INTRODUCTION

TO ACCOUNTING
Definition of accounting
 The Accounting Standards Council in its Old
Statement of Financial Standards No.1 mentions
the following:

 Accounting is a service activity. Its function is to

provide quantitative information, primarily
financial in nature, about economic entities, that is
intended to be useful in making economic
decision.
Definition of accounting
 The Committee on Accounting Technology of the
American Institute of Certified Public
Accountants defines accounting as follows:

 Accounting is the art of recording, classifying and

summarizing in a significant manner and in terms
of money, transactions and events which are in part
at least of a financial character and interpreting the
results thereof.
Definition of accounting
 The American Accounting Association in its
Statement of Basic Accounting Theory defines
accounting as follows:

 Accounting is the process of identifying, measuring

and communicating economic information to permit
informed judgment and decision by users of the
information.
Phases of accounting
 Identifying – recognition or non-
recognition of business activities as
“accountable” events
 Measuring – assigning of peso amounts to
the accountable economic transactions and
events (historical cost, current replacement cost,
discounted or present value or net realizable
value)
 Recording (journalizing) – process of
systematically maintaining a record of all
economic transactions after they have been
identified or measured
Phases of accounting
 Classifying – sorting or grouping of similar and
interrelated economic transactions into their
respective classes
 Summarizing – preparation of financial
statements (statement of financial position,
income statement, statement of comprehensive
income, statement of changes in equity,
statement of cash flows and notes to financial
statements)
 Communicating – process of preparing and
distributing accounting reports to potential
users of accounting information
NATURE OF ACCOUNTING
 1. Accounting is a process
 2. Accounting is an art

 3. Accounting is a means and not an end

 4. Accounting deals with financial information

and transactions
 5. Accounting is an information system
MULTIPLE CHOICES
 1. Which of the following is an appropriate definition of
accounting?
a. A means of recording transactions and keeping records
b. Electronic collection, organization, and communication
of vast amounts of information
c. The interconnected network of subsystems necessary to
operate a business
d. The measurement, processing, and communication of
financial information about identifiable economic entity
MULTIPLE CHOICES
 2. Which accounting process is the recognition or non-
recognition of business activities as accountable
events?
a. Communicating'
b. Identifying
c. Measuring
d. Recording
MULTIPLE CHOICES
 3. Accounting is a service activity. It's function is to
provide
a. Qualitative information
b. Quantitative and qualitative information
c. Quantitative information
d. None of the above
MULTIPLE CHOICES
 4. The communication phase of accounting is
accomplished by
a. processing data
b. recording data
c. reporting to decision makers
d. storing data
MULTIPLE CHOICES
 5. The measurement phase of accounting is
accomplished by
a. processing data
b. recording data
c. reporting to decision makers
d. storing data
Determine the nature of accounting that is
shown in the given statements:

6. The users then take their own

decisions on the basis of such
information. So it can be said
that mere keeping of accounts
can be the primary objective of
any person or entity.
7. Accounting is recognized and
characterized as a storehouse of
information.
8. It follows some definite steps
like collection of data recording,
classification, summarization,
finalization and reporting.
9. It does not deal with non-
monetary information of non-
financial aspect.
10. Accounting is a systematic
method consisting of definite
techniques and its proper
application that requires applied
skill and expertise.
Basic objective/function of accounting
 The basic objective of accounting is to
“provide quantitative financial
information about a business
that is useful to statement users
particularly owners and
creditors, in making economic
decisions. ”
Basic objectives/functions of accounting
 The main functions of accounting can be
summarized as follows:
 Keeping systematic record of business
transactions
 Protecting properties of the business
 Communicating results to various
parties in or connected with the
business
 Meeting legal requirements
HISTORY OF ACCOUNTING
 Accounting is as old as civilization and has evolved in
response to economic and social needs of men.
 Primitive accounting
 The origin of keeping accounts has been traced

as far back as 8500 B.C., the date

archaeologists have established for certain
clay tokens found in Mesopotamia.
 These tokens represented such commodities
such as sheep, jugs of oil, bread or clothing and
were used in Middle East to keep records.
 The tokens were often sealed in clay balls,

called bullae, which were broken on delivery so

the shipment could be checked against the
invoice.
Bullae and tokens c. 3300 BC
HISTORY OF ACCOUNTING
 Primitive accounting
 Account records date back to the ancient civilizations of
China, Babylonia, Greece and Egypt. People in these
civilizations maintained various types of records of
business activities. At around 3600 B.C in Babylonia,
clay tablets recorded payments of wages.
 Middle ages
 Development of more formal account-keeping methods is
attributed to the merchants and bankers of Florence,
Venice and Genoa during the 13th to 15th centuries.
 The earliest methods consisted of accounts kept by a
Florentine banker in 1211 A.D. The system was primitive;
accounts were not related in any special way (in terms of
equality for entries) and balancing of the accounts was
lacking.
HISTORY OF ACCOUNTING
 Middle ages
 Systematic bookkeeping evolved from these methods.
Double-entry records first appeared in Genoa in 1340
A.D.
 The first treatise on the art of systematic bookkeeping
appeared in 1494, in Venice. “Everything about
Arithmetic, Geometry, Proportions and Proportionality”
(Summa de Arithmetica, Geometria, Proportioni et
Proportionalita) was written by the Franciscan monk,
Fra Luca Pacioli.
HISTORY OF ACCOUNTING
 Industrial Revolution and Corporate Organization
 Occurred in England from the mid-18th to the mid-19th
century.
 Changed the method of producing commercial goods from

the handicraft method to the factory system.

 The expanded business operations initiated by the

Industrial Revolution required increasingly large amount

of funds to build factories and purchase machinery. This
need resulted to the development of the corporate form of
organization. The growths of corporation spurred the
development of accounting.
HISTORY OF ACCOUNTING
 Information Age
 Tremendous advances in information technology have
revolutionized accounting in recent years.
 The advent of Internet, along with its promising

prospects of doing business online or E-commerce will

surely bring about another metamorphosis in the field of
accounting.
USERS OF ACCOUNTING INFORMATION
Accounting information helps users to make better financial
decisions. Users of financial information may be both internal and
external to the organization.

INTERNAL USERS (PRIMARY USERS)

Parties to whom general purpose financial reports are primarily

directed
Have the most critical and immediate need for information in
financial reports
Parties that provide resources to the entity
USERS OF ACCOUNTING INFORMATION

Internal users (Primary Users) of accounting information include

the following:
Management
Employees
Owners
Accounting information is presented to internal users usually in the
form of management accounts, budgets, forecasts and financial
statements.
USERS OF ACCOUNTING INFORMATION

EXTERNAL USERS (SECONDARY USERS)

Residual definition
Users of financial information other than the
management, the owners, the employees and
others
USERS OF ACCOUNTING INFORMATION
External users (Secondary Users) of accounting information
include the following:

Creditors

Tax Authorities
Investors

Customers

Regulatory Authorities
The Framework and the Accounting
Standards

GENERALLY ACCEPTED ACCOUNTING

PRINCIPLES (GAAP)

Represent the rules, procedures, practice and

standards followed in the preparation and
presentation of financial statements
Like laws that must be followed in financial
reporting