Lesson 1

INTRODUCTION
toACCOUNTING
 LEARNING OBJECTIVES

define accounting;
describe the nature of accounting;

explain the function of accounting;

 narrate the origin/history of accounting
LESSON 1: INTRODUCTION TO
ACCOUNTING
DEFINITION

NATURE

FUNCTIONS

ORIGIN/HISTORY
 do y
o ur p
ho w a re n
a ll o w
yo u
sp e n
ts a s
k yes
ance d yo
e ve r ur
y da no
y?
 When deciding between
Do you compare the buying a bottle of soft drinks
prices of both and or fruit juice, what is the basis
then decide? of your decision?
Is accounting
important to
you?
 DEFINITION
OF
ACCOUNTING
 Definition of Accounting
is the process of
IDENTIFYING,RECORDING,
COMMUNICATING economic
information to permit informed judgement
and decisions by users
of the information.
AAA
 Definition of Accounting
IDENTIFYING
this involves selecting
economic events that are
relevant to a particular business transaction

EXAMPLE:
Computer shop- purchase of ink
AAA
 Definition of Accounting
RECORDING
this involves keeping
chronological diary of
events that are measured in pesos. These
are the journals and ledgers.

AAA
 Definition of Accounting

occurs through the

COMMUNICATING
preparation and distribution of
financial and other accounting reports.

AAA
 Definition of Accounting
AICPA
the art of RECORDING
CLASSIFYING, and SUMMARIZING
in a significant manner and in terms of money,
transactions and events which are part at least of
financial character, and interpreting the result thereof.
 Definition of Accounting
CLASSIFYING
refers to the identifying and

separating accounts into different

categories. This is necessary so the rule
of debit and credit can
be correctly applied.
AAA
 Definition of Accounting
SUMMARIZING
this is the process
of presenting all the final value of all
classified accounts into a separate
statement

AAA
 Definition of Accounting
see as 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.

ASC
 NATURE
OF
ACCOUNTING
 Nature of Accounting

ART DISCIPLINE PROCESS

INFORMATI SERVICE
ON
ACTIVITY
SYTEM
 Nature of Accounting
 Accounting is the art of recording, classifying,
summarizing and
ART finalizing financial data.
PROCESS
DISCIPLINE
 It is behavioral knowledge involving
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refers to the a certain creativity and skill to

way help us attain some specific
something is objectives.
performed  INFORMATI
Accounting is a systematic method
SERVICEconsisting of defin
techniques
ON ACTIVITY requires skill an
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and its proper applicationconsectetur

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SYTEM
expertise.
 Nature of Accounting

DISCIPLINE
 it follows certain
PROCESS
DISCIPLINE
standards, and
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professional ethics.
SERVICE
INFORMATI
ON
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SYTEM
 Nature of Accounting
 Accounting is identified as a process, as it
performs the specific task of collecting,
PROCESS processing andPROCESS
communicating financial
DISCIPLINE
refers to the information.
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method of
performing any  In doing so, it follows some definite steps like the
specific job step by
step according to
collection, recording, classification,
the objectives or summarization, finalization, and reporting of
targets. SERVICE
financial
INFORMATI
ON
data. ACTIVITY
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SYTEM
 Nature of Accounting
 Information system is a set of interrelated
INFORMATIO
components that work together to achieve a
PROCESS
N common purpose. DISCIPLINE
SYTEM
 It also serve as repository of collected
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financial statement.
 Accounting is recognized and characterized as
a storehouse
INFORMATI
of information.
SERVICE
ON
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SYTEM
 Nature of Accounting
 As a service function, it collects processes and
communicates financial information of any entity. This
SERVICE discipline of knowledge
PROCESS has evolved to meet the need
ACTIVITY DISCIPLINE
for financial information as required by various
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interested groups.
 For entrepreneurs, managers, stakeholders- accounting
is concerned with providing the service in ensuring that
financial statement are made available for users on
SERVICE
timely basis.
INFORMATI
ACTIVITY
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 Functions of Accounting

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To fulfill the stewardship
function of the
management/ owners
 Functions of Accounting

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To help interested users
come up with informed
decisions;
 Functions of Accounting

f
To support daily
operations of the
business.
 Functions of Accounting

f
In addition, accounting information
allows business owners to assess the
efficiency and effectiveness of their
business operations.
 Functions of Accounting

f
 Business owners may also use
historical financial
accounting statements
to create trends for
analyzing and forecasting
future sales.
 Functions of Accounting

f
Accounting helps the users
of these financial reports to
see the true picture of the
business in financial terms.
 Functions of Accounting

f
 Mr. Juan is a retired government employee who is
good at baking.
 One day he decides to put up a bakery shop in their
barangay.
 He renovates a portion of his house to serve as the
area for the production of bread. He purchases
baking equipment and raw materials to produce five
different types of bread.
 Functions of Accounting

f
 Mr. Juan also hires Jose to help him with the
baking and, at the same time, to be in-charge of
sales.
 Mr. Juan pays Jose on a weekly basis. Every
day, Mr. Juan’s wife deposits the daily cash sales
in their bank account at XY Savings Bank
 Functions of Accounting

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With the help of accounting, what
possible decisions or questions of
Mr. Juan can accounting provide
an answer to?
Functions of Accounting

f
Possible
Answers
Functions of Accounting

f
Is my business
earning?
(profitability)
Functions of Accounting

f
How much daily or
monthly sales do I need
in order to recover my
fixed cost? (break-
even)
Functions of Accounting

f
Can I afford to set
up a new store in
another place?
Functions of Accounting

f
Can I afford to
pay a bank
loan?
 HISTORY
OF
ACCOUNTING
 History of Accounting

f
The Cradle of Civilization
 Around 3600 B.C., record-keeping was
already common from Mesopotamia, and
India to Central and South America.
 History of Accounting

f
The Cradle of Civilization
 Around 2500 B.C., historical accounting
records have been found in ancient
civilization of Egypt & China by rulers for
taxing and spending on public works.
 History of Accounting

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The Cradle of Civilization
 1000 B.C., the Phoenician created an
alphabet with accounting used in trading
with the Egyptians.
 History of Accounting

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The Cradle of Civilization
 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

f
The Cradle of Civilization
 500 B.C. Egyptians carried out on with
accounting records and even invented the first
bead and wire abacus.
 History of Accounting

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The Cradle of Civilization
 423 B.C. Auditing profession was born to double
check storehouses as to what come in and goes
out.
 History of Accounting

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The Cradle of Civilization
 45 B.C. to 23 of Xin Dynasty Emperor Wang
Mang instituted the first known income tax at
a flat rate of 10%.
 History of Accounting

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14th Century-Double-Entry Bookkeeping
 In 1327, early books from the commune of Genoa
displayed an early form of bookkeeping. The oldest
double-entry books entitled “Massari” (Treasury
officials)Ledgers of Commune of Genoa. In todays
accounting system, this is simplified into the T-account
and expanded into Ledger.
 History of Accounting

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14th Century-Double-Entry Bookkeeping
 The most important event in accounting history
is generally considered to be the dissemination
of double entry bookkeeping
 History of Accounting

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14th Century-Double-Entry Bookkeeping
 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.
 History of Accounting

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14th Century-Double-Entry Bookkeeping
 Luca Pacioli-‘The Father of Accounting’
during the Renaissance period on the 14th
century Italy.
 History of Accounting

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14th Century-Double-Entry Bookkeeping
 Summa de Arithmetica, Geometria, Proportionni
et Proportionalita (Everything About Arithmetic,
Geometry, Proportion & Proportionality, the first
book published that contained a detailed chapter on
double-entry bookkeeping.
 History of Accounting

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17th Century
 East India Company developed invested
capital and dividend distribution. This
created the need for a change in financial
and managerial accounting.
 History of Accounting

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1673
 Commercial Code of France by Jacques
Savary used historical cost as the basis for
valuation.
 History of Accounting

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French Revolution (1700s)

 Social upheavals affecting government,

finances, laws, customs and business
had greatly influenced the development
of accounting.
 History of Accounting

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The Industrial Revolution
 Mass production and the great
importance of fixed assets were given
attention during this period.
 History of Accounting

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The Industrial Revolution
 The first accounting organization was
developed in New York in 1887
 History of Accounting

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The Industrial Revolution
 Napoleon Bonaparte, in his Commercial
Code (1804)and its supplement Code of
Commerce of France (1807)asserted that
assets must be carried at their market value
and not based on historical cost.
 History of Accounting

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The Industrial Revolution
 Eugene Schmalenbach, utilize price
label accounting as the basis of
valuation.
 History of Accounting

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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).
 History of Accounting

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19th Century – The Beginnings of Modern
Accounting in Europe and America
 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 origins of several
U.S. accounting firms.
 History of Accounting

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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).
 History of Accounting

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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.
 History of Accounting

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The Present - The Development of Modern Accounting
Standards and Commerce
 Beyond the industry's self-regulation, the government
also sets accounting standards, through laws and
agencies such as the Securities and Exchange
Commission (SEC) and Bureau of Internal Revenue .
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
 1913- The first Income Tax in the Philippines was
enacted.
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
 1923- The first Accountancy Law (Republic Act
No. 3105) in the Philippines was passed, which
created the Board of Accountancy.
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
 1967- The Accountancy Law in the Philippines was
revised and passed under Republic Act 5166 which
standardized the accounting education and regulated
accountancy practices and examination process of CPA
regulation.
 History of Accounting

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The Present - The Development of Modern Accounting
Standards and Commerce
 1973- The International Accounting Standard
Committee (IASC) was created through an agreement
by professional accountancy bodies from Australia,
Canada, France, Germany, Japan, Mexico, The United
Kingdom.
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
 1975- The Accountancy Law in the Philippines
was revised and passed under the Presidential
Decree No. 692.
 History of Accounting

f
The Present - The Development of Modern
Accounting Standards and Commerce
 1981- The Philippine Institute of Certified Public
Accountants (PICPA) created the Accounting
Standards Council (ASC) to establish and improve
accounting standards in the Philippines.
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
 1997- The Philippine started transitioning
from applying American Accounting
Standards to applying IAS.
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
 2001- The International Accounting
Standards Board (IASB) succeeded the IASC
and moving forward, all standards were
designated as Financial Reporting Standards
(IFRS).
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
 2004- The PRC created the Financial
Reporting Standard Council (FRSC), which
replaced the ASC.
 History of Accounting

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The Present - The Development of Modern
Accounting Standards and Commerce
2005- Philippines become fully
compliant with IFRS
 History of Accounting

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The Present - The Development of Modern Accounting
Standards and Commerce
 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

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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.
 History of Accounting

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The Present - The Development of Modern Accounting
Standards and Commerce
 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.
Thank you!!!!!