FABM 1.3

The Different Branches of Accounting

This section covers the various branches of accounting, including financial accounting, management accounting, government accounting, tax accounting, cost accounting, and accounting education. Each branch has its own focus and responsibilities.

Financial Accounting

• Deals with accounting principles and concepts

• Focuses on measuring and evaluating financial transactions and reports

• Includes assets, liabilities, stockholders' equity, retained earnings, revenues, and expenses

• Focuses on financial transactions and financial statements

Management Accounting

• Involves partnering in management decision-making

• Provides planning expertise and performance management systems

• Focuses on controlling financial reports and making skillful decisions

Government Accounting

• Focuses on the government's financial reports and statistics

• Encompasses the process of analyzing, classifying, summarizing, and communicating government business transactions

• Includes the accounting process for government funds, property, and interpreting the results

• Involves auditing aspects, where accounting reports are examined and reviewed for propriety and reliability

Tax Accounting

• Provides tax services, such as preparing monthly value-added tax, percentage tax, and expanded withholding tax

• Measures and evaluates the tax paid by citizens to ensure they are fulfilling their social responsibility

Cost Accounting

• Includes the control of production costs, especially in the manufacturing industry

• Involves the collection of data, determination of business activities, and allocation of resources

• Assesses and interprets financial stability for manufacturing concerns

Accounting Education

• Taught as a subject in senior high school, such as the Accountancy, Business, and Management (ABM) strand

• Involves the formal teaching and grading of accounting knowledge and systems

• Prepares students for higher education in accounting

Accounting Education and Research

This section covers the key aspects of accounting education and research, including the progression from high school to college-level accounting, the purpose of accounting education, and the process of accounting research.

Accounting in Higher Education

• If you want to pursue accounting further, you can continue your academic strand into higher-level accounting subjects

• The topics discussed here are part of the basic accounting curriculum for senior high school

• These concepts are also covered in college-level accounting education

The Purpose of Accounting Education

• Accounting education is about imparting knowledge to students

• This knowledge is provided by individuals with expertise in accounting, such as teachers and professors

• The goal is to equip students with the necessary skills and understanding of accounting principles

Accounting Research

• Accounting research involves:

  • Conducting research

  • Discovering and interpreting financial facts and transactions

  • Revising and developing new theories and concepts for practical application

  
  

• Accounting research is a systematic process that generates new knowledge, similar to thesis or other academic studies

Users of Financial Information

Internal Users

Directly involved in the operation of the company

• Investors/Owners/Stockholders

  • Provide financial resources and support to the business

  • Decide whether to invest or not based on the company's financial status

  
  

• Management

  • Evaluate the progress of the company's goals using financial data

  • Make decisions based on the financial performance of the company

  
  

• Employees

  • Responsible for understanding the company's financial information

  • Use financial data to assess the stability and success of the company

External Users

Indirectly involved in the operation of the company

• Financial Institutions/Creditors

  • Use financial information to determine the company's ability to pay its obligations

  • Assess the company's creditworthiness and capacity to repay loans

  
  

• Regulatory Agencies

  • Use financial information to ensure compliance with laws and regulations

  • Monitor the company's financial activities and reporting

  
  

• Investors (not directly involved in the company)

  • Analyze the company's financial information to make investment decisions

  • Evaluate the company's performance and potential for growth

Types of Business Organizations

Sole Proprietorship

• Owned and managed by a single person

• Examples include:

  • Online selling

  • Painting jobs

  • Massage services

  • Manicuring and pedicuring services

  • Fruit vending

Advantages:

• Minimal cost to start and operate

• Owner can withdraw assets at any time

Disadvantages:

• Limited resources

• Unlimited liability

• Limited infusion of knowledge and management expertise

Partnership

• Owned and managed by two or more people

Advantages:

• Pooled resources and expertise

• Shared decision-making and responsibilities

• Easier to obtain capital

• Shared Financing: Partners contribute funds, reducing the financial burden on any one individual.

• Shared Knowledge and Skills: Partners bring diverse experiences and expertise to the business.

• Division of Labor: Tasks can be divided among partners based on their strengths.

Disadvantages:

• Potential for conflict among partners

• Shared liability

• Difficulty in withdrawing from the business

• Shared Liability: Partners are liable for each other's actions, including any wrongdoing.

• Unlimited Liability: Partners have unlimited personal liability for the business's debts and obligations.

• Potential Disagreements: Differences in opinion or vision can lead to conflicts between partners.

• Dependence on Partners: The business may be at risk if a partner dies, retires, or becomes incapable of operating the business.

• Approval Required for New Partners: Admitting new partners requires the approval of existing partners.

Cooperatives

• Associations of small producers and consumers who come together voluntarily to form a business that they own, manage, and patronize.

Key Features:

• Member-Owned and Managed: Cooperatives are owned and operated by their members.

• Exclusive to Members: Cooperatives are established and operated exclusively for their members.

• Shared Profits: The income or dividends generated by the cooperative are distributed among the members.

Advantages:

• Lower Prices: Cooperative members can purchase products directly from producers or manufacturers, resulting in lower prices.

• Member Management: Members have the right to manage the cooperative's operations.

Disadvantages:

• Limited Capital: Cooperatives may have limited capital due to the financial constraints of their underprivileged members.

• Exclusive to Members: The income, profits, and shares of the cooperative are only distributed among the members, and cannot be transferred to non-members.

• Potential Management Challenges: Cooperatives may face challenges in efficient management, even without the required expertise.

Corporations

• Managed by an elected board of directors with expertise and educational degrees

• Formal institution, not just managed by a single person

Advantages:

• Limited liability: Financial stability based on investor investments

• Continuous existence: Operate based on a contract

• Efficient funds: Investors and transferable shares

• Management depends on the board of directors, president, CEO, or owner

Disadvantages of Corporations:

• Costly: Legal requirements and taxes are expensive

• Strict government control: Must follow rules and regulations

• Shareholders have little participation: Management decides on continuation

• Distribution of net income: Decided by the board of directors, not shareholders

• Formal relationship between employees and management: No personal matters, only focused on organizational success

Types of Business Activities

1. Service Operations

   • Rendering services based on talents or skills

   • Examples: Doctors, lawyers, barbers, dentists

   
   

2. Trading/Merchandising Operations

   • Buying and selling of goods

   • Examples: Grocery stores, department stores, drug stores, hardware stores

   • Buy from manufacturers and sell to consumers

   
   

3. Manufacturing Operations

   • Production of finished goods

   • Convert raw materials into finished products

   • Sell to merchandisers or retailers