Branches of accounting (Highlight only the focus of certain branch in accounting)

1. Financial Accounting

Financial accounting involves recording and categorizing transactions for businesses. This data is
generally historical, meaning it’s from the past.

It also involves generating financial statements based on these transactions. All financial statements, such
as a balance sheet and an income statement, must be prepared in a certain way. This tends to be
according to the generally accepted accounting principles. These are known as GAAP for short.

Financial accounting is performed to conform to external regulations. It is not for internal employees to
analyze and make financial decisions— managerial accounting is used for this purpose.

2. Cost Accounting

Cost accounting is considered a type of managerial accounting.

Cost accounting is most commonly used in the manufacturing industry, an industry that has a lot of
resources and costs to manage. It is a type of accounting used internally to assess a company’s
operations.

Cost accounting concerns itself with recording and analyzing manufacturing costs. It looks at a company’s
fixed (unchanging and constant costs, like rent) and variable costs (changing costs, like shipping charges).
Then it looks at how they affect a business, and how these costs can be better managed, according
to Accounting Tools.

3. Auditing

There are two types of auditing: external and internal auditing. In external auditing, an independent third
party reviews a company’s financial statements. This is to make sure they are presented correctly and
comply with GAAP.

Internal auditing involves evaluating how a business divides up accounting duties. As well as who is
authorized to do what accounting task and what procedures and policies are in place.

Internal auditing helps a business zero in on fraud, mismanagement and waste. It also identifies and
controls any potential weaknesses in its policies or procedures.

4. Managerial Accounting
Also known as management accounting, this type of accounting provides data about a company’s
operations to managers. The focus of managerial accounting is to provide data. This is what managers
need to make decisions about a business’s operations, not comply strictly with GAAP.Managerial
accounting includes budgeting and forecasting and cost analysis. As well as financial analysis, reviewing
past business decisions and more.

5. Accounting Information Systems

AIS concerns itself with everything to do with accounting systems and processes. This involves their
construction, installment, application, and observation. This can include accounting software
management. As well as the management of bookkeeping and accounting employees.

6. Tax Accounting

Tax accounting involves planning for tax time and the preparation of tax returns. This branch of accounting
aids businesses to be compliant with regulations set up by the IRS.

Tax accounting also helps businesses figure out their income tax and other taxes and how to legally reduce
their amount of tax owing. Tax accounting also analyzes tax-related business decisions and any other
issues related to taxes.

7. Forensic Accounting

This specialized accounting service is trending in accounting and is becoming increasingly popular.
Forensic accounting focuses on legal affairs. Such as inquiry into fraud, legal cases and dispute and claims
resolution.

Forensic accountants need to reconstruct financial data when the records aren’t complete. This could be
to decode fraudulent data or convert a cash accounting system to accrual accounting. Forensic
accountants are usually consultants who work on a project basis.

8. Fiduciary Accounting

This branch of accounting centers around the management of property for another person or business.
The fiduciary accountant manages any account and activities. This is specifically related to the
administration and guardianship of property.

Fiduciary accounting covers estate accounting, trust accounting, and receivership. This is the appointing
of a custodian of a business’s assets during events such as bankruptcy.
9. Government Accounting

Government accounting, also known as public accounting, handles any state and federal fund allocation
and disbursement. This can range anywhere from social accounting and the measure of cost to humans,
to climate change or the use of welfare funds. Government accounting tracks the movement of money
through a number of different agencies and makes sure that budgets are kept to or met.

A government accountant may work in state or federal programs such as housing, education or healthcare.

10. International Accounting

The need for international accounting expands alongside growth within international markets. This branch
of accounting then serves to learn about the laws and regulations in other countries. So that there is a fair
and honest cross of information.

International accountants follow GAAP. But they are also well versed in International Financial Reporting
Standards (IFRS).

11. Fund Accounting

A fund accountant will work with non-profit organizations. They will make sure that any funds that are taken
in are handled correctly and accurately. They will work according to company policy, or in accordance with
the laws that govern NPOs.

Fund accounting tends to be used by:

• Charities • Hospitals
• Churches • Government agencies
• Educational institutions • Clubs
12. Political Campaign Accounting

The political campaign branch of accounting oversees the development and implementation of the finance
systems. This is within a political campaign. This could include transaction accounting or monitoring
donations. With the aim of ensuring compliance with state and federal laws. It is practiced in local, state,
or nationwide political races.

FIVE MAJOR ACCOUNTS

The accounts in the assets, liabilities and capital (except for drawings account) are called real
or prominent accounts. This is because these accounts are carried forward to the next accounting
period.
 The accounts in the revenues or income and expenses, including the drawing account are
called nominal or temporary accounts as these are not carried over to the next accounting period but
are closed to the capital account at the end of the accounting period.
Accounts have normal balances. When we say normal balances, it means how it will appear
when it is summed up in the books of accounts and presented the trial balance and financial
statements.
There are only two normal balances of an account in the books of accounts is either a DEBIT
or it is a CREDIT.
When an account is presented in the trial balance not on its normal balance may have the
following reasons that an accountant should correct or make adjusting entries.
1. There is an unrecorded transaction
2. There is an error in the entries There is a transaction or items in the transactions
needing reconciliation
3. A transaction may have been recorded twice.
4. There are errors in the posting process.

ASSETS are resources owned and controlled by the firm.

There are types of assets, the current and non- current.
❖ Current assets are assets
that can be realized one year
after year-end date.
a. Cash – money on
hand, or in banks and
other items
considered as
medium of exchange in
business transactions.
b. Accounts Receivable –
are amounts due from
customers arising
from credit sales or
services.
c. Notes Receivable –
are amounts due from
clients supported by
promissory note.
d. Inventories – are assets held for resale.
e. Supplies – are items purchased by an enterprise which are unused as of the reporting
date.
f. Prepaid Expenses – expenses paid in advance. They are assets at the time of
payment and become expenses through the passage of time.
g. Accrued Income – revenue earned but not yet collected.
h. Short term investment – are the investments made by the company that are intended
for franchise and copyright.

❖ Non – current assets are assets that cannot be realized one year after year-end date.
a. Property, Plant and Equipment – long-lived assets which have been acquired for use
in operations.
b. Long Term Investments – investments made by the company for long-term purposes.
 c. Intangible assets are non-physical assets such as patents and trademarks.

LIABILITIES obligations of the firm arising from past events which are to be settled in the future.
❖ Current Liabilities are liabilities that fall due within one year after year-end date.
a. Accounts Payable are amounts due or payable to suppliers for goods purchased on
account or for services received on account. Notes Payable are amounts due to third
parties supported by promissory notes.
b. Accrued Expenses are expenses that are incurred but not yet paid (e.g., salaries
payable and taxes payable)
c. Unearned Income is cash collected in advance, the liability is the services to be
performed or goods to be delivered in the future.

❖ Non- current Liabilities are liabilities that do not fall due within one year after year-end date.
a. Bonds Payable – is a certificate of indebtedness under the seal of a corporation,
specifying the terms of repayment and the rate of interest to be charged.
b. Mortgage Payable – is a long-term debt of the business with security or collateral in the
form of real properties. In case the business fails to pay the obligation, the creditor can
foreclose or cause the mortgaged asset to be sold and use the proceeds of the sale to
settle the obligation.

OWNER’S EQUITY OR EQUITY refers to the owners claim in the business. It is the residual interest
in the assets of the enterprise after deducting all liabilities.
❖ Capital is the value of cash and other assets
invested in the business by the owner of the
business.
❖ Drawing is an account debited for assets
withdrawn by the owner for personal use from
the business.

INCOME is the increase in economic benefits during

the accounting period in the form of inflows of cash or
other assets or decreases of liabilities that result in
increase in equity. Income includes revenues and
gains. Examples are Service Revenue for service
entities, Sales for merchandising and manufacturing companies,
Professional Fees, Gain on Sale, Rental Fee and Revenue.

EXPENSES are decreases in economic benefits during the

accounting period in the form of outflows of assets or incidences
of liabilities that result in decreases in equity.
 Expense is the decrease in resources resulting from the
operations of the business.
 Expenses decreases equity in the accounting equation.

 Examples of expense accounts are: Salaries Expense,

Interest Expense and Utilities Expense
A chart of accounts is a created list of the accounts used by an organization to define each class of
items for which money or the equivalent is spent or received. It is used to organize the finances of
the entity and to segregate assets, liabilities, equity, revenue and expenses to give interested parties
a better understanding of the financial activities of the business.

Accountants and bookkeepers will refer to the chart of accounts list as reference for all the
transactions that they will record in the books of accounts as the form of classification.

What is account in accounting?

It is a record in the general ledger that is used to collect
and store debit and credit amounts from transactions. To
summarize the same transactions into one, specific account is
assigned to it. The accounts used in accounting are commonly
and generally accepted in accounting practice.

The T-account is the simplest form of an account

because you can summarize transactions through it without
using the general ledger book and can already prepare a trial
balance. It is literally a broad and very wide letter “T” with the
debit on the left side and credit on the right side.

Book of accounts

The Books of Accounts are used to record events transpiring during the business. These events or
transactions are inflows and outflows of monetary activities that a business normally does in its day-
to-day operations. These events are then summarized, analyzed and converted into financial reports
termed as financial statements. These books of accounts are registered with the Bureau of Internal
Revenue for compliance and monitoring purposes.
There are two major types of books of accounts, namely: (1) journal and (2) ledger.

❖ General Journal - This is called the book of original entry because this is the first book where
the business transaction are recorded. Journalizing is the process of recording in the journal.
 ❖ General Ledger - This is called the book of final entry. In this book, you can see the ending
balance of each account you record in General Journal and Special Journals. Posting is the
process of recording in the general ledger.

A general journal is the first place where data is recorded, and every page in the item features
dividing columns for dates, serial numbers, as well as debit or credit records. Some organizations keep
specialized journals, such as purchase journals or sales journals, that only record specific types of
transactions. Once a transaction is recorded in a general journal, the amounts are then posted to the
appropriate accounts, such as accounts receivable, equipment, and cash transactions. Despite
advances in software technology, there will always be a need to record non-routine transactions in
general journals, such as sales of assets, bad debt, and depreciation.

Aside from General Journal and Ledger, businesses also use Special Journals. These are
multi-column journals that have columns reserved for specific transaction. These accounting books
are prescribed to ease the recording of the business owner or their bookkeeper. The four (4) common
special journals are:

Cash Receipt - This is one of the books of accounts you use to record all
cash received by the business.
Cash Disbursement - This is one of the books of accounts you use to record all
cash paid by the business.
Sales Journal - This is one of the books of accounts you use to record all sales
including sales of merchandise on account.
Purchase Journal - This is one of the books of accounts you use to record all purchases
and disbursements including purchase of merchandise on account.
Ledger
This is a book of financial accounts that reflects the financial effects of the business organizations
transactions after they are posted or recorded to the various journals. This is also called the book of
final entry. While journals show the chronological effect of business activity, ledgers show activity by
account type.
Two basic types of ledgers:
• General ledger – this summarizes the activity for each of the organization's accounts from the
journals. This is the book where the entries from various journals are being posted.
• Subsidiary Ledger – these are records that break-downs the total amount reflected in the general
ledger into parts; per customer for accounts receivable and per supplier of accounts payable.

A service business keeps the following books of accounts:

a. General journal
b. General ledger
c. Cash receipt journal
d. Cash disbursement journal
A service business keeps the following books of accounts:
a. General journal
b. General ledger
c. Cash receipt journal
d. Cash disbursement journal
e. Sales journal
f. Purchase journal
No Journal Ledger

Journal is a subsidiary book of Ledger is the permanent and final book of

1. account. It is the storehouse for accounts. It is termed as the means of
recording transactions. classified transactions.

Transactions are recorded in the

Transactions are posted in the ledger in
2. journal in chronological order of dates
classified form from the journal.
just after their occurrences.

Transactions are recorded in a Transactions are recorded in the ledger in

3. journal without considering their the classified form under respective heads of
nature of classification. accounts.

In the journal explanation of entries of In ledger explanations of entries of

4.
the transaction are shown. transactions are not needed.

Generally, the ledger account of the ‘T’ form

contains eight columns – four in left and four
The format of the journal contains five in the right.
5.
columns.
But the statement format of the ledger
account contains six columns.

Journal helps in preparing ledger The object of the ledger is to know the
6.
accounts correctly. income and expenditures of different heads.

Transactions are recorded in the

Ledger is prepared according to the nature
7. journal in chronological order of
of accounts.
dates.

The total results of transactions The results of the particular head of

8.
cannot be known from the journal. accounts can be known from the ledger.

In the journal ledger, folio (L.F.) is

9. In the ledger journal folio (J.F.) is written.
written.

Preparation of trial balance is not The trial balance is prepared from the
10.
possible from the journal. ledger.

It is not possible to prepare an

The income statement is prepared with the
income statement at the end of a
11. ledger balances at the end of a period to
period from journal to no profit or
know the net profit or loss.
loss.
 The balance sheet cannot be The balance sheet is prepared with the
12.
prepared directly from the journal. help of ledger balances.

Transactions are recorded in the Journal is the source of preparation of

13.
journal in the light of the voucher. ledger.

Each account in the ledger has two sides.

The left side is called debit, and the right

There is no debit or credit side in side is called credit under the “T” format.
14.
money columns in it for writing debit.
But in the statement form, there are three
money columns for writing debit and credit
amount and also for balance.

Recording of the transaction in the Recording of transactions in the ledger is

15.
journal is called journalizing. called posting.

There is no scope of balancing in the

16. Balances are drawn in ledger accounts.
journal.

Journals are generally classified

Ledgers are generally classified into two
17. into eight groups according to
groups.
practice.

Journal does not start with opening Some ledger accounts start with an opening
18. balance. It is prepared from current balance, which is the closing balance of the
transactions that occurred. previous year.
The step 4 in the accounting cycle is the preparation of trial balance.
The trial balance is listed in this order:
ASSETS (arranged according to their liquidity
LIABILITIES
OWNER’S EQUITY
DRAWING
REVENUE
EXPENSES

To illustrate the process of journalizing, posting to ledger and preparing the trial balance, use
the transaction below.
The transactions of Pal Pak Trucking Services for their opening month June. Journalize the
transactions and post them to the ledger and prepare trial balance.