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1 - Introduction To Accounting

Accounting involves identifying, recording, and communicating financial information. It started as a means of recording transactions over 4,000 years ago. Double-entry bookkeeping was introduced in the 14th century and became the standard. The industrial revolution led to a focus on fixed assets. Modern accounting principles emerged in the 19th century and accounting standards have continued to develop to address increasingly complex global business activities.

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110 views

1 - Introduction To Accounting

Accounting involves identifying, recording, and communicating financial information. It started as a means of recording transactions over 4,000 years ago. Double-entry bookkeeping was introduced in the 14th century and became the standard. The industrial revolution led to a focus on fixed assets. Modern accounting principles emerged in the 19th century and accounting standards have continued to develop to address increasingly complex global business activities.

Uploaded by

Ira monick codilla
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Introduction to Accounting

Learning Objectives
At the end of this lesson, you are expected to:
a. Define accounting;
b. Describe the nature of accounting
c. Narrate the history/origin of accounting
Accounting

Recording Communicating
Identifying
Definition of Accounting

Accounting is the process of


IDENTIFYING, RECORDING, and
COMMUNICATING the economic events
of an organization to interested users.
IDENTIFYING
This process involves analyzing business transactions and
identifying which transactions should be recognized.

Economic events that have an impact on the financial


statements of a business are called accounting events.

Accounting events are transactions that can be measured in


monetary terms.
IDENTIFYING
Examples of accounting events:

• sale of products
• purchase of materials
• purchase of a company vehicle
• payment of dividends to stockholders
RECORDING

Recording is the process of committing to writing the accounting


events in a chronological sequence in accordance with
established accounting rules and procedures.
RECORDING
This phase involves journalizing transactions on the journal book
and posting the transactions on the ledger.
COMMUNICATING
Communicating refers to the process of preparing and
distributing financial reports to users of accounting information.

At the end of each accounting period, the accountant


summarizes the information processed by the accounting
system and prepares accounting reports such as financial
statements. These reports are then distributed to interested
users.
COMMUNICATING
NATURE OF ACCOUNTING
"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 decisions, in making reasoned choices among
alternative courses of action." (AICPA)

“Accounting is the process of identifying, recording, and


communicating the economic events of an organization to
interested users.” (Weygandt, J. et. al)
NATURE OF ACCOUNTING
1. Accounting is a service activity. It provides assistance
to users by providing them with relevant financial reports that
they can use as bases for making sound decisions.

2. Accounting is a process. It performs the specific task of


collecting, processing, and communicating financial information
by following sequential steps such as analyzing transactions,
recording, classifying, summarizing, finalizing, and reporting
financial data.
NATURE OF ACCOUNTING
3. Accounting is an art and a discipline.

Accounting is an art because it demands creative judgment and


skills.

It is also a discipline because it follows certain standards and


professional ethics.
NATURE OF ACCOUNTING
4. Accounting deals with financial information and
transactions. Accounting is concerned with the financial
aspects of business transactions and only recognizes events
that are quantifiable in monetary terms.
5. Accounting is an information system. It collects, stores,
processes, and communicates financial information for use by
internal and external users.
FUNCTION OF ACCOUNTING IN BUSINESS
“Accounting is the language of business.”

Accounting is considered as the language of business because it


is the means by which business information is communicated to
business owners and stakeholders.
FUNCTION OF ACCOUNTING IN BUSINESS
The function of accounting in business can be summarized as
follows:

1. It provides internal users with information that is useful in


managing the business.

2. It provides external users with information that is useful in


making investment and credit decisions.
HISTORY OF ACCOUNTING
Accounting is as old as civilization itself. It has evolved in
response to various social and economic needs of men.

Accounting started as a simple recording of repetitive exchanges.


The history of accounting is often seen as indistinguishable from
the history of finance and business.

The following slides will show the evolution of accounting.


HISTORY OF ACCOUNTING
The Cradle of Civilization

Around 3600 B.C., record-keeping was already commonfrom


Mesopotamia, China and India toCentral and South America. The
oldest evidence of this practice was the “clay tablet” of
Mesopotamia which dealt with commercial transactions at the
time such as listing of accounts receivable and accounts payable.
HISTORY OF ACCOUNTING
14th Century - Double-Entry

The most important event in accounting history is generally considered to be


the dissemination of double entry bookkeeping by Luca Pacioli (‘The Father
of Accounting’) in 14th century Italy. Pacioli was much revered in his day,
and was a friend and contemporary of Leonardo da Vinci.
HISTORY OF ACCOUNTING
14th Century - Double-Entry

The Italians of the 14th to 16th centuries are


widely acknowledged as the fathers of
modern accounting and were the first to
commonly use Arabic numerals, rather than
Roman, for tracking business accounts.

Luca Pacioli wrote Summa de Arithmetica,


the first book published that contained a
detailed chapter on double-entry
bookkeeping.
HISTORY OF ACCOUNTING
French Revolution (1700s)

The thorough study of accounting


and development of accounting
theory began during this period.
Social upheavals affecting
government, finances, laws,
customs and business had
greatly influenced the
development of accounting.
HISTORY OF ACCOUNTING
The Industrial Revolution (1760-1830)

Mass production and the great importance of fixed assets were


given attention during this period.
HISTORY OF ACCOUNTING
19th Century – The Beginnings of Modern Accounting in
Europe and America

The modern, formal accounting profession emerged in Scotland in 1854


when Queen Victoria granted a Royal Charter to the Institute of
Accountants in Glasgow, creating the profession of the Chartered
Accountant (CA).

In the late 1800s, chartered accountants from Scotland and Britain came to
the U.S. to audit British investments. Some of these accountants stayed in
the U.S., setting up accounting practices and becoming the founders of
several U.S. accounting firms.
HISTORY OF ACCOUNTING
19th Century – The Beginnings of Modern Accounting in
Europe and America

The first national U.S. accounting society was set up in 1887. The
American Association of Public Accountants was the forerunner to the
current American Institute of Certified Public Accountants (AICPA).

In this period rapid changes in accounting practice and reports were made.
Accounting standards to be observed by accounting professionals were
promulgated.
HISTORY OF ACCOUNTING
19th Century – The Beginnings of Modern Accounting in
Europe and America

Notable practices such as mergers, acquisitions and growth of


multinational corporations were developed. A merger is when one company
takes over all the operations of another business entity resulting in the
dissolution of another business. Businesses expanded by acquiring other
companies. These types of transactions have challenged accounting
professionals to develop new standards that will address accounting issues
related to these business combinations.
HISTORY OF ACCOUNTING
The Present - The Development of Modern Accounting
Standards and Commerce

The accounting profession in the 20th century developed around state


requirements for financial statement audits. Beyond the industry’s self-
regulation, the government also sets accounting standards, through laws
and agencies such as the Securities and Exchange Commission (SEC).

As economies worldwide continued to globalize, accounting regulatory


bodies required accounting practitioners to observe International
Accounting Standards. This is to assure transparency and reliability, and to
obtain greater confidence on accounting information used by global
investors.
HISTORY OF ACCOUNTING
The Present - The Development of Modern Accounting
Standards and Commerce

Nowadays, investors seek investment opportunities all over the world. To


remain competitive, businesses everywhere feel the need to operate
globally. The trend now for accounting professionals is to observe one
single set of global accounting standards in order to have greater
transparency and comparability of financial data across borders.

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