ACCOUNTING

• IS THE SYSTEMATIC PROCESS OF MEASURING AND

REPORTING RELEVANT FINANCIAL INFORMATION ABOUT THE
ACTIVITIES OF AN ECONOMIC ORGANIZATION OR UNIT.
• IT UNDERLYING PURPOSE IS TO PROVIDE FINANCIAL INFORMATION
• IT IS CAPABLE OF BEING EXPRESSED IN MONETARY TERMS

THE PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

(PICPA) defines accounting as a service activity. Its function is to provide
quantitative information, primarily fianncial in nature, about economic entities,
that is intended to be useful in making economic decisions.
NATURE OF ACCOUNTING
1. Accounting is a systematic process.
Process is a series of actions that produce something or that lead
to a particular result. The performance of the four aspects of accounting leads
to communicating to its users the relevant financial information needed by the
parties interested.
2. Accounting is an art.
Art is a skill acquired by experience, study or observation. It is
also defined as an occupation requiring knowledge or skill. The four aspects of
accounting require both knowledge and skill through experience, study,
observation as a means to produce the key end product which are the financial
reports.
 3. Accounting is a service activity.
Service is the occupation or function of serving. Activity
is something that is done to work or for a particular purpose.
Combining the meaning of two words, accounting is a work or
occupation for serving a particular purpose. Hence, since its
purpose is to provide financial information, the data that it will
process in terms of the four aspects of accounting should expressed
in monetary terms. In short, it is interested in activities that can be
measured and expressed in terms of the value of money.
FOUR ASPECTS OF ACCOUNTING

1. RECORDING - writing down of business transactions chronologically in

the books of account as they transpire.
2. CLASSIFYING - sorting similar and related business transactions into
the three categories of assets, liabilities and owner's equity.
3. 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.
4. INTERPRETING - representing the qualititative and quantitative financial
information about the business transactions in a language comprehensible to
the users of financial statements. By interpreting the data in the financial
staements, users are able to determine the financijal standing of the company
as well as its stability and growth potential.
THE BASIC FUNCTION OF ACCOUNTING IN BUSINESS

The aspects of accounting can be summed up to one basic

function which is the generation of relevant and timely financial
information for interested parties. The data provided by
accounants can assist investors, government agencies, creditors,
and management in making sound decisions. The financial
information provided about the activities of an economic
organizations makes it easily comprehensible for users to assess its
financial position as of a given time and results of operations for a
given period. This qualitative and quantitative financial data used by
users relating to specific business decisions makes accounting the
language of business
HISTORY OF ACCOUNTING

Accounting has a long history. Some scholars claim that

writing arose in order to record accounting information. Accounts
records date back to the ancient civilizations (Circa 4000 BC) of
china, Babylonia, Greece, Egypt and Mesopotamia. The rulers of
these civilization used accounting to keep track of the cost of labor
and materials used in building structures like the great pyramids.
(Horngren, Harrison, and Robinson, 1995).
ANCIENT ACCOUNTING IN EGYPT, MOSOPOTAMIA, GREECE AND ROME

The history of accounting dates

back to ancient times. The abacus
which functioned as a calculator in the
ancient times, was developed by the
Sumerians in 5,000 BCE followed by
the papyrus which was developed by
ancient Egyptians in 4,000 BCE. The
papyrus not only allowed recording of
commercial transcations but also the
transcriptions of religious text, music,
literature, and more.
 In Egypt, clay tablets considered to be
among the oldest written tax accounting
records. In the tomb of King Scorpion I in
Egypt, he discovered old stone labels
believed to date back to 3,000 BCE or around
5,300 years ago. These old stone labels
were complete with marks representing
accounts of oil and linens which were
believed to be paid to the king as taxes.
Mesopotamia had clay tokens and
clay tablets to record their loans, herds,
crops, and systems of trade. The scribes who
performed extensive duties in writing and
recording in the Mesopotamian civilization are
the equivalent of present-day accountants.
 The Greeks also made significant
contributions to the development of accounting. In
600 BCE, they introduced money in the form of
coins. They adopted the Phoenician writing system
and invented Greek alphabet which they used to
facilitate record-keeping.

The Romans introduced the use of annual

budget which coordinated estimated revenues and
taxes paid by the citizen in relation to the nation's
expenditures. A cash book was maintained by
households in their expenses.

In England, the Pipe roll or the Great Roll of

the Exchequer is the most ancient surviving
accounting record in English language. This contains
they yearly accounting rents, fines, and taxes due to
the King of England, from 1130 to 1830.
14th CENTURY - THE BIRTH OF DOUBLE-ENTRY BOOKKEEPING
Accounting developed as a result of information needs
of merchants in the city-states of Italy during the 1400s.
During the 14th century, Luca Pacioli of Italy, a
mathematician and friend of Leonardo da Vinci, published
the first known description of double-entry bookkeeping
entitled Summa de Arithmetica, published in Venice in
November 1494. This book contained primarily principles of
mathematics and incidentally set of accounting procedures.
Luca Pacioli is also considered the “Father of Accounting”.
 The pace of accounting development increased during the
Industrial Revolution (1760-1840) as the economics of developed
countries began to mass-produce goods. Until the time,
merchandise was priced based on manager’s hunches about cost
but increased competition required merchants to adopt more
sophisticated accounting system.
During the early 20th century, the growth of corporations,
especially those in the railroad and steel industries, spurred the
development of accounting. Corporate owners were no longer
necessarily the managers of their business. Managers had to
create accounting system to report to the owners how well their
business were doing.
 Government played a role in leading more
development in the field of accounting when it stated using
the income tax. Accounting supplied the concept of
“income”. Also, government at all levels has assumed
expanded roles in health, education, labor and economics
planning. To ensure that the information that it uses to
make decision is reliable, the government the required strict
accountability in the business community.
The Information Age
At the beginning of the third millennium, there would still be a lot of
developments in the field of accounting. The great challenge of globalization
known as the information age, other known as the Computer Age, Digital Age,
or New Media Age, has brought about a significant change in the work load 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.
More and better information are now being required and therefore,
accounting, being used in communicating business and financial information
must also evolve into a more efficient level.