INTRODUCTION TO

ACCOUNTING

Definition, nature, function and history of accounting

Introduction

▪ Accounting is the system that measures business

activities, processes that information into reports
and communicates the results to decision-makers.
▪ Accounting is called the language of business - it
quantifies business communication
Definitions and Nature of Accounting

▪ Accounting is 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
▪ Accounting is an information system that measures,
processes and communicates financial information about an
economic entity.
▪ Accounting is the process of identifying, measuring and
communicating economic information to permit informed
judgments and decisions by users of the information.
▪ Accounting is the art of recording, classifying and
summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a
financial character, and interpreting the results thereof.
Functions and Phases of Accounting

▪ Business transactions are the economic activities of a

business. Recording these historical events is a significant
function of accounting.

Classifying
Interpreting
Measuring Recording and
/Analyzing
Summarizing
Output of the Accounting Cycle

▪ Accounting information system - generates output in

the form of financial reports which can further be
categorized into:
1. Internal reports – used by those directly
involved in the managing and operating the
business (management)
2. External reports (e.g. financial statements)–
used by individuals and organizations that
have an economic interest in the business but
are not part of its management, or the
external users.
Output of the Accounting Cycle

▪ Financial statements – answers the following

questions:
1. What were the operating results for the period?
2. How did the equity change over the reporting
period?
3. What is the entity’s financial status?
4. What are the cash flows from operating, investing
and financing activities during the period?
Output of the Accounting Cycle

▪ Financial statements
➢Income statement – presents a summary of the revenues
and expenses of an entity for a specific period
➢Statement of changes in equity – presents a summary of
the changes in capital such as investments, profit or loss,
and withdrawals during a specific period.
➢Statement of financial position (balance sheet) –
provides a snapshot by listing all the assets, liabilities
and equity of an entity as at a specific date.
➢Statement of cash flows – reports the amount of cash
received and disbursed during the period.
Evolution of Accounting

▪Accounting history – is the study of the

evolution in accounting thought, practices
and institutions in response to changes in
the environment and societal needs. It also
considers the effect that this evolution has
worked on the environment.
Evolution of Accounting

▪Primitive accounting
▪Middle Ages
▪Industrial Revolution, Corporate
Organization, railroads, US Steel
▪Information Age
Practice of Accountancy

▪Republic Act 9298, known as the Philippine

Accountancy Act of 2004 regulates the
practice of accountancy in the Philippines.
▪Four major sectors:
1. Practice of Public Accountancy
2. Practice in Commerce and Industry
3. Practice in Education/Academe
4. Practice in Government
Branches of Accounting

▪Bookkeeping
▪Financial Accounting
▪Management Accounting
▪Cost Accounting
▪Financial Management
▪Government Accounting
▪Auditing
▪Taxation
Branches of Accounting

▪Accounting education
▪Accountancy research
▪Forensic Accounting
▪International Accounting
Bookkeeping

▪It is a mechanical task involving the

collection of basic financial data
▪The bookkeeping procedures usually end
when the basic data have been entered in
the books of accounts and the accuracy of
each entry has been tested.
Financial Accounting

▪It is focused on the recording of

business transactions and the periodic
preparation of reports on results of
operations, changes in equity, financial
position and cash flows
▪GAAP
▪General-purpose financial statements
Management Accounting

▪It is a profession that involves partnering in

management decision-making, devising
planning and performance management
systems, and providing expertise in financial
reporting and control to assist management
in the formulation and implementation of and
organization’s strategy.
Cost Accounting

▪It is the collection, allocation and control of

the costs to produce or supply a product or
service.

COST MANAGEMENT
FINANCIAL
ACCOUNTING ACCOUNTING
ACCOUNTING
Financial Management

▪Can be defined as the management of

finances of an organization to achieve the
financial objectives of the entity.
➢The widely accepted objective of the
entity is to maximize the value of the firm
for its owners, that is, to maximize
shareholders’ wealth.
Government Accounting
▪ Encompasses the processes of analyzing, recording,
classifying, summarizing and communicating all
transactions involving the receipt and disposition of
government funds and property, and interpreting the
results thereof.
▪ Government accounting shall aim to:
1. Produce information concerning past operations and
present conditions
2. Provide a basis for guidance for future operations
3. Provide for control of the acts of public bodies and
officers in the receipt, disposition and utilization of
funds and property, and
4. Report on the financial position and the results of
operations of government agencies for the
information of all persons concerned
Government Accounting
▪ 3 types of governmental organizational units
1. National government
2. Local government
3. Government corporations

▪ New Government Accounting System (NGAS) – a

simplified set of accounting concepts, guidelines
and procedures designed to ensure correct,
complete and timely recording of government
financial transactions, and production of accurate
and relevant financial reports.
Government Accounting
▪ Offices charged with accounting responsibility
1. Commission on Audit (COA)
2. Department of Budget and Management (DBM)
3. Bureau of Treasury (BTr)

▪ National Budget – government’s estimate of its

income and expenditure

▪ General appropriations Act (GAA) – approved

national budget for the year
Auditing

▪Auditing is a systematic process of

objectively obtaining and evaluating evidence
regarding assertions about economic actions
and events to ascertain the degree of
correspondence between those assertions
and established criteria and communicating
the results to interested users.
▪It is the accountancy profession’s most
significant service to the public
Taxation

▪Taxation is the process or means by which

the sovereign, through its lawmaking body,
raises income to defray the necessary
expenses of the government.
▪Taxation, as a power of the State, is inherent
in sovereignty which gives the government
the right to tax citizens and properties within
its jurisdiction.
Branches of Accounting

▪Accounting education
▪Accountancy research
▪Forensic Accounting
▪International Accounting
Accountancy Research
▪ It is the systematic process of collecting and
analyzing information to increase one’s
understanding of the functions of a professional
accountant and contribute to the solution of
problems besetting the practice of the profession.

▪ Classifications :
➢Functional and sectoral classification
➢Basic and applied
Forensic Accounting

▪Forensic accounting or fraud examination,

has been labeled by the AICPA as one of the
“sizzling” career areas in accounting
▪This practice includes fraud detection, fraud
prevention, litigation support, business
valuations, expert witness services and other
investigative services.
International Accounting

▪It is the study of standards, guidelines and

rules of accounting, auditing and taxation
that exist within each country as well as
comparison of those items across countries.
THE ROLE OF ETHICS IN
BUSINESS
What is Ethics?

▪Ethics is concerned with right and wrong and

how conduct should be judged to be good or
bad.
▪Business ethics tells what is right or wrong in
a business situation, while professional
ethics tells the same thing regarding a
profession.
Ethical Dilemma

▪It is a situation in which there is no obvious

right or wrong decision but rather a right or
right answer.
▪Business is a good source of ethical
dilemmas because its primary purpose is to
make profit.
Some Ethical Dilemmas

▪White collar crime

▪Whistle-blowing
▪Conflicts of interest
▪Fiduciary responsibilities
▪Sexual harassment
▪Discrimination
Ethical Financial Reporting

▪Ethics is especially important in preparing

financial reports because users of these
reports must depend on the good faith of the
people involved in their preparation.

▪Fraudulent financial reporting – intentional

preparation of misleading financial
statements