Fundamentals of ABM 1

Accounting
The systematic process of measuring and reporting relevant financial information about the
activities of an economic organization or unit. The language of business.

 American Institute of Certified Public Accountants (AICPA)

The art of recording, classifying, and summarizing in a significant manner and in terms of money,
transaction, and events, which are in part at least of a financial character, and interpreting the result
thereof.
 Accounting Standard Council (ASC)
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.
 American Accounting Association (AAA)
The process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by users of the information.

Nature of Accounting (Basic Features)

Accounting as Service Activity Accounting deals with Financial

Information & Transaction System
Provide assistance to the one who made For it records financial transactions &
decisions by means of providing them data, needed to be finalize and give to the
financial or accounting reports users as needed. Does NOT deal with non-
monetized aspects.
Accounting is Process Accounting is an Information
System
Because it performs specific tasks like
identifying, recording and communicating. Recognized as the Storehouse of
It follows definite steps. Information. As it collects processes and
communicates financial information to any
entities.
Accounting is both an Art & a
Discipline
An art of identifying, recording,
classifying and communicating financial
data; refers to something how it is
performed. Discipline for it follows
professional ethics and standards.

4 Aspects of Accounting
Recording

defined as writing down of business transactions chronologically in the

books of account as they transpire.
*We record through journal entries

Classifying

defined as sorting similar and related business transactions into the three
categories of assets, liabilities, and owner's equity.
*T accounts

Summarizing

defined as preparing the financial statements from the transactions

recorded in the books of accounts that are designed to meet the
information needs of its users.
*We summarize through preparation of financial statements (balance
sheets & income statements)

Interpreting

defined as representing the qualitative and quantitative financial

information about the business transactions in a language
comprehensible to the users of financial statements.
*We interpret through reporting.