COLLEGE OF BUSINESS AND MANAGEMENT

Dr. Glen D.V. De Leon, CPA

glen.deleon@dlsau.edu.ph

Module 1
Introduction to Accounting____________________________________________

LEARNING OBJECTIVES:
After studying this chapter, you should be able to:
1. Define accounting.
2. Describe the nature and purpose of accounting.
3. Give examples of branches of accounting.
4. State the function of accounting in a business.
5. Differentiate between external and internal users of accounting information.
6. Narrate the history/origin of accounting.
7. State the forms of business organization.
8. State the types of business according to their activities.

Definition of accounting
Accounting is a process of identifying, recording and communicating economic
information that is useful in making economic decisions.

Essential elements of the definition of accounting

1. Identifying – The accountant analyzes each business transaction and identifies whether
the transaction is an “accountable event” or “non-accountable event.” This is because
only “accountable events” are recorded in the books of accounts. “Non-accountable
events” are not recorded in the books of accounts.

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 2. Recording – The accountant recognizes (i.e., records) the “accountable events” he has
identified. This process is called “journalizing.” After journalizing, the accountant then
classifies the effects of the event on the “accounts.” This process is called “posting.”
3. Communicating – At the end of each accounting period, the accountant summarizes the
information processed in the accounting system in order to produce meaningful reports.
Accounting information is communicated to interested users through accounting
reports, the most common form of which is the financial statements.

Nature of accounting
Accounting is a process with the basic purpose of providing information about economic
activities intended to be useful in making economic decisions.

Types of information provided by accounting

1. Quantitative information
2. Qualitative information
3. Financial information
Functions of Accounting in Business
1. To provide external users with information that is useful in making investment and
credit decisions; and
2. To provide internal users with information that is useful in managing the business.

Brief history of accounting

Accounting can be traced as far back as the prehistoric times, perhaps more than 10,000 years
ago.

Archaeologists have found clay tokens as old as 8500 B.C. in Mesopotamia which were usually
cones, disks, spheres and pellets. These tokens correspond to commodities like sheep, clothing
or bread. They were used in the Middle West in keeping records. After some time, the tokens
were replaced by wet clay tablets. During such time, experts concluded this to be the start of
the art of writing. (Source: http://EzineArticles.com/456988)
• Double entry records first came out during 1340 A.D. in Genoa.
• In 1494, the first systematic record keeping dealing with the “double entry recording
system” was formulated by Fra Luca Pacioli, a Franciscan monk and mathematician. The
“double entry recording system” was included in Pacioli’s book titled “Summa di
Arithmetica Geometria Proportioni and Proportionista,” published on November 10,
1494 in Venice.

The concept of “double entry recording” is being used to this day. Thus, Fra Luca Pacioli is
considered as the father of modern accounting

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Common Branches of Accounting

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Users of Accounting Information

1. Internal users – those who are directly involved in managing the business. Examples:
• Business owners who are directly involved in managing the business
• Board of directors
• Managerial personnel

2. External users – those who are not directly involved in managing the business.
Examples:
• Existing and potential investors (e.g., stockholders who are not directly
involved in managing the business)
• Lenders (e.g., banks) and Creditors (e.g., suppliers)
• Non-managerial employees
• Public

Forms of Business Organizations

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Advantages and Disadvantages

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Types of Business According to Activities

1. Service business
2. Merchandising (Trading)
3. Manufacturing

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“Do not be anxious about anything, but in everything by prayer and supplication with thanksgiving let your
requests be made known to God. And the peace of God, which surpasses all understanding, will guard your
hearts and your minds in Christ Jesus.” (Philippians 4:6-7)

- END –

Barnes & Noble. Nobles, Scott, et al. (2019). College Accounting (11th ed). Cengage Learning.

Beticon, J., Hinayon, M., and Ireneo, S. (2019). Fundamentals of Accounting. Manila: FCA
Publishing.

Empleo, P., German, C., and Cruz. (2019). Fundamentals of Accounting Vol. 2. Mutual Books,
Inc.

Millan Z.V. (2019) Financial Accounting and Reporting

Saguinsin, A. T. (2013). Basic Concept of Accounting.

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