INTRODUCTION TO ACCOUNTING

I. Definition of Accounting

According to Investopedia, Accounting is defined as the systematic and comprehensive way of

recording financial business transactions.

However, there are other definitions of Accounting given by three Accounting organizations,

1. Accounting Standards Council

Accounting is a service activity whose function is to provide quantitative information, primarily
financial in nature, about economic entities, that is intended to be useful in making economic
decision.
2. American Institute of Certified Public Accountants
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.
3. American Accounting Association
Accounting is the process of identifying, measuring and communicating economic information to
permit informed judgement and decision by users of the information.
This definition states that accounting has a number of components, such as:
a. Identifying - analytical component
b. Measuring - technical component
c. Communicating - formal component

II. Nature of Accounting

According to a lesson created by Dr. Mahesh Chand Garg, there are six nature of accounting,

1. Accounting as a service activity

In accounting, financial and quantitative information are gathered which can be used by various
individuals especially business men in decision making and tackling business issues.
2. Accounting as a profession
To practice accountancy profession, an individual must finish a degree in Bachelor of Science in
Accountancy and pass the board examinations.
3. Accounting as a social force
Accountants should watch and protect the interests of other people who are directly and
indirectly involved with the operations of a business. Accounting information that are proper,
adequate and reliable may be used to solve problems like determining and controlling prices of
goods and services.
4. Accounting as a language
Communicating and reporting of accounting information to the potential users are very
important. By this, accountants should learn and practice how they will communicate and share
the business activities and events to the users.
5. Accounting as a science or art
Just like science, accounting has its own principles and rules in journalizing like the double-entry
system wherein it explains that every transaction has a debit and a credit. On the other hand,
 accounting is also an art since it requires knowledge, interest and experience to maintain a book
of accounts in a systematic manner.
6. Accounting as an information system
Accounting measures business activities, process the information into reports and
communicates the reports to potential users for decision making.

Moreover, according to a video presented to us, there are seven nature of accounting as a language
of business,

1. Profitability - if there is an increase in cash or capital

2. Liquidity - if there are funds to finance the business
3. Solvency - if the business will be able to pay its liabilities
4. Stability - if the business will be able to sustain its profitability
5. Capital Structure - the amount of borrowed cash that is invested in the business
6. Financial Flexibility - the amount of cash that can be used for investment opportunities

III. History of Accounting

a. Accounting has been around for centuries now and the earliest records of this process dated
back as early as 3300 to 2000 BCE in Mesopotamia wherein clay tablets are used to keep a
record of their transactions.
b. During the Mauryan Empire around the second century B.C., a philosopher and economist in
India named Chanakya wrote “Arthashasthra” which contained advice and details on
maintaining record books for accounts.
c. When the society is still at the barter and trade system during pre-2000 B.C., bookkeepers
started to develop. Ledgers during these times are like narratives with dates and descriptions
and are stored in individual ledgers.
d. Up until the late 1400s, transactions are still in the form of narrative and all the amounts are
written in a single column. This process is called the single-entry bookkeeping.
e. During the 15th century, an Italian monk and the father of Accounting named Luca Pacioli
created the double-entry system for bookkeeping. He published a book entitled “Summa de
Arithmetica, Geometria, Proportioni et Proportionalita” in 1494 wherein it contains the benefits
of using the double-entry bookkeeping.

IV. Branches of Accounting

According to the Accounting Verse, there are eight branches of Accounting namely,

1. Financial Accounting
- Involves recording and classifying business transactions and presenting financial statements to
the internal and external users.
2. Managerial Accounting
- a.k.a. Management Accounting
- providing information for internal users and deals with the needs of the management.
 3. Cost Accounting
- recording, presentation and analysis of manufacturing costs.
- very useful in manufacturing businesses (complicated costing process)
4. Auditing
a. External Auditing - refers to examination of financial statements by an independent
party with the purpose of expressing an opinion as to fairness of presentation and
compliance with the Generally Accepted Accounting Principles (GAAP)
b. Internal Auditing - evaluating the adequacy of a company’s internal control structure by
testing segregation of duties, policies and procedures, degrees of authorization, and
other controls implemented by management.
5. Tax Accounting
- helps clients follow rules set by tax authorities.
- It includes tax planning, preparation of tax returns, determination of income tax and other
taxes, tax advisory services such as ways to minimize taxes legally, evaluation of the
consequences of tax decisions, and other tax-related matters.

6. Accounting Information Systems

-involves the development, installation, implementation, and monitoring of accounting
procedures and systems used in the accounting process.

7. Fiduciary Accounting
- handling of accounts managed by a person entrusted with the custody and management of
property of or for the benefit of another person.

8. Forensic Accounting
- involves court and litigation cases, fraud investigation, claims and dispute resolution, and other
areas that involve legal matters.

V. Career Opportunities in Accounting Profession

According to AccountingEdu.org, there is a wide variety of career opportunities for professional

accountants of today, some of these are:

A. Government and Non Profit accounting jobs:

 Fund Accountancy
 IRS Jobs
B. Public Accounting Jobs:
 Cost Estimator
 Enrolled Agent
 Forensic Accountant
 Real Estate Appraiser
 Tax Accountant
 Tax Attorney
 Tax Preparer
C. Private Accounting Jobs:
 Accounting Clerk
 Accounts Payable/Receivable Clerk
 Accounting Information System Specialist
 Actuarial Accountant/Insurance Accountant
 Bookkeeping
 Budget Analyst
 Capital Accountant
 Comptroller/Financial Controller
 Cost Accountant
 Environmental Accountant/Sustainability Measurement
 Payroll Accountant
D. Financial Services:
 Business Valuation Specialist
 Certified Financial Planner
 Financial Analyst
 Tax Consultant

VI. Forms of Business Organization

According to Accounting Verse, there are four forms of business organization,

1. Sole Proprietorship
- owned by one person
- easy to set-up and least costly
- unlimited liability
2. Partnership
- owned by two or more people
- divides the profit among the members
a. General Partnerships - all partners have unlimited liability
b. Limited Partnerships - creditors cannot go after the personal assets of the limited
partners.
3. Corporation
- has separate legal personality from its owners.
- owners/stockholders enjoy limited liability but have limited involvement in the company's
operations.
a. Limited Liability Company
- hybrid forms of business that have characteristics of both a corporation and a
partnership.
- owners enjoy limited liability
- can choose to be taxed as sole proprietorship, a partnership or a corporation.
4. Cooperative
- owned by a group of individuals and is operated for their mutual benefit.
VII. Primary Activities of Business
 According to Investopedia, there are three types of business activities,
1. Operating Activities - these include selling, manufacturing, distributing and marketing. They also
are the reason for the business’ profitability.
2. Investing Activities - these activities include the buying and selling of properties and equipment.
3. Financing Activities - these include cash received by the business from investments, bank loans
and withdrawals of the owner.

According to Bizfluent, business activities primarily includes developing, distributing and offering
the goods and services. These activities are further classified into five,

1. Inbound Logistics- this is where the business owners and the suppliers interact and
communicate with each other.
2. Operations - this is where raw materials are being processed into products that can be
consumed or used.
3. Outbound Logistics - this is where the processed product are being prepared for
distribution.
4. Marketing and Sales - this is where businesses make sure that consumers are aware of
the goods and services they are offering.
5. Services - this is where the business communicates with their customers after they
purchased their goods and services.

VIII. Accounting Process

According to netmba.com, there are nine steps in the accounting process,
1. Collecting and analyzing documents
2. Posting in Journal
3. Posting in Ledger accounts
4. Preparation of the Trial Balance
5. Posting of Adjustment entries
6. Preparation of the Adjusted Trial Balance
7. Preparation of Financial Statements
a. Income Statement
b. Statement of Changes in Owner’s Equity
c. Balance Sheet
d. Statement of Cash Flow
8. Preparation of Closing Entries
9. Preparation on Post-closing Trial Balance
References:

 AccountingEdu.org. Careers in Accounting. Retrieved from

https://www.accountingedu.org/career-resources.html

 Atieno, E. (2017, September 26). Primary Business Activities. Retrieved from

https://bizfluent.com/info-8160783-primary-business-activities.html

 Garg, M. C. Financial Accounting: Meaning, Nature and Role of Accounting. Retrieved from
http://www.ddegjust.ac.in/studymaterial/mba/cp-104.pdf

 Investopedia. (2019, May 21). Financial History: The Evolution of Accounting. Retrieved from
https://www.investopedia.com/articles/08/accounting-history.asp

 Kagan, J. (2018, October 16). Accounting. Retrieved from

https://www.investopedia.com/terms/a/accounting.asp

 Kenton, W. (2019, July 22). Business Activities. Retrieved from

https://www.investopedia.com/terms/b/business-activities.asp

 NetMBA. The Accounting Process (The Accounting Cycle). Retrieved from

http://www.netmba.com/accounting/fin/process/

 Types of Accounting. Retrieved from https://www.accountingverse.com/accounting-

basics/types-of-accounting.html

 Types and Forms of Business. Retrieved from https://www.accountingverse.com/accounting-

basics/types-of-businesses.html

 Valix, C. T., Peralta, J. F., & Valix, C. A. M. Conceptual Framework and Accounting
Standards(2019th ed.). Manila: Gic Enterprises & Co., Inc.