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1 Introduction to Accounting 1

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1 Introduction to Accounting 1

Uploaded by

Elyssa May Balladares
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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INTRODUCTION TO

ACCOUNTING
By: Vince Joel P. Olmoguez, CPA
FREQUENTLY ASKED QUESTIONS ABOUT ACCOUNTING?

1. When . . . . . did Accounting originate?

2. What . . . . . is the meaning of Accounting?

3. Why . . . . . do we study Accounting?

4. Where . . . . . can we work after studying Accounting?


When did Accounting originate?
Accounting can be traced back as far back as the prehistoric
times. Since the dawn of civilization when mankind began to engage
in trade more than 10,000 years ago.

Drawingon taka badi,


Gamay raman ako
dyis lang.
wawarts badi, pwede
hangyo nga baynti
nalang?
As early as 8500 B.C., accounting already existed in Mesopotamia.
Other ancient civilizations keeping account records are Babylonia (4500
B.C.), Egypt (2250 B.C.), China and Greece.

In middle ages (13th to 15th centuries), trade flourished in places such


as Florence, Venice and Genoa. One of the accounting system was kept by a
Florentine banker. However the system at that time was primitive as the
concept of equality for entries was absent.

Double entry records only first came out during the 1340 A.D. in Genoa.
In 1494, the first systematic
record keeping dealing with the “double
entry recording system” was formulated
by Fra Luca Bartolomeo de Pacioli,
also known as the father of modern
accounting.

Luca was born between 1446 and


1448 in the Tuscan town in Sansepolcro,
now Italy. He collaborated with
Leonardo da Vinci in the field of
mathematics in his time in the Court of
Ludovico Sforza in Milan.
Luca Pacioli is called the “father
of accounting” because he wrote the
first book that described double-entry
accounting processes. These still form
the basis of accounting methods used
today.

The book is titled, “Summa de


arithmetica, geometria, proportioni
et proportionalita”, translated as
(Summary of arithmetic, geometry,
proportions and proportionality)

Luca Pacioli is one of the unsung heroes in the Italian Renaissance period.
What is the meaning of Accounting?
Accounting is a process of identifying, recording, and communicating
economic information that is useful in making economic decisions.

IDENTIFYING RECORDING COMMUNICATING


Essential Elements of the Definition of Accounting

A. Identifying – Accountant analyzes each business transaction and identifies


whether the transaction is an “accountable event” or “non-accountable event”.

Only accountable events are recorded in the book of accounts. Non-


accountable events such as sociological and psychological events are not
recorded.

An event is deemed accountable if it affects the assets, liabilities, equity,


income and expenses of the business.
Essential Elements of the Definition of Accounting

B. Recording – Accountant recognizes the “accountable events”. This process


of recognizing is called journalizing.

After journalizing, the accountant then classifies the effects of the events on the
accounts. This process of classifying is called posting (to the ledger).
Essential Elements of the Definition of Accounting

C. Communicating – Accountant summarizes the processed information in


order to produce meaningful reports. This is important because processed
information useless unless communicated to users.

How to communicate?
Through financial statements, the most common form of communication.
Why do we study Accounting?
Accounting is a process with the basic purpose of providing
information about economic activities intended to be useful in making
economic business decisions.
Accounting is often referred to as
a “language of business” (According to
Warren Buffet) because it is fundamental
to the communication of financial
information. However, information
provided by accounting is not only
limited to financial information.
TYPES OF INFORMATION PROVIDED BY ACCOUNTING
1. Quantitative information – information expressed in numbers, quantities or
units.
2. Qualitative information – information expressed in words, or descriptive
form. Qualitative information is found in the
notes to financial statements as well as on the
face of other components of the financial
statements.
3. Financial information – information expressed in money. Financial
information is also quantitative information
because monetary amounts are normally
expressed in numbers.
Where can we work after studying Accounting?
The field of accounting has a vast variety of specializations which
accountants can choose from. The following are the different branches of
accounting practices:

FINANCIAL GOVERNMENT TAX ACCOUNTING


ACCOUNTING ACCOUNTING ACCOUNTING EDUCATION

MANAGEMENT ACCOUNTING COST


AUDITING
ACCOUTING RESEARCH ACCOUNTING
COMMON BRANCHES OF ACCOUNTING PRACTICES
Financial Accounting – It is the branch of accounting that focuses on general
purpose financial statements. General purpose financial statements are those
that cater to the common needs of a wide range of external users.

Management Accounting – Involves the accumulation and communication of


information for use by internal users. An offshoot of management accounting is
management advisory services.

Government Accounting – Refers to the accounting for the Government and its
instrumentalities, focusing attention on the custody of public funds, the purpose
for those funds, and the responsibility of accountability of those trusted with it.
Auditing – Involves the inspection of an entity’s financial statement or business
processes to ascertain their correspondence with an established criteria.

Tax Accounting – Is the preparation of tax returns and rendering tax advises.

Cost Accounting – Involves the analysis of costs incident to the production of


goods or rendering of services

Accounting Education – Refers to the teaching accounting and accounting-


related subjects in an organized learning environment.

Accounting Research – Pertains to the careful analysis of economic events and


other variables to understand their impact on decisions. It may involve other
branches of accounting, the economy as a whole, or the market environment.
As discussed in the definition of accounting, it involves the communication of
accounting information. The question now is to whom? To whom do we communicate the
reports?

Users of Financial
Statements

Internal Users External Users


Internal Users
Internal users are those that are directly involved in managing the business.

BOARD OF
BUSINESS OWNER MANAGER
DIRECTORS
External Users
External users are those that do not have the authority to demand financial
reports tailored to their specific needs. These are those who are not directly
involved in managing the business.

EXISTING AND
POTENTIAL GOVERNMENT CUSTOMERS
INVESTORS AGENCIES

NON-MANAGERIAL
LENDERS PUBLIC
EMPLOYEE
The End.

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