Fundamentals of Accountancy,

Business and Management 01

OVERVIEW
• Accounting is known as the backbone of the business, commerce and
financial world.
• Accounting provides information that helps people in business
increase their chances of making decisions that will benefit their
companies.
• Accounting is the language of business, and like other languages, it
has its own terms and rules.
• Accounting is the conscious of the business world. When handled
with care and with respect, it performs as expected. When abuse
occurs, and the system is circumvented or overridden because of
dishonesty and greed, it doesn’t work correctly
INTRODUCTION TO
ACCOUNTING
Lesson 01
 HISTORY

• Accounting is considered one of the oldest profession.

• Earliest Accounting was found as early as 2000 BC in the cities of
Babylonia, Greece, Egypt and 3500 BC in Assyria. It consisted then
of records of taxes imposed by the kings and collected from the
people by their tax collectors as well as records of materials, labor,
and overhead which the pharaoh required when the pyramids
were being constructed in Egypt.
• Babylonia was known as the city of commerce. Accounts were
used for business to uncover losses due to fraud and to uncover
losses due to inefficiency.
• In the ancient Egypt, the accountant was called as “eye and ear”
of the king. Archeologist Dr. Gunter Dreyer of the German Institute
of Archeology discovered that the numerous inscribed bone labels
attached to bags of oil and linen in the tomb of king scorpion,
Egypt-date back 5300 year.
• In ancient Mesopotamia, 8500 B.C. Accounting token made of clay, from Susa
– this is represented a huge cognitive leap of mankind.

• In ancient Rome, government and banking accounts grew out of records keep
by the heads of the families. They also used memorandum or day book
(adversaria) to record receipts and payments and posted to ledgers or cash
books (codex acepti et expensi) on monthly basis (700BC-400BC). By the time
of the Emperor Augustus, the Roman government had access to detailed
financial information.

• In India, Chanakya wrote a manuscript similar to a financial management

book, during the time of Mauryan Empire. His book “Arthashasthra” contains
few detailed aspects of maintaining books of accounts for a Sovereign State.
• The Italian Luca Pacioli, A Franciscan monk and mathematician. recognized as
the father of accounting and bookkeeping was the first person to publish a
work on double-entry bookkeeping, and introduced the field in Venice, Italy in
1494.
• In Summa de Arithmetica, Pacioli introduced symbols of plus and minus, a symbols
which became standard notation in Italian Renaissance mathematics also known as
Algebra.
• In 15th century, the Italian mathematician usually entrusted their properties to their
servants or employees who were required to keep track of their daily activities by
listing down what properties (assets) are owned by the merchants and what debts
(liabilities) are owed to others.
• From their records came the term debtor and creditor. Debtor is one who lends
money or buy goods or services with a promise to pay at a future date. Creditor is one
who lends money or sells services or goods to be collected in the future.
• In 19th century, the massive development of trade and industry and the simple
structure of a business changed to a more complex one with the formation of
business combinations, mergers and consolidations.
• It became necessary to improve the process of recording and reporting financial
information. And with the advent of the information age driven by electronic devices
such as the computer, the design for processing information turned manual to
electronically assisted.
BASIC PRINCIPLES
GOVERNING
ACCOUNTING

Lesson 2
• Accounting - is a process of identifying, recording and communicating
economic information useful in making economic decisions.
Essential elements of the definition of
accounting
• Identifying – the accountant analyzes each business transaction and
identifies whether the transaction is an “accountable event” or “non-
accountable event. ” This is because only “accountable events” are
recorded. Non accountable are not recorded in the book of accounts.

• Recording – the accountant recognizes (i.e. records) the identified

“accountable events.” This process called “journalizing.”
• After journalizing, the accountant then classifies the effects of the event on the
“accounts.” This process is called “posting.”
• “Account” is the basic storage of information in accounting, e.g., “cash,” “land,’
“sales,” etc.
• Communicating – at the end of each accounting period, the
accountant summarizes the information processed in the accounting
system in order to produce meaningful reports. This is important
because information processed in the accounting system is useless
unless it is communicated to interested users. Accounting information
is communicated to interested users through accounting reports, the
most common form of which is the financial statements.
 Nature of Accounting
Accounting is a process with the basic purpose of providing information
about economic activities that is intended to be useful in making economic
decisions
Types of information provided by accounting
• Quantitative information – information expressed in numbers,
quantities, or units.
• 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 the other components
of financial statements.
• Financial information – information expressed in money. Financial
information is also quantitative information because monetary
amounts are normally expressed in numbers.
• Accounting as a Service Activity

Accounting collects financial

information for the various users for
taking decisions and tackling business
issues. Accounting in itself cannot
create wealth though, if it produces
information which is useful to others,
it may assist in wealth creation and
maintenance.
• Accounting as a language of
business

Accounting is the language of

business. A proper use of accounting
makes a proper business. Without
accounting, the business will never
run as it is intended to be. It is a
useful tool that helps users form
decisions for the business to live long.
• Accounting as a Science and Art

• Accounting is a social science with a body of knowledge which has been

systematically gathered, classified, and organized. It is influenced by, and
interacts with, economic, social and political environments.
• Accounting is a practical art which requires the use of creative skill and
judgment.
• Accounting as a Profession

Accounting is very much a profession. A

profession is a career that involves the acquiring
of a specialized formal education before rendering
any service.
Accounting is a systematized body of knowledge
developed with the development of trade and
business over the past century. The accounting
education is being imparted to the examinees by
national and international recognized the bodies
like The Professional Regulations Commissions
(PRC), Philippine Institute of Certified Public
Account (PICPA), etc.
The candidate must pass a vigorous examination
in Accounting Theory, Accounting Practice,
Auditing and Business Law.
• Accounting as an Information System

Accounting identifies and measures

economic activities, processes
information into financial reports and
communicates these reports to
decision makers.
What are these economic activities?
1. Production – the process of converting economic resources into outputs of
goods and services that are intended to have greater utility than the required
inputs.
2. Exchange – the process of trading resources or obligations for other resources
or obligation.
3. Income distribution – the process of allocating rights to the use of output
among individuals and groups in society.
4. Consumption – the process of using the final output of the production process.
5. Investment – the process of using current inputs to increase the stock of
resources available for output as opposed to immediately consumable output.
6. Savings – the process by which individuals and groups set aside rights to
present consumption in exchange for rights to future consumption.
FUNCTIONS OF
ACCOUNTING
Accounting’s function is based in the American Standard Association’s
(AAA) definition of Accounting as:

“…the process of identifying, measuring, and communicating economic

information to permit informed judgments and decisions by users of
information.”

And is based in the American Institute of Certified Public Accountants

(AICPA) definition of Financial Accounting as:

“…the art of recording, classifying and summarizing in as significant

manner and in terms of money transactions and events which in part,
at least of a financial character, and interpreting the results thereof”.”
• By definition, Accounting is a process. It follows systematic methods. These methods
can be enumerated by their functions. And these functions are:

1. Identification. (Analytical function) The accounting process of recognition or non-

recognition of business activities as accountable events or whether has accounting
relevance. When is an event considered ACCOUNTABLE?
One event is considered accountable when it is quantifiable and has an effect on assets,
liabilities and equity. This is also known as economic activity, which is the subject matter
of accounting. Criteria for an Accountable event
It must affect a financial element of accounting (increasing or decreasing asset, liability
or equity)
It is a result of a past activity
Its cost can be measured reliably

2. Measurement. (Technical Function) The accounting process of assigning of peso

amounts or numbers to the economic transactions and events. The unit of measure of
accounting is money, expressed in prices.
3. Communication. (Formal Function) The accounting process of
preparing and distributing accounting reports to potential users of
accounting information and interpreting the significance of this
processed information. Implicit in the communication process are
recording, classifying and summarizing aspects of accounting.
Recording. the process of systematically committing to writing business
transactions and events after they have been identified and measured, in
books of account in a systematic and chronological manner according to
accounting rules.
Classifying. The grouping of similar and interrelated items into their
respective classes.
Summarizing. Putting together or expressing in condensed or brief form the
recorded and classified statements in financial statements.
Interpreting. Converting financial information into an open book that can be
explored in depth, giving crucial insights to users.
 Accounting vs.
Bookkeeping:
Bookkeeping is a part of accounting
and is concerned with the recording of
transactions which is often routine and
clerical in nature, whereas accounting
performs other functions as well, viz.,
measurement and communication,
besides recording.
Managing
a Business
Good management is the key to a business’ success. On the other hand,
mismanagement is, one way or another, the cause of every business’
failure.

Management , therefore, is no laughing matter. It cannot be taken

lightly. To be a good manager, one must equip himself or herself with
the right management tools – and one important management tool is
Accounting!

Management is a process of establishing common objectives,

coordinating efforts towards those objectives, and efficiently and
effectively utilizing available resources so as to achieve certain goals.
As a future business professional, you need to understand each
of the following major facets of a business:
• Finance – refers to how a business generates and manages its funds. Finance is responsible in
providing adequate resources needed for the other facets to function properly.

• Production – refers to how goods are produced or services are rendered. Production is
responsible for the quality of goods and services and the efficiency by which they are
produced or rendered.

• Marketing – refers to how goods or services are communicated to customers, responsible in

creating value for customers and building strong customer relationship.

• Accounting – provides a measure of how well the other facets of the business are performing.
Responsible in providing useful information that aids in making business decisions.
A successful business Manager sees the “big picture”