THE DIFFERENT BRANCHES OF ACCOUNTING

FINANCIAL ACCOUNTING
Financial accounting deals with the theoretical framework covering accounting
principles and concepts relative to measurement and valuation as applied to assets, liabilities,
stockholder’s equity, retained earnings, revenue, and expense accounts in relation to the
preparation and presentation of financial statements.
The financial information provided by financial accounting in used for decision making
by both internal and external users. Internal users include, owners, shareholders, and
management while external users include creditors, potential investors, employees, and
government agencies.

MANAGEMENT ACCOUNTING
The Institute of Management Accountants (IMA) defines management accounting as a
profession that involves partnering in management decision making, devising planning and
performance management systems, and providing expertise in financial reporting and control
to assist management in the formulation and implementation of an organization’s strategy.
GOVERNMENT ACCOUNTING
Section 109 of Presidential Decree (PD) No. 1445 states that government accounting
encompasses the process of analyzing, classifying, summarizing, and communicating all
transactions involving the receipt and disposition of government funds and property, and
interpreting the results thereof. The agencies responsible in performing government accounting
functions are the Commission of Audit (COA), the Department of Budget and Management
(DBM), and the Bureau of Treasury (BTr).

AUDITING
Auditing is the examination and review of accounting reports in order to ascertain their
fairness, propriety, and reliability. The independent auditor’s opinion provides reasonable
assurance that the financial statements under examination fairly present the company’s
financial position and results of operation in accordance with the generally accepted accounting
principles (GAAP).

TAX ACCOUNTING
Tax services provided by accountants include the preparation of monthly value added
tax, percentage tax, expanded withholding tax returns, quarterly and annual tax returns, and
any other taxes applicable to business. Accountants work closely with clients in order to avoid
tax problems with the Bureau of Internal Revenue (BIR) and other local agencies through
proper tax compliance while advising clients about ways and measures to minimize taxes.

COST ACCOUNTING
Cost accounting includes the collection, determination, allocation, assessment,
interpretation, and control of cost data, particularly the cost of production in a manufacturing
concern. The cost of production includes the raw materials, direct labor, factory overhead, and
all other costs involved incident in each stage of production of the finished goods.

ACCOUNTING EDUCATION
Accounting education involves planned grading and formal teaching in an educational
institution. The professional accountant imparts knowledge to students enrolled in an
accounting subject either in basic accounting or in higher accounting subjects. Accountants in
the academe usually take post graduate studies to achieve the required tenure.

ACCOUNTING RESEARCH
Accounting research involves conducting a careful and diligent study aimed at
discovering and interpreting facts, revising accepted theories in the light of new facts, or the
practical application of such new or revised theories for the generation of a new knowledge. It
includes collecting information about a particular subject in order to decide and implement new
standards in accounting, presenting current events that might affect the profession, or
discovering new theories that will have on existing accounting knowledge.

Users of Financial Information

Internal Users
Internal users are the primary users of financial information who are inside the
reporting entity and are directly involved in managing the company’s daily operations. They are
the decision makers who make the strategic and operational decisions for the company.
Investors/ Owners/ Stockholders
These parties provide the financial resources to keep the business going. They decide whether
to invest or not depending on the estimated amount of income on the investment. Upon
investment, they would want to know the financial position or results of operation of their
business investment.
Management
Organizational managers use financial information to set goals for their companies. Managers
evaluate their progress towards these goals and use financial data as a guide for future
management actions.
Employees
Although the employees are not directly involved in the decision making of the company, they
are nonetheless interested in the financial information of the company to determine if they
have a future in the company.
External Users
External users are secondary users of financial information who are parties outside the
company. They may not be directly involved in the company’s operations but their decisions
may significantly affect the business entity.
Financial Institutions/ Creditors
Before extending credit, financial institutions use financial information to determine the
capacity of the business organization to pay its obligations and their interests at the appropriate
time.

Government
Financial information is important for tax purposes and in checking of compliance with
Securities and Exchange Commission (SEC) requirements.
Potential Investors/ Creditors
Before making an investment or extending credit, potential investors or creditors may not only
be interested in the company’s current financial position and results of operations, but also in
the company’s financial history. This should give them the assurance that their investment will
yield a reasonable rate of return or the credit extended will be paid within a reasonable period
of time.

Types of Business Organizations

Sole/ Single Proprietorship is a business owned and managed by only one person.
Advantages
There are minimal costs and requirements in the formation.
The owner can withdraw the assets and profits of the business anytime at his or her own
discretion.
Decision making is solely in the hands of the owner.
The duration of the life of the business solely depends on its owner.
Disadvantages
Resources are limited as the capital is provided only by the owner.
The liability of the owner is unlimited as he or she is accountable to all creditors of the business.
Infusion of knowledge in the management of the business is limited to one person only, which
is the owner.

Partnership is a business organization owned and managed by two or more people who agree
to contribute money, property, or industry to a common fund for the purpose of earning a
profit.

Advantages
There are minimal costs and requirements in the formation.
There are more funds contributed from the investments of the partners.
There is infusion or more knowledge, experience, and skills from two or more partners.
There can be division of labor between or among partners.
Disadvantages
The partners are liable for the actions of each partner as a result of mutual agency.
A general partner has unlimited liability if the other partners are limited partners or are
insolvent.
Disagreement between or among partners can lead to the withdrawal of one or more partners.
The death, retirement, withdrawal, or incapacity of a partner results in the dissolution of the
partnership.
Admission of a new partner depends upon the approval of the other partners

Corporation is a form of business organization managed by an elected board of directors. The

investors are called stockholders and the unit of ownership is called share of stock.

Advantages
The stockholders only have limited liability, as their liability extends only up to the amount of
their capital investment.
A corporation has continuous existence as its life is indefinite.
There is more infusion of funds from the stockholders or investors.
Shares of stocks can be transferred without the consent of other shareholders.
Management of the corporation is vested upon its board of directors.

Disadvantages
A corporation entails many requirements and is more costly than a partnership.
The government exercises strict control over corporations and imposes high taxes.
Shareholders have little or no participation in the management of the corporation.
Distribution of the net income depends upon the declaration of dividends by the board of
directors.
In large corporations, there is formal or impersonal relationship between employees and
management due to the big number of employees. Hence, chances of creating a personal and
friendly atmosphere in the corporate setting are minimal.

Cooperatives
Under Section 3 of Republic Act 6938, a cooperative is a duly registered association of persons,
with a common bond of interest, who have voluntarily joined together to achieve a lawful
common social or economic end, making equitable contributions to the capital required and
accepting a fair share of the risks and benefits of the undertaking in accordance with universally
accepted cooperative principles.
In short, a cooperative is an association of small producers and consumers who come together
voluntarily to form a business which they own, manage, and patronize.
Advantages
The prices of products offered to consumers are lower due to direct purchases of cooperative
members from producers or manufacturers.
Cooperative are managed by the members themselves; thus, saving on management costs
which leads to lower prices of products inuring to the benefit of the consumers.
Disadvantages
There is limited capital due to underprivileged members.
The cooperative is strictly for members only and shares cannot be transferred to non-members.
Lack of efficient managements as it is managed only by its members.

Legal Requirements in the Formation of a Business

The sole proprietorship is the easiest business to register. It is registered with the
Department of Trade and Industry (DTI) under its Bureau of Trade Regulation and Consumer
Protection.
For a partnership, the business is registered with the Securities and Exchange
Commission (SEC) upon submission of the following documents:
Proposed Articles of Partnership
Name Verification Slip
Bank Certificate Deposit
Alien Certificate of Registration, Special Investors Resident Visa, or proof of other types of vise
(in case of foreigners)
Proof of Inward Remittance (in case of non-resident aliens)
For corporation, the following are the incorporation documents required to be filed with the
Securities and Exchange Commission (SEC):
Articles of Incorporation
By-laws
Treasurer’s Affidavit which should state compliance with the authorized subscribed and paid-up
capital stock requirements.
Bank Certificate which should state that the paid-up capital portion of the authorized capital
stock has been deposited to the issuing bank.

What should be stated upon registration of a corporation?

The name of the corporation which must not be identical, or deceptively or confusingly similar
to any existing corporation.
The purpose of the corporation
Principal office of the corporation
The term or life of the corporation which should not exceed fifty [50] years. This corporate
lifetime may, however, be extended for another fifty [50] years but the extension must not be
effected earlier than five [5] years before the expiration of its term.
For a cooperative, the business is registered with the Cooperative Development Authority
(CDA) upon submission of the following documents:
Economic Survey
Notarized Articles of Cooperation and By-Laws
Bonds of accountable officer or officers
Notarized sworn statement of the treasurer certifying that the required subscription and
payment of the authorized share capital and paid-up capital have been fulfilled.
Three Types of Business Activities/ Operations

Service is a type of business operation engaged in the rendering of services. A service type of
business earns based on the skill or quality of service it offers. In order for the business to grow,
its people or employees have to be trained. For example, a well-known hair cutter cannot
perform all the hair and makeup services to his or her customers. He/she has to continuously
maintain, if not improve, the quality of service offered to his/her customers.

Examples: dental clinic, barber shop, laundry service

Trading/ Merchandising is a type of business engaged in the buying and selling of goods.
Merchandising includes the process of managing and marketing the products sold to its
customers. Sales have to be optimized in order to make money. Customer demands have to be
satisfied with the quality of products sold. The tedious processes of forecasting, purchasing,
pricing, and marketing of products in order to generate sales are essential in the trading or
merchandising business.

Examples: grocery, sari-sari store

Manufacturing is engaged in the production of items to be sold. It involves the purchasing and
converting of raw materials to finished goods. This type of business incurs overhead costs aside
from the wages and materials used in the production of goods. A rise in price in one of these
costs causes an increase in the price of goods produced. Aside from this, there are certain
expenses incurred even during periods of non-manufacturing such as rent, insurance, worker
benefits, and machine depreciation. Hence, careful planning is involved in manufacturing.