NATURE & ENVIRONMENT OF ACCOUNTING

Accounting and You as a Decision

Maker
As an entrepreneur
As an investor
As a bank manager
As a financial manager
As a marketing manager
As a supplier
What is the role of accounting
in business?

What is the role of business in

society?
What are the sources of
capital?

What is business risk?

History of Accounting
2000 BC in the cities of Babylonia, Greece,
Egypt
3500 BC in Assyria
Records of taxes
Records of materials, labor and overhead
First accounting book written by Cotrugli in
Naples
Modern day double entry bookkeeping
traced from the book in 1497 by Italian
mathematician, Fr. Luca Pacioli entitled
“Summa de Aritmetica, Geometria,
Proportioni et Proportionalita
History of Accounting
Fr. Luca Pacioli- father of accounting due to his
“Model of Venice” developed to help Italian
merchandise in their trade practice
15th century- Italian merchants required
employees to keep track of their properties and
debts
From their records came the terms debtor and creditor
16th century- trading in foreign ports started, profit
calculated after a particular voyage or trip
19th century- processing of information turned from
manual to electronically assisted
Forms of Business organization

Sole proprietorship
proprietor/owner
Partnership
partners
Corporation
shareholder/stockholder
board of directors
Types of Business Operations

Service
Merchandising
manufacturing
 Career Opportunities in
Accounting
Public accounting
Industry accounting (also called
private accounting)
Government and not for profit
accounting
Research and education
 Accounting Areas
Basic accounting or bookkeeping
Financial accounting
Cost accounting
Management accounting
Auditing
Government and not for profit accounting
Tax accounting
Forensic accounting
Professional Regulatory Bodies
Professional Regulation Commission
(PRC)
Board of Accountancy (BOA)
Philippine Institute of Certifed Public
Accountants (PICPA)
Securities and Exchange Commission
(SEC)
Bangko Sentral ng Pilipinas (BSP)
Bureau of Internal Revenue (BIR)
Accounting as the Language of
Business
COMPANY
Accumulates accounting information
through its various transactions

ACCOUNTING INFORMATION SYSTEM

Processes the financial information
and prepare the reports

STAKEHOLDERS
Review the reports and
Make decisions
Stakeholders as
Decision Makers
Direct Users
• Internal users
• management
Indirect Users
• Stock exchange
• Trade associations
• Regulatory bodies
• Financial analysts
Stakeholders as
Decision Makers
Direct Users
• External users
• Owner/investor
• Lender
• Supplier
• Government
• Employee
• Customer
Accounting Information
System
• An orderly way of
accumulating and • Fundamental
reporting business System Principles
transactions through a
process of analyzing, • Cost principle
measuring, recording, • Cost-benefit
classifying and principle
summarizing, and from • Relevance principle
which reports are • Compatibility
generated for proper principle
communication to
• Flexibility principle
decision makers
Components of an Accounting
System
People, documents, records,
methods, equipment
Accounting Information System

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

analyzing, summarizing,
data classifying, decision
Measuring, reporting,
gathering storing making
recording interpreting
 Computerized Accounting
System
From the source documents, The data are measured, Reports come out
data are analyzed and encoded recorded, classified, from the processed
by the employees summarized and stored data
by the computer

OUTPUT
INPUT PROCESS
 Financial Reports

Statement of Comprehensive Income

Statement of Equity
Statement of Financial Position
Statement of Cash Flow
 Qualitative Attributes of
Financial Information
Understandability
Relevance-quality; has feedback or
predictive value; materiality; timeliness
Reliability-can be depended upon;
faithful representation; substance over
form; prudence; neutrality; completeness
Comparability –showing 2 or more
periods; consistency
 Accounting Concepts and
Principles (GAAP)
Principles – broad laws or rules adopted as
guides to the conduct and practice of the
profession
In accounting principles are guides in identifying,
measuring, and reporting financial information
Accounting principles
– Study and pronouncements of PICPA through ASC now
called FRSC
– Exposure drafts disseminated through different
accounting associations like ACPAE, ACPACI, GACPA
– Series of dialogues, council meets
– Formalized and approved by ASC/FRSC as GAAP
 Accounting Concepts and
Principles (GAAP)

Business entity concept

Exchange price or cost concept
Going concern principle
Accrual assumption
Objectivity
Reporting period
Measurement in terms of money