DEFINITION, NATURE

AND SCOPE OF
ACCOUNTING
ACTBAS1

C.L. MAGPAYO
 DEFINITION
The Accounting Standards Council, now known
as, Financial Reporting Standards Council,
defines accounting as follows:
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
 DEFINITION
The Committee on Accounting Terminology of
the American Institute of Certified Public
Accountants defines accounting as follows:
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.
BOOKKEEPING AND ACCOUNTING
Bookkeeping is the recording of economic events. It
is only one part of the accounting process

Accounting involves the entire process of

identifying, recording and communicating economic
events
 COMPLETE SET OF FINANCIAL
STATEMENTS (IAS 1)
 a statement of financial position as at the end of the period;
 a statement of comprehensive income for the period
 an income statement
 a statement of comprehensive income
 a statement of changes in equity for the period;
 a statement of cash flows for the period;

 notes, comprising a summary of significant accounting policies and other

explanatory information; and

 a statement of financial position as at the beginning of the earliest comparative

period when an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, or when it
reclassifies items in its financial statements
 USERS OF FINANCIAL
INFORMATION
 Internal Users –managers who plan, organize and run a
business
 External users
 Government and their agencies
 Suppliers and other trade creditors
 Public
 Lenders
 Investors
 Customers
 Employees and labor unions
 BRANCHES OF ACCOUNTING/
AREAS OF SPECIALIZATION
 Financial Accounting – focuses on the development and communication of
financial information to external users, particularly, the creditors and investors.

 Management accounting – focuses on the development and communication of

financial information to internal users

 Auditing – focuses on the examination of financial statements by an independent

certified public accountant for the purpose of expressing an opinion on the
fairness of presentation of financial statements

 Government accounting – focuses on the development and communication of

transactions involving receipt and disposition of government funds

 Taxation services – focuses on the preparation of tax returns and rendering of tax
advice
 FORMS OF BUSINESS
ORGANIZATION
 1. ACCORDING TO OWNERSHIP
 Proprietorship
 Partnership
 Corporation
 2. ACCORDING TO TYPE OF ACTIVITY
 Service enterprise
 Merchandising business
 Manufacturing business
 BASIC ACCOUNTING
CONCEPTS
Underlying assumptions in the preparation of financial
statements
 accrual basis
 going-concern
Qualitative characteristics of financial statements
 understandability
 relevance
 reliability
 comparability
ACCOUNTING PRINCIPLES
(GAAP)
 conventions, rules and procedures necessary to define what is accepted
accounting practice followed in the preparation and presentation of
financial statements
 Entity
 Monetary
 Cost
 .Objectivity
 Going-concern
 Materiality
 Time period
 Revenue recognition
 Matching
 Accrual
 Consistency
 Conservatism
 Disclosure
 CAREER OPPORTUNITIES
FOR ACCOUNTANTS
 Public accounting – provides expert service to the general
public for a fee
Auditing
Tax services
Management consulting
Private accounting – employee of a business entity
 Accounting in Commerce and Industry
 Academe
 Not-for-profit accounting
 Government accounting
 VALUES THAT CPAs
SHOULD POSSESS
 Professional ethics
Integrity
Objectivity and independence
Professional competence and due care
Confidentiality
Professional behavior
 Moral values
 ACCOUNTING TO OTHER
FIELDS OF DISCIPLINE
 General Management
 Marketing
 Finance
 Real estate
 ASSIGNMENT
 WORKBOOK PAGES 10-13
 Write a one-page summary of the history of accounting on
your assignment notebook (accounting exam booklet)