CHAPTER 1: INTRODUCTION TO ACCOUNTING CAEC01&02

SOPHOMORE CLASS | S.Y. 2024-2025 | Agustin, Sam

●​ Account – is the basic storage of information

ACCOUNTING in accounting, e.g., “cash,” “land,” etc.

Is a process of identifying, recording and NATURE OF ACCOUNTING

communicating economic information that is useful in
making economic decisions It is a process with the basic purpose of
providing information about economic activities that is
ESSENTIAL ELEMENTS OF THE DEFINITION OF ACCTG intended to be useful in making economic decisions

1.​ Identifying TYPES OF INFORMATION PROVIDED BY ACCTG

– The accountant analyzes each business
transaction and identifies whether the 1.​ Quantitative information
transaction is an “accountable event” or – Information expressed in numbers,
non-accountable event.” quantities, or units
– “Accountable events” are recorded in the
books of accounts. “Non-accountable events” 2.​ Qualitative information
are not recorded in the book of accounts. – Information expressed in words or
descriptive form.
2.​ Recording – It is often found in the notes to financial
– The accountant recognizes the identified statements as well as on the face of the other
“accountable events.” This process is called components of financial statements
“Journalizing”
– The accountant then classifies the effects of 3.​ Financial information
the event on the “account.” This process is – Information expressed in money
called “posting.” – It is also considered as quantitative
information because monetary amounts are
3.​ Communicating normally expressed in numbers
– At the end of each accounting period, the
accountant summaries the information ACCOUNTING AS SCIENCE & ART
processed in the accounting system
– Accounting information is communicated to
1.​ As a social science, accounting is a body of
interested users through accounting reports,
knowledge which has been systematically
the most common of which is the financial
gathered, classified and organized.
statements.
2.​ As a practical art, accounting requires the use
of creative skill and judgment.
NOTE:
●​ Accountable events – are those that affect
the assets, liabilities, equity, income or
expenses of a business.

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 CHAPTER 1: INTRODUCTION TO ACCOUNTING CAEC01&02

SOPHOMORE CLASS | S.Y. 2024-2025 | Agustin, Sam

ACCOUNTING AS AN INFORMATION SYSTEM USERS OF ACCOUNTING INFORMATION

➔​ In an accounting system, the inputs are the Users of accounting information are broadly
identified accountable events; the processes classified into two:
are recording, classifying and summarizing;
and the output is the accounting report that INTERNAL USERS
is communicated to the users.
➔​ Those who are directly involved in managing
BOOKKEEPING & ACCOUNTING the business. Examples of internal users
include:
➔​ Bookkeeping a.​ Business owners who are directly
– Refers to the process of recording the involved in managing the business
accounts or transactions of an entity. b.​ Board of directors
– Usually ended with trial balance c.​ Managerial personnel
– Does not require the interpretation of the
significance of the information processed EXTERNAL USERS

➔​ Accounting
➔​ Those who are not directly involved in
– Covers the whole process of identifying,
managing the business. Example of external
recording, and communicating information to
users include:
interested users.
a.​ Existing and potential investors
(e.g. stockholders who are not
FUNCTIONS OF ACCOUNTING IN BUSINESS directly involved in managing the
business)
​ Accounting is often referred to as the b.​ Lenders (e.g. banks) and Creditors
“language of business” because it is fundamental to (e.g. suppliers)
the communication of financial information. c.​ Government agencies (e.g. Bureau
of Internal Revenue or “BIR” and
TWO FUNCTIONS IN A BUSINESS Securities and Exchange
Commission or “SEC”)
1.​ To provide external users with information d.​ Non-managerial employees
that is useful in making, among other, e.​ Customers
investment and credit decisions f.​ Public
2.​ To provide internal users with information
that is useful in managing the business CLASSIFICATION BY USERS’ NEEDS

1.​ General Purpose

– information designed to meet common
needs of most statement users. It is provided

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 CHAPTER 1: INTRODUCTION TO ACCOUNTING CAEC01&02

SOPHOMORE CLASS | S.Y. 2024-2025 | Agustin, Sam

through financial accounting and is prepared ➔​ He is considered as the father of modern

primarily for external users. accounting

2.​ Special Purpose COMMON BRANCHES OF ACCOUNTING

– is information designed for specific needs
of particular statement users. Provided by
FINANCIAL ACCOUNTING
the management accounting or other
branches of accounting and is prepared
primarily for internal users. ●​ is the branch of accounting that focuses on
general purpose financial statements
➔​ General purpose financial
BRIEF HISTORY OF ACCOUNTING
statements cater the common
needs of external users
●​ 10,000 years ago, methods of record keeping ➔​ Financial accounting is governed by
and accounting have been invented the Philippine Financial Accounting
●​ 8500 B.C. Archaeologists found clay tokens in Standards (PFRS)
Mesopotamia, they were used in recording
keeping. It was later replaced by a clay tablet. NOTES:
●​ Ancient civilizations keeping account: ●​ Financial reporting endeavors to promote
a.​ Babylonia (4500 B.C.) principles that are also useful to “other
b.​ Egypt (2250 B.C.) financial reporting”
c.​ China ●​ “Other financial reporting” comprises
d.​ Greece information outside the financial statements
●​ 13th and 1th centuries, trade flourished in that helps to improve users’ ability to make
places such as Florence, Venice, and Genoa. efficient economic decisions
●​ In 1211 A.D., one of the systems of
accounting was kept by a Florentine banker.
FINANCIAL STATEMENT VS. FINANCIAL REPORT
●​ in 1340 A.D. in Genoa, the Double entry
records first came out.
●​ In 1494, the first systematic record keeping ●​ Financial statements
dealing with the “double entry recording – are structured representation of an entity’s
system” was formulated by Fra Luca Pacioli financial position and results of its
operations.
– They are the end product of the accounting
FRA LUCA PACIOLI
process, which are periodically
communicated to users.
➔​ He is a Franciscan monk and mathematician.
➔​ The “double entry recording system” was ●​ Financial report
included in Pacioli’s book titled “Summa di – includes the financial statement plus other
Arithmetica Geometria Proportioni and information that assists in the interpretation
Proportionista” published on November 10, of the users
1494 in Venice

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 CHAPTER 1: INTRODUCTION TO ACCOUNTING CAEC01&02

SOPHOMORE CLASS | S.Y. 2024-2025 | Agustin, Sam

GOVERNMENT ACCOUNTING

●​ Refers to the accounting for the government

and its instrumentalities, focuses on the
custody of public funds.

AUDITING

●​ Involves the inspection of an entity’s financial

statements or business processes to
FINANCIAL REPORTING
ascertain the correspondence with an
established criteria
➔​ Is the provision of financial information
about an entity that is useful to external
NOTE:
users, primarily the investors, lenders, and
– Businesses with gross annual sales or receipts
other creditors.
exceeding PHP 3,000,00 are required to have their
financial statements audited by an independent CPA
OBJECTIVES OF FINANCIAL REPORTING
TAX ACCOUNTING
1.​ PRIMARY
– To provide information about an tentity’s ●​ Is the preparation of tax returns and
economic resources (assests), claims to those rendering of tax advice, such as
resources (liabilities and equity), and changes determination of tax consequences of certain
in those resources (income, expenses, and proposed business endeavors.
other changes).
2.​ SECONDARY
COST ACCOUNTING
– To provide information useful in assessing
the entity’s management stewardship
●​ Is the systematic recording and analysis of
the costs of materials, labor, and overhead
incident to the production of goods or
rendering of services

ACOUNTING EDUCATION

MANAGEMENT ACCOUNTING ●​ Refers to the teaching of accounting and

accounting-related subjects in an organized
●​ It is the accumulation of information for learning environment
internal users

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 CHAPTER 1: INTRODUCTION TO ACCOUNTING CAEC01&02

SOPHOMORE CLASS | S.Y. 2024-2025 | Agustin, Sam

●​ It is a process of facilitating the acquisition of

knowledge and skills regarding one or more
of the other branches of accounting

ACCOUNTING RESEARCH

●​ Pertains to the careful analysis of economic

events and other variables to understand
their impact on decisions.

FORMS OF BUSINESS ORGANIZATIONS

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