FINANCIAL ACCOUNTING

&
REPORTING
(Fundamentals)

ZEUS VERNON B. MILLAN

Chapter 1: Introduction to Accounting
(FAR by: Millan)
 Chapter 1
Introduction to Accounting
Learning Objectives
1. Define accounting.
2. Describe the nature and purpose of accounting.
3. Give examples of branches of accounting.
4. State the function of accounting in a business.
5. Differentiate between external and internal users of
accounting information.
6. Narrate the history/origin of accounting.
7. State the forms of business organization.
8. State the types of business according to their
activities.
Chapter 1: Introduction to Accounting
(FAR by: Millan)
 Definition of accounting
• Accounting is a process of identifying,
recording and communicating economic
information that is useful in making
economic decisions.

Chapter 1: Introduction to Accounting

(FAR by: Millan)
 Essential elements of the definition
of accounting
1. 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 in the books of accounts. “Non-accountable
events” are not recorded in the books of accounts.
2. Recording – The accountant recognizes (i.e., records) the
“accountable events” he has identified. This process is called
“journalizing.” After journalizing, the accountant then classifies the
effects of the event on the “accounts.” This process is called
“posting.”
3. Communicating – At the end of each accounting period, the
accountant summarizes the information processed in the
accounting system in order to produce meaningful reports.
Accounting information is communicated to interested users
through accounting reports, the most common form of which is
the financial statements.

Chapter 1: Introduction to Accounting

(FAR by: Millan)
 Nature of accounting
• Accounting is a process with the basic
purpose of providing information about
economic activities intended to be useful in
making economic decisions.

Chapter 1: Introduction to Accounting

(FAR by: Millan)
 Types of information provided by
accounting
1. Quantitative information
2. Qualitative information
3. Financial information

Chapter 1: Introduction to Accounting

(FAR by: Millan)
Functions of Accounting in Business
1. To provide external users with information
that is useful in making investment and
credit decisions; and
2. To provide internal users with information
that is useful in managing the business.

Chapter 1: Introduction to Accounting

(FAR by: Millan)
 Brief history of accounting
• Accounting can be traced as far back as the prehistoric times, perhaps
more than 10,000 years ago.
• Archaeologists have found clay tokens as old as 8500 B.C. in
Mesopotamia which were usually cones, disks, spheres and pellets.
These tokens correspond to commodities like sheep, clothing or bread.
They were used in the Middle West in keeping records. After some
time, the tokens were replaced by wet clay tablets. During such time,
experts concluded this to be the start of the art of writing. (Source:
http://EzineArticles.com/456988)
• Double entry records first came out during 1340 A.D. in Genoa.
• In 1494, the first systematic record keeping dealing with the “double
entry recording system” was formulated by Fra Luca Pacioli, a
Franciscan monk and mathematician. The “double entry recording
system” was included in Pacioli’s book titled “Summa di Arithmetica
Geometria Proportioni and Proportionista,” published on November 10,
1494 in Venice.
• The concept of “double entry recording” is being used to this day. Thus,
Fra Luca Pacioli is considered as the father of modern accounting.

Chapter 1: Introduction to Accounting

(FAR by: Millan)
Common Branches of Accounting

Chapter 1: Introduction to Accounting

(FAR by: Millan)
Common Branches of Accounting

Chapter 1: Introduction to Accounting

(FAR by: Millan)
Common Branches of Accounting

Chapter 1: Introduction to Accounting

(FAR by: Millan)
Common Branches of Accounting

Chapter 1: Introduction to Accounting

(FAR by: Millan)
 Users of Accounting Information
1. Internal users – those who are directly involved in managing the
business. Examples:
• Business owners who are directly involved in managing the
business
• Board of directors
• Managerial personnel

2. External users – those who are not directly involved in managing

the business. Examples:
• Existing and potential investors (e.g., stockholders who are not
directly involved in managing the business)
• Lenders (e.g., banks) and Creditors (e.g., suppliers)
• Non-managerial employees
• Public

Chapter 1: Introduction to Accounting (FAR by: Millan)

Forms of Business Organizations

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

 Types of Business According to
Activities
1. Service business
2. Merchandising (Trading)
3. Manufacturing

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

Advantages and Disadvantages

Chapter 1: Introduction to Accounting (FAR by: Millan)

 APPLICATION OF
CONCEPTS

PROBLEM 3: FOR CLASSROOM DISCUSSION

Chapter 1: Introduction to Accounting (FAR by: Millan)

} QUESTIONS????
} REACTIONS!!!!!

Chapter 1: Introduction to Accounting

(FAR by: Millan)
END

Chapter 1: Introduction to Accounting

(FAR by: Millan)