Fundamentals of Accountancy
Fundamentals of Accountancy
From simple recording of reports of taxes collected from the people, accounting had evolved
into a more complicated field in the 15th century when the double-entry system was introduced
by Fr. Luca Pacioli, Father of Accounting, in his book, to help Italian merchants in their trade
practice.
Notice that the invention of the double-entry system was intended to address the needs of
merchants engaged in trade business.
INTRODUCTION TO ACCOUNTING
Objectives:
- Define accounting
- Determine the functions of accounting in business
- Trace the origin of accounting
Petroff (1991) states that the basic accounting purpose is “to provide a means of recording,
reporting, summarizing, and interpreting economic data”. To realize this, it is imperative to
design an accounting system to be able to address the needs of users of accounting
information. With the accounting system in place, financial statements can be prepared and
analyzed. From these reports, decisions can be made.
DEFINITION OF ACCOUNTING
Recording is writing in the books of accounts in terms of value of the items purchased or
bought.
Classifying means identifying what type of account to record the items bought, whether it is an
asset, liability, capital, income or an expense account. In recording purchases on account, it is
considered a liability. Owner’s investment, on the other hand, is classified as capital account.
Summarizing means tallying all transactions incurred for a particular period for each type of
account such as assets, liabilities, capital accounts, etc.
Interpretation refers to analyzing of results based on the summary made. Results of operation
can either be net surplus or net loss.
ORIGINS OF ACCOUNTING
Accounting was found as early as 2000 BC in the cities of Babylonia, Greece, and Egypt and in
3500 BC, in Assyria. When pyramid was also being constructed in Egypt, the pharaoh required a
record of materials, labor and other overhead costs incurred in the construction.
Cotrugli in Naples wrote the first accounting book. Subsequently, in 1494, Fr. Luca Pacioli, an
Italian mathematician, wrote the book, Summa de Aritmetica, Geometria, Proportioni et
Proportionalita, which contained the modern-day double-entry system. Modern bookkeeping
system evolved from Pacioli’s “Model of Venice” which he developed to help Italian merchants
in their trade practice. This work had eraned him the title, “Father of Accounting”
In the 15th century, the corporate form of organization was conceived. During that time, in their
absence, Italian merchants entrusted their properties to their servants or employees, who in
turn, kept track of daily transactions by listing down what properties their masters owned and
what debts were owed to others. From their records came the debtor and creditor terms.
After the 16th century, with trading done in foreign ports, there emerged a profit and loss
system prepared after completing a particular voyage or trip.
The 19th century saw massive development of trade and industry. The simple business structure
evolved into a more complex one with business combinations, mergers and consolidations.
Simple bookkeeping thus turned into accounting. Manual accounting became automated using
devices such as computers.
In the Philippines, it was the Spaniards who introduced accounting. The bookkeeper then was
called tenedor de libro. Trade between Spain and the Philippines were active then and also
between China and the Philippines and other Asian countries.
It was during the American colonization that the first licensure examination for Certified Public
Accountants was given specifically in 1923, and in 1929, the professional association of
accountants was established (Manuel, 2014)
______________2. It refers to writing the value of the items purchased in the books of
accounts.
______________4. The country that is NOT included among the countries where accounting
originated as early as 2000 BC
______________5. The year when the first licensure examination for Certified Public
Accountants given in the Philippines.
______________6. The year when the association of Certified Public Accountant established in
the Philippines.