for
income tax and other taxes, tax projecting future financial data to
Accounting teachers share their
advisory services such as ways to settle legal disputes.
knowledge on accounting so that
minimize taxes legally, evaluation
students are informed of the
of the consequences of tax
importance of accounting and its 11. Accounting System – involves
decisions, and other tax-related
use in our daily lives. the development, installation,
matters.
implementation, and monitoring
8. Accounting Research - focuses of accounting procedures and
6. Cost Accounting - sometimes systems used in the accounting
on the search for new knowledge
considered as a subset of process.
on the effects of economic events
management accounting, cost
on the process of summarizing, - It includes the employment of
accounting refers to the recording,
analyzing, verifying, and reporting business forms, accounting
presentation, and analysis of
standardized financial information, personnel direction, and software
manufacturing costs. Cost
and on the effects of reported management.
accounting is very useful in
information on economic events.
manufacturing businesses since
Researchers typically choose a USERS OF FINANCIAL STATEMENTS
they have the most complicated
subject area and a methodology AND THEIR INFORMATION NEEDS:
costing process.
on which to focus their efforts.
A wide array of users benefit from
the financial information
Cost accountants also analyze
2 Branches of Accounting generated by accounting.
actual and standard costs to help
managers determine future Research
1. Academic Accounting Research Users of financial information are
courses of action regarding the
– research which focuses on all classified according o their
company's operations.
aspects of accounting profession. relationship to the business.
2. Practical Accounting Research –
Cost accounting will also help the External – users who are outside
research that emphasizes on
owner set the selling price of his the business organization.
problem solving for a client or
products. For example, if the cost
group of clients. Internal – users within the
accounting records shows that the
business organization.
total
According to users’ relation to the 6. Customers The primary users are:
business enterprise. Customers assess whether the A. Existing and potential investors
A. External Users business will continue in existence. B. Lenders and other creditors
This is especially needed where
customers have a long-term B. Users other than primary users
1. Investors and Stockholders
involvement with or are – this category includes the
dependent on the business. management, employees and
Investors need information on risk others not included as primary
and return of their investment. B. Internal Users users of the financial statements.
They are interested in the financial 1. Owners or Partners
information whether they are Owners or partners in a business The Conceptual Framework is a
going to buy, hold or sell their need accounting information to structure of assumptions,
investment in the business. assess whether their capital principles or rules developed by
Stockholders of corporate investment are profitable or not, accounting standard-setting
business need accounting and whether to grant or not bodies, such as the International
information to assist them to additional compensation to their Accounting Standards Board (IASB)
make decisions on what to do with employees. in the United Kingdom and
their investments whether it is Financial Accounting Standards
wise to hold, sell or buy additional Board (FASB) of the United States,
shares in the corporate business 2. Managers that guides the preparation of
or not. Information set forth in the financial statements that are
financial statements assists the relevant and useful to users of
2. Creditors / Lenders managers in carrying out their day financial information.
Lenders, for example banks, need to day functions. Managers need
to face regular decisions. Activity #2
information which helps them
Answer the following questions in
assess the business ability to repay
the yellow pad paper.
its loan and interest when they fall 3. Employees
due. Employees assess the stability and 1. How do you think cost
profitability of their company. accounting will help a business
3. Suppliers They are interested in the ability that is losing money in its
Just like the lenders, suppliers of their employer to provide operations?
assess the business ability to repay remuneration, employment
its obligation upon maturity. opportunities, retirement and 2. Now that you have learned the
other benefits. different branches and fields of
accounting, which one do you
4. Government and their
Classification of Users in the think is the most challenging? Why
agencies do you think so?
The government usually obtain Conceptual Framework
financial information from 3. Which particular branch or field
individuals and organizations for The Conceptual Framework for the
preparation and presentation of of accounting interest you most?
purposes of taxation and licensing. How do you plan on better
financial statements for external
users also classifies users of preparing to be an accountant in
5. Public the field or branch you find most
financial information as:
Information set forth in the interesting?
A. Primary Users – they are the
financial statements may provide
main users to whom the general
the public with the trends and
purpose financial reports are Prepared by:
recent development in the
directed. Mr. Ariel D. Castillo
prosperity of the company.