ACCOUNTING

Accounting
➔ the Accounting Standards Council (ASC) defines accounting as “a service activity. Its function is to
provide quantitative information primarily financial in nature that is intended to be useful in making
economic decisions.”
➔ The American Institute of Certified Public Accountants (AICPA) defines accounting as: “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 financial character, and interpreting the results thereof.”
➔ The American Accounting Association (AAA) defined accounting as “the process of identifying,
measuring and communicating economic information to permit informed judgments and decisions by
users of information.”

Nature of Accounting
As cited by Rabo, Tugas, and salendrez, (2016), the following are the nature of accounting:
1. Accounting is an art
➔ It is a behavioral knowledge involving creativity and skill. By the very nature that accounting
activity is systematic, it has definite techniques and its proper application requires a particular
skill and expertise.
2. Accounting deals with transactions that are financial in nature
➔ The definition of ASC requires business that business transactions have to be measured in
terms of money. All transactions that are non-monetary are not within the scope of accounting.
3. Accounting is a process
➔ As a process, accounting performs a series of actions directed towards a particular outcome. It
has to follow logical steps in the accounting cycle.
➔ Analyzing ⇒Recording⇒Classifying⇒Summarizing⇒Reporting⇒Interpreting
◆ Analyzing - First phase of the accounting process. The accountant must look at the
transactions and determine the effects on the business
◆ Recording - involves writing the effects of the transactions and events that have been
analyzed. “Journals” are accounting books where inputting of information is done
◆ Classifying - sorting or grouping of similar transactions and events into specific account
titles
◆ Summarizing - process that involves grouping the various accounts referred to in the
classifying process
◆ Reporting - involves the preparation of financial summaries called financial statements
◆ Interpreting - directs attention to the significance of various matters and relationships.
Involves the computation of relationships of figures from financial reports and schedules.
4. Accounting is an information system
➔ Accounting serves as a repository of collected financial data, proposed financial information,
and communicated financial statements.
5. Accounting is a means and not an end
➔ Although accounting has tangible outputs in the form of financial statements, it still underscores
that the users have the liberty to make economic decisions based on the management
assertions in the financial statements.
6. Accounting is a service activity
➔ It is concerned with providing the service of ensuring that the financial statements are made
available to users on a timely basis.

History of Accounting
 ➔ Renaissance Period
➔ Frater Luca Bartolomes Pacioli - “Summa de Arithmetica, GEometria, Proportioni et Proportionalita”
(1494) - It contained a comprehensive summary of Renaissance mathematics and a description of the
double-entry bookkeeping system
➔ Pacioli has been regarded as the “Father of Modern Accounting”

Users of Accounting Information

1. Internal users
a. Managers
b. Employees
➔ To determine stability and profitability of employers and the ability of the employer to pay
salaries and fringe benefits
c. Owners
d. Management
➔ To determine the activities of the enterprise for planning, organizing, leading, and
controlling
2. External users
a. Investors
➔ To determine whether to buy, hold, or sell their investments in equity ownership in the
business, and to assess the ability of the investee to pay dividends or to pay returns to
investors
b. Lenders
➔ To determine the ability of the borrowers to be on time in paying the loans granted to
them by the creditors
c. Suppliers
➔ To determines the ability of the customer to pay debts as they fall due, and the ability of
the customer to remain as a continuing buyer
d. Customers
➔ To determine the ability of the enterprise to be a continuing source of supply, and the
ability of the company to exist over a long period of time
e. Government Agencies
➔ To determine the activities of the enterprise to pay taxes and its tax compliance; to
provide the bases for monitoring and regulating the activities of enterprises and
individuals
f. Public
➔ To determine the activities of the enterprise and contribution to the economy in the form
of (a) number of employees, (b) ownership of assets, (c) prices of their products, (d)
patronage of local suppliers, and (e) patronage by customers