FABM LESSON 1 – INTRODUCTION TO ACCOUNTING

INTRODUCTION TO ACCOUNTING
ACCOUNTING
- An art of recording, classifying, and summarizing in a significant manner and in terms of
money, transaction, and events which are in part at lease of a financial character, and
interpreting the result thereof (AICPA)
- A service activity to provide quantitative information, primarily financial in nature, about
economic entities, that is intended to be useful in making economic decisions (PICPA)

NATURE OF ACCOUNTING
- Accounting is a process
- Accounting is an art
- Accounting is a service activity

FOUR ASPECTS OF ACCOUNTING

RECORDING - Writing down of business transactions chronologically in the books of account as
they transpire.
CLASSIFYING – Sorting similar and related business transactions into the three categories of
assets, liabilities, and owner’s equity.

SUMMARIZING – Preparing the financial statements from the transactions recorded in the
books of account that are designed to meet the information needs of its users.

INTERPRETING – Representing the qualitative and quantitative financial information about the
business transactions in a language comprehensible to the users of financial statements.

HISTORY OF ACCOUNTING
 ANCIENT EGYPT, MESOPOTAMIA, GREEK, ROME, AND ENGLAND

SUMERIANS

- Developed abacus which functioned as a calculator in ancient times.

EGYPT

- Egyptians created papyrus which they used not only in recording commercial
transactions but also the transcription of religious text, music, literature, and more.
- Dr. Gunter Dreyer, an archaeologist, unearthed clay tablets considered to be among the
oldest written tax accounting records.
- Dr. Gunter Dreyer also discovered in the tomb of King Scorpion I old stone labels
complete with marks representing accounts of oil and linens which were believed to be
paid to the king as taxes.

MESOPOTAMIA

- They had clay tokens and tablets to record their loans, herds, crops, and system of
trade.
- Scribes who performed extensive duties in writing and recording in the Mesopotamian
civilization are equivalent of present-day accountants.

GREEK

- They introduced money in the form of coins

- They also adopted the Phoenician writing system and invented a Greek alphabet which
they used to facilitate record-keeping.
- Greeks offered credit and helped people transfer funds to banks in other cities through
the use of banker’s books of account

ROME

- Romans introduced the use of an annual budget which coordinated estimated revenues
and taxes paid by the citizen in relation to the nation’s expenditure.
- A cash book is used by households for their expenses.

ENGLAND

- Domesday Book contained all the real estate surveyed by William the Conqueror and
the taxes due to them.
- Pipe Roll or the Great Roll of Exchequer is the most ancient surviving accounting record
in the English language which contains yearly accounting of rents, fines, and taxed due
to the King of England from year 1130 to 1830.
 14TH CENTURY

LUCA PACIOLI OF ITALY – FATHER OF ACCOUNTING

- Luca Pacioli of Italy, also known as Friar Luca dal Borgo, a mathematician, friend, and
contemporary of Leonardo da Vinci and considered the “Father of Accounting”
- He wrote the book “Summa de Arithmetica, Geometria, Proportioni et Proportionalista
(Everything about Arithmetic, Geometry, and Proportion)
 De computis et Scripturis (Of Reconings and Writings) – a section of the book
composed of 36 short chapters that describe bookkeeping.

BENEDETTO COTRUGLI

- Benedetto Cotrugli wrote the manuscript, Della Mercatura et del Mercante Perfetto (Of
Trading and The Perfect Trader) which contains a brief description of the double entry
of bookkeeping

19TH CENTURY

INDUSTRIAL REVOLUTION

- In England, the Industrial Revolution is the era that replaced hand tools with the
machine or power tools, otherwise known as the factory system, emerged and
transformed accounting into an actual profession.
- In Scotland, Queen Victoria granted a royal charter to the Institute of Accountings
thereby creating the profession Chartered Accountant (CA), thus, making accounting a
formal profession.

AMERICAN ASSOCIATION OF PUBLIC ACCOUNTANTS

- The first national US accounting society which provided form certification process for
accountants. They were the predecessor of the present American Institute of Certified
Public Accountants (AICPA)

20th CENTURY
AMERICAN INSTITURE OF CERTIFIED PUBLIC ACCOUNTATNS (AICPA)
- Was formed in the young but prosperous nation of the United States.
SECURITIES AND EXCHANGE COMMISSION (SEC)
- Because of economic depression, Securities and Exchange Commission (SEC) was
formed to monitor the conditions of the companies in the United States.
- All publicly-traded companies are required to submit periodic reports vouched by
certified public accounts before registration with SEC and selling their securities to the
public.
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)
- Established in 1973 and was tasked to set the accounting and auditing standards for
reports to be filed with SEC
- They are the result for the demand for more reliable and comparable financial reporting
required by Congress and SEC
- Financial Accounting Standards Board (FASB) and Governmental Accounting Standards
Board (GASB) are significant authorities establishing the generally accepted accounting
principles (GAAP) in the United States.

INFORMATION AGE
INFORMATION AGE
- Also known as the Computer Age, Digital Age, or New Media Age which brought a
significant change in the workload of accountants.
- Manual, tedious, and time-consuming tasks were replaced by faster and more accurate
computer methods.
- Transactions can be consummated online with the help of the internet.
- Various software applications in accounting were developed to expedite procedures and
accommodate the numerous needs and demands of the different businesses.

21st CENTURY
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)
- Was established as a replacement of International Accounting Standards Committee in
January 2001

ENRON SCANDAL
- The greatest corporate fraud case recorded in the American history, caused by Arthur
Andersen, one of the top audit firms in the United States.
SABARNES-OXLEY ACT
- Is a law passed by US Congress to protect investors from corporate misinformation
which imposed stricter restrictions on accountants conducting consultancy services.
DODD-FRANK ACT
- Due to the Great Recession, Dodd-Frank Act was created as a federal law on July 21,
2010 which contains sixteen major areas of reform.
 Financial stability
 Orderly liquidation authority
 Transfer of powers to the Comptroller
 FDIC and the Fed
 Regulation of advisors to Hedge fund others
 Insurance
 Improvements to regulation
 Wall Street transparency and accountability
 Payment, clearing and settlement supervision
 Bureau of consumer financial protection
 Federal system reserve provisions
 Improving access to mainstream financial institutions
 Pay it back act
 Mortgage reform
 Anti-predatory lending act
INTERNATIONAL ACCOUNTING STANDARDS (IAS) and INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS)
- Philippines have adopted the International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS) in order to support comparability and
understandability of financial statements across the globe,