Accounting 101

Fundamentals of
Accounting
With Single Proprietorship
Chapter 1
Accounting: Its Development and Basic
Concepts
 History of Accounting:
 During earlier times people had tried to maintain records of exchanges of goods or services.
 The Egyptians, between 5000 BC to 525 BC, had developed an Egyptian government
treasurer’s accounts were known to have been recorded by a scribe in 2000BC.
 Clay tablets, stones and wood device were used to record payment of services in temples in
Babylonia as early as 2300BC.
 In 200 BC, government records of Roman empire classified items under cash receipt as rent
and interest while expenses included wages, entertainment and sacrifices.
 Accounting for private business in terms of ventures was an outgrowth of Italian commerce
during the 13th century.
 Double-entry bookkeeping began in the commercial city states of medieval Italy and was well
developed by the time of the earliest preserved double-entry books, from 1340 in Genoa.
 The venetian monk Luca Pacioli wrote the first published accounting work in 1494. Title of
the book is Summa de Arithmetica, Geometria, Proportioni Et Proportionalita or Everything
About Arithmetic, Geometry and Proportion.
Importance of Accounting
 Accounting is very important in our daily lives. Every person is involved with
accounting. At’s one home or place of work or recreation, budgeting and fund
accountability are involved.
 In business, accounting is playing a major role. Businesses have goals. Their
ability to attain those goals is highly dependent on the decisions the
management will be making. Information generated by accounting systems is
needed for proper decision-making. These data are processed and
summarized in the form of Financial Statements. Management analyze these
information and develop trends when applicable. They rely heavily on
accounting data in making intelligent decisions.
 Business Organizations
Manner of Creation
No. of organizers or
incorporators
In charge of managing the
business
Right of succession
Extent of liability to third
person
Term of existence
Requirement by SEC
Sole Proprietorship Partnership Corporation
Dependent on the will of Created by mere Created by operation of
one person agreement of the partners law
One person At least 2 person Not less than 5, not more
than 15 persons
Usually the sole proprietor The partners but if Board of directors of
specified, the managing board of trustees
partner
None None Has the right of succession
Unlimited Unlimited Limited
Dependent on the will or Dependent on the life set Maximum life is 50 years
life of the owner by the partners, the will and renewable for
or life of partners another 50 years
None Articles of Co-partnership Articles of Incorporation
Classification of business according to
their nature
 Service Concern – these business firms render services to clients.
 Merchandising Concern – derive their income from the sale of merchandise
 Manufacturing Concern – they purchase raw materials, convert them into
finished products and sell these finished products at a profit.
 Agriculture – concerned with the planting of crops or raising animals, and
selling of their products either in raw or finished form at a profit.
What is Accounting?
 Accounting is defined as the process of identifying, measuring and
communicating economic information to permit informed judgment and
decision by users of the information.
 Three important activities:
 Identifying – recognition or non-recognition of business activities to be accounted
for
 Measuring – assigning of peso amounts to the accountable economic transactions
and events.
 Communicating – involves the preparation and distribution of accounting reports to
potential users of accounting information.
What is Accounting
 Accounting is also defined as an art of recording, classifying, and
summarizing, in 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.
 4 mechanical phases in the accounting process:
 Recording or journalizing
 Classifying
 Summarizing
 Interpreting
Generally Accepted Accounting
Principles (GAAP)
 Represents the rules, procedures, practice and standards followed in the
preparation of financial statements.
 Examples are:
 Asset recognition principle
 Cost principle
 Income recognition principle
 Matching principle