CHAPTER I

INTRODUCTION TO ACCOUNTING AND BUSINESS

Chapters Learning Objectives

Chapter I will help the students to:
1. Define accounting and bookkeeping
2. Learn how accounting helps business
3. Learn how to start a business
4. Know the type of business activities
5. Understand the different forms of business organization
6. Identify the specialized fields of accounting
7. Know the users of accounting reports

Historical background of Accounting

Accounting came about as early as when man learned how to acquire things for his personal and other
needs.
Some individuals in the early period became merchants. They learned how to keep track of their
undertaking by keeping records of what they owned, what they owed, and the result of the venture.
It was in the 15th century when a Franciscan friar by the name of Luca Pacioli published a book, Summa
de Arithmetica that gave way to the modern way of recording business undertaking. As years went by,
more mathematical wizards started to develop a better way of recording things.

The Accounting Profession

In the past, it used to be a part of the curriculum of Business Administration major in Accounting. But
today, we call it Accountancy. The Accountancy profession has already attained its status as in other
professions like law and medicine. It has a separated curriculum for those who would like to take the
Certified Public Accountant (CPA) examination.
Board of accountancy is the body authorized by the law to make rules and regulations involving the
practice of the profession in the Philippines.

Accounting and the Business

Accounting is often called the language of business because it is used in describing all types of business
activities. As a beginner, let us first analyze what business is. Business is a field of endeavor. A person
engages in business for the purpose of attaining an objective which is profit. It is through accounting that
we can measure the profitability of the business. Accounting, however, is limited to business because
nearly everyone practices accounting in one form or another on almost our daily activities. It provides
individuals with information useful in making decisions.

Flow of Accounting Information

 Economic Activities Economic activities refer to the field of endeavor (business).

Business Documents Business documents are produced by business transactions like cash
vouchers, journal vouchers, and others.
Accounting process refers to the steps from journalization, posting up, to
Accounting Process the preparation of accounting reports.

Accounting reports refer to the financial statements, balance sheet, and the
Accounting Reports
Income Statement.
Decision-makers are the people in need of accounting reports to help them
Decision-Makers in their decisions.
At this point in time, the students should know the different areas
of accounting.
Areas of Accounting
1. Public Accounting
People engaged in public accounting render independent and expert financial services to the
public for a fee. They may be individuals, small accounting firm, or even large multinational
association. They are like doctors and lawyers who give expert services for a fee. Since they are
independent accountants, they can offer other services like auditing, management advisory
services, and taxation.
Auditing is the examination of financial statements by an independent certified public
accountant for the fairness of the financial statements.
Management Advisory Services
Individuals engaged in this area provide professional advisory services for the purpose of improving the
client’s use of its capabilities and resources to achieve the objectives of the organization.
Taxation – refers to the preparation of annual income tax returns and other services related to taxation.
2. Private Accounting