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Similar to Chapter 2: branches of accounting
Chapter 2: branches of accounting
- 1. Branches of Accounting Ms.Ma. Irene G. Gonzales, LPT
- 2. Fall of Enron •In 2001, a large American energy company misrepresented its earnings and modified its balance sheet to show favorable performance and it led to its bankruptcy and downfall. • Forensic accounting played a role in understanding the causes of Enron’s demise. • This branch of accounting combines accounting, auditing, and investigative skills in conducting investigations.
- 3. 8 Branches ofAccounting 1. Financial Accounting 2. Management Accounting 3. Government Accounting 4. Auditing 5. Accounting Research 6. Accounting Education 7. Tax Accounting 8. Cost Accounting
- 4. I. FINANCIAL ACCOUNTING Abranch of accounting primarily handling the recording of financial transactions of a business. Financial transactions Standardized accounting reports Financial statements
- 5. I. FINANCIAL ACCOUNTING Financial statements should provide information useful to a wide range of users in their economic decisions. This is the main reasons why accounting standards such as PFRS and PAS are created. They supply guidelines on HOW companies should prepare their financial statements.
- 6. I. FINANCIAL ACCOUNTING Standardized financial statements allow the users to COMPARE THE RESULTS of different companies regardless of size and nature. Enhances the COMPARABILITY of different companies Improve the UNDERSTANDABILITY of the company’s financial statements Creditors – will be able to assess the RISKINESS of a company
- 7. I. FINANCIAL ACCOUNTING MAINGOAL To provide the information needs of external users that have no capability to request information directly from management.
- 8. Primary Users ofGeneral Purpose Financial Statements Primary Users of Special Purpose Financial Statements Investors Creditors Shareholders/Stockholders Government Agencies Auditors other interested outside parties Top management (e.g., Board of directors of a company, CEO, CFO, COO) Department managers (e.g., sales manager, production manager) other internal parties used to evaluate the performance of the company utilized to guide in the decision-making process
- 9. II. MANAGEMENT ACCOUNTING Focuses on the preparation of financial reports used by managers in their day-to-day decision making Reports generated are for internal users only Need not to follow accounting standards
- 10. MANAGEMENT REPORTS Canbe done daily, weekly, or whenever managers require a specific report Contain information regarding the ff: Amount of cash on hand Level of sales revenue for a particular period Costs incurred Comparison of actual results with budgeted amounts
- 11. FINANCIAL VS. MANAGEMENTACCOUNTING Financial accounting summarizes financial information gathered within a specified period. Thus, provides information that is HISTORICAL. Management accounting information is FORWARD- LOOKING. It contains forecasted information used by managers in planning.
- 12. ROLES OF MANAGEMENTACCOUNTANTS According to the Chartered Institute of Management Accountants (CIMA) Advise managers about the financial implication of projects Explain the financial consequences of business decisions Formulate the business strategy Monitor spending and financial control Conduct internal business audits Explain the impact of the competitive landscape Bring a high level of professionalism and integrity to the business
- 13. MANANGEMENT ACCOUNTING SKILLSET Strategic business and management skills: ANALYSIS. Analyze information and use it to make business decisions. STRATEGY. Strategies that will increase the company’s wealth and create value for the company’s shareholders. RISK. Identify risks and give recommendations on how to manage such risks.
- 14. MANANGEMENT ACCOUNTING SKILLSET Strategic business and management skills: PLANNING. Apply accounting techniques in the planning and budget creation phase of a business. COMMUNICATION. Identify what information the management needs and explain the numbers to non-financial managers.
- 15. ETHICAL CODE Eventhough management reports do not follow the requirements imposed by accounting standards like PFRS and PAS, management accountants are still expected to follow the CIMA code of ethics.
- 16. III. GOVERNMENT ACCOUNTING Encompasses the process of analyzing, recording, classifying, summarizing, and communicating all transactions involving the receipt and disposition of government fund and property and interpreting result thereof (Section 109 of Presidential Decree 1445).
- 17. OBJECTIVES OF GOVERNMENTACCOUNTING 1) To provide information concerning past operations and present conditions 2) To provide a basis for guidance for future operations 3) To provide for control of the acts of public bodies and offices in the receipt, disposition, and utilization of funds and property 4) To report on the financial position and the results of operations of government agencies for the information and guidance of all persons concerned
- 18. NEW GOVERNMENT ACCOUNTINGSYSTEM (NGAS) It enhances responsibility accounting in all agencies Responsibility Accounting Relates financial results to a particular responsibility center If there is a problem with the handling of funds by the DepEd, people in that agency will be the ones accountable. Discourages misappropriation and misuse of public funds
- 19. GOVERNMENT ACCOUNTING PROCESS It started after the declaration of the General Appropriations Act (GAA). The GAA is the enacted budget of the country for the upcoming year. The GAA has a force of law and it states how much an agency can spend for the year.
- 20. GOVERNMENT ACCOUNTING PROCESS Commission on Audit (COA) Department of Budget and Management (DBM) Bureau of Treasury (BTr)
- 21. GOVERNMENT ACCOUNTING PROCESS COA •Responsible for keeping the government’s general accounts • Disseminates accounting rules to be used by all agencies DBM • Formulation and implementation of the National Budget with the goal of attaining our national socio-economic plans and objectives • Efficient utilization of government funds and revenues BTr • Safekeeping of the national funds • Management and control of the disbursements of funds
- 22. IV. AUDITING Itis an unbiased examination and evaluation of the financial statements of an organization. Includes steps to determine whether or not a company’s financial statements are presented truthfully.
- 23. IV. AUDITING Auditorsmust be independent from the company being audited. TAKE NOTE An audit of the financial statements improves their credibility. Audited financial statements – financial statements that underwent the process of auditing
- 24. IV. AUDITING Auditedfinancial statements are accompanied by the author’s opinion. Author’s opinion will be the basis whether or not the financial statements are prepared truthfully and without material errors.
- 25. V. ACCOUNTING RESEARCH Deals with the creation of new knowledge Deciding and implementing new accounting and auditing standards Presenting unusual economic transactions in the financial statements Learning how new tax laws impact clients and employers Discerning how the accounting professions affects the capital markets through academic accounting research
- 26. VI. ACCOUNTING EDUCATION Bachelor of Science in Accountancy (BSA) Accounting Audit Administration Business laws Taxation Banking and finance Government Non-profit organizations Academe
- 27. VI. ACCOUNTING EDUCATION Requirements High school graduate College entrance examination Aptitude test for BSA Interview English proficiency examination
- 28. VI. ACCOUNTING EDUCATION Board Exam CPA Licensure Exam 7 subjects; 3 hours each subject General average of 75% with no rating below 60% in each of the seven subjects
- 29. VII. TAX ACCOUNTING Enables the taxing authorities to collect taxes Produces tax returns to be filed to the appropriate government agencies Follows the guidelines of the National Internal Revenue Code (NIRC) It adheres to some guidelines in the PFRS and PAS, but it is not required to implement everything
- 30. Illustrative Example • Starbucksoffer its customer a card that you can use to pay for your orders. The process is simple. You ask the cashier to load the card; you pay for the amount of load; and then your card will reflect the balance available for you to use. You can use the card for future transactions with Starbucks. • Under PFRS and PAS, Starbucks will not recognize the amount you paid as a revenue until you use the balance in your card in the future. • Under NIRC, Starbucks recognizes the revenue when the company received the payment from you. Thus, if Starbucks recognizes the revenue, it is taxable.
- 31. VIII. COST ACCOUNTING Provides information for management accounting and financial accounting For example, cost accounting helps measure the cost of a bicycle-selling company. This information supports management in deciding how many bicycles to produce, the selling price of the bicycle, or valuing the inventory of bicycles in the company’s financial statements
- 32. TERMS USED INCOST ACCOUNTING COST – the resource sacrificed to achieve an objective (e.g., money, resources, time, etc.) COST OBJECT – anything that you wish to find the cost of (e.g., cost of materials, cost of labor, cost of rent, etc.) COST DRIVER - an activity that is a cause of the incurrence of costs (e.g. number of working hours, number of hours for over time, etc.)
- 33. TERMS USED INCOST ACCOUNTING DIRECT COST – costs that can economically be traced to a cost object (e.g., materials, labor, etc.) INDIRECT COST – costs that cannot be traced to a cost object (e.g., costs of supplies used in the factory) FIXED COST – costs that do not change within a relevant range of activity (e.g., rent of a factory building, insurance costs, etc.) VARIABLE COST – costs that change as the level of activity or production increases (e.g., electricity and water bill, labor cost, etc.)