Introduction: The History and Definition of Accounting

Accounting is as old as civilization. The earliest bookkeeping records were used by the Egyptians in building
their pyramids. This is to keep track of the number of slaves, the number of days work, and the materials
used in building these pyramids. It is also used to register people living in towns or cities for purposes of
collecting taxes which is similar to the “ census” of today. It is also used in various trading ports to record
their cargoes loaded and unloaded

. If Matthew does not have records, how can he collect taxes from the people?
However, it is very evident that modern-day accounting has an Italian influence.

 In Genoa, Italy, The oldest double-entry books were written in 1340 entitled"Massari (Treasury
Officials) Ledgers of Commune de Genoa". These books were known as a "perfect double-entry
form". Under the present system, this is the simplified T-Account.
 In Florence, Italy, 14th century, Amantino Manucci, invented the double-entry records wherein
debits were written over credits or the Florentine Approach. This method is now shown in
the Journal Entries.

 In Venice, Italy, Merchants kept their accounts in a bilateral form (Alla Veneziana), with debits
recorded on the left side of the page across from credits. This is the“Venetian  Approach” now
our ledger postings. This method was introduced in the extant books of Andrea Bargarigo.

The "Summa de Aritmetica"

In this book Fr. Pacioli introduced three(3) important book of records, namely:

 Memorandum book- contains all the information about the transaction (narrative)
 Journal Book - for the original entry
 ledger book - for the final entry (posting) , the center of the accounting system

         Through the Venetian Method, double-entry accounting became known to the world. The
present Ledger posting is the modern adoption of the Venetian method. For this reason, Fr. Luca
Pacioli is known as the "Father of Modern Accounting" even if he was neither an accountant nor a
merchant.
        Actually, The Debit and Credit or the “DR. and CR.” used in double-entry bookkeeping are
from the Latin words “ Debere and Credere".

 Debit or Debere (DR.) means ”to receive.”

 A credit or Credere (CR.) means “ to part with”

 
      The double-entry bookkeeping system emphasizes the principle of balance in every transaction,
wherein “for every value received, there is a corresponding value parted with.” Let us illustrate,
your left hand or left side represents the Debit, and your right hand or right side represents the
Credit. Both hands should have equal values. And, this is easily represented by the T-account.

 The CPA can practice accounting in four (4) major fields such as public accounting (for accountants
in accounting/auditing firms), private accounting (for accountants in private companies), education
accounting (for accounting teachers), and government accounting (for government accountants).
          The CPA in the Philippines was only forty-three (43) in the 1920s and would you believe that
to date the number has grown to more than one hundred sixty (160,000) thousand plus.
 

Definition of Accounting
Accounting has many definitions given by different accounting bodies:
1. 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.  (American Institute of Certified Public Accountants-AICPA)
2. 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 Standards Council-ASC)
3. ACCOUNTING is the process of identifying, measuring, and communicating economic
information to permit informed judgments and decisions by users of the information. (American
Association of Accountants-AAA)

 
ACCOUNTING is an information system that measures, processes, and communicates financial
information about an economic entity in making economic decisions.
ACCOUNTING is also called "the language of business " because it is fundamental in the
communication of financial information.
 
The practice of Accountancy requires the exercise of :

 creative thinking -use of imagination and insights to solve problems and identify alternative
solutions.
 critical thinking- use of logical analysis in evaluating alternative solutions.

Definition of Accounting
 Accounting is “the process of identifying, measuring, and communicating economic information
to permit informed judgment and decisions by users of information.” (American Association of
Accountants-AAA)

 
Three (3)  Important Activities

1. Identifying - the process of analyzing events and transactions to determine whether or not they
will be recognized. Only accountable events are recognized.
2. Measuring - involves assigning numbers, normally in monetary terms, to the economic
transactions and events.
3. Communicating - the process of transforming economic data into useful accounting information,
such as financial statements and other accounting reports, for dissemination to users.

 
Types of Events or Transactions

1. External Events – events that involve an external party

Three Types of External events:

1.
1.
1. Exchange (reciprocal transfer) – reciprocal giving and receiving
2. Non-reciprocal transfer – “one-way” transaction
3. External event other than transfer – an event that involves changes in the
economic resources or obligations of an entity caused by an external party
or external source but does not involve transfers of resources or
obligations.
2. Internal Events – events that do not involve an external party

Two Types of Internal Events:

1.
1.
1. Production – the process by which resources are transformed into
finished goods.  
2. Casualty –  unanticipated loss from disasters or other similar events.

 
Measurement Bases

 The several measurement bases used in accounting include, but not limited to, the following:

1. Historical Cost (Links to an external site.),

2. Fair Value (Links to an external site.),
3. Present Value (Links to an external site.),
4. Realizable Value (Links to an external site.),
5. Current Cost (Links to an external site.), and
6. sometimesInflation-Adjusted Costs. (Links to an external site.)

 The most commonly used is historical cost. This is usually combined with the other measurement
bases. Accordingly, financial statements are said to be prepared using a mixture of costs and
values.

 
Valuation by Fact or Opinion

 When the measurement is affected by estimates, the items measured are said to be valued by
Opinion. 
 When the measurement is unaffected by estimates, the items measured are said to be valued by
Fact.

 
Basic Purpose of Accounting

 The basic purpose of accounting is to provide information about economic activities intended to

be useful in making economic decisions.

 
Types of Accounting Information Classified as to Users’ Needs
 General-purpose accounting information - designed to meet the common needs of most
statement users. This information is governed by the Philippine Financial Reporting Standards
(PFRSs).
 Special purpose accounting information - designed to meet the specific needs of particular
statement users. This information is provided by other types of accounting, e.g., managerial
accounting, tax basis accounting, etc.