FUNDAMENTALS OF

ACCOUNTANCY BUSINESS AND

MANAGEMENT 1
What is Accounting?
• commonly define as the “art of recording,
classifying and summarizing in a significant
manner and in terms of money, transaction and
events which are in part at least financial in
character and interpreting the result thereof” –
according to the committee of Accounting
Terminology of the American Institute of
certified Public Accountants (AICIPA)
Accounting can be defined also as a system that
helps business track events that affect them.

Accounting also can be defined in easiest way

as the “Language of Business”. The medium
communication between the owner or other
users and the business entity.

The final product of accounting process is

called the financial statement.
Learning Accounting:

Measured

Data

Communicated Users for

Decision
Making
Transaction

Processed

Events

Flow of Accounting
Information
 Nature of Accounting
• Accounting is a process. It is composed of multiple steps that lead to a
common goal, it performs the functions of identifying, recording and
communicating economic events with the end goal of providing
information to internal and external parties.
• Accounting is an art. It refers to a way of performing something; it’s an
art of recording classifying, summarizing and finalizing data. A
combination of techniques and its application requires applied skill and
expertise.
• Accounting deals with financial information and transactions. It deals
only with quantifiable financial transaction. The only events identified by
the accountant, recorded in the books and communicated to different
parties.
• Accounting is a means and not an end. It is a tool to achieve specific
objectives. It is not the objective itself.
• Accounting is an information system. It is recognized and characterized
as storehouse information. As a service function, it collects processes and
communicates financial information of any entity.
Accounting as an Art
• defined as the art of analyzing financial
transaction and economic events, recording
them, classifying them as to accounts and
summarizing them and followed by reporting
and interpreting the results.
Analyzing – the first step of the accounting
process. The accountant or any person involve in
business finances must look the transactions
entered into, economic events that have taken
place, and determine their effects on the
business. The transactions and events are
generally supported by documentary evidence or
proofs.
Recording - is a routine and process of
writing down business transactions. Business
transactions and events that are quantifiable
or measurable are recorded in the books of
accounts.
The recording maybe done by manually or it
may be encoded with the use of computers
with accounting software like peach tree,
tally and etc., The recording books called
JOURNALS.
These journals are has a different type as
follows:
A.General Journal
B.Special Journal
a. Cash Receipt Books,
b. Cash Disbursement Books
c. Sales Books,
d. Purchase book
Classifying – it refers the process of title. The
journalize transaction and events are classified as in
ledgers. The Ledgers are General Ledgers and
Subsidiary Ledgers. The Subsidiary Ledgers show
the details of those transactions and events.
The process of transferring the same information
from the journal to the ledger is technically known
as posting. Posting of information is usually made at
the end of the month.
Summarizing – a process that involves grouping together the
various accounts referred to the classifying process. the phase
in the accounting process which involves preparation of the
financial statements. Accounts are grouped into Assets,
Liabilities, Owners Equity, Revenue, Cost and expenses.

Reporting - the preparation of financial summaries called

financial statements. These are written or documentary
documents where the (1) results of the operation (Income
Statements), (2) financial position (balance sheet), and (3)
cash flows (cash flow statement) are communicated to the
users of information.
Interpreting – refers to the process of analyzing and
evaluating the information presented in the face of the
financial statements and the accompanying notes.

The financial statements present the following

information:
1.Profitability of the business
2.Liquidity of the business
3.Stability of the business
4.Management efficiency
Profitability – is the ability of the business to realize more
revenues than expenses.
Liquidity – is the ability of the business to pay its current
maturing obligations or those obligations that are payable
within one year.
Stability – is the ability of the business to pay its long –
term financial obligations and remain stable. Long – term
obligations are those payables of the business that mature
beyond one year from the date of the financial statements.
Management efficiency – it reflects how effective and
efficient the management is in utilizing its resources, like
cash, products intended for sale, building land and other
similar resources entrusted to the management.
Difference between Accounting and
Bookkeeping.
Both term Accounting and Bookkeeping, are quite
similar and sometimes interchangeably used.
However there are distinct difference between them
and this are as follows;

•In terms of coverage, bookkeeping has a limited

scope than accounting.
•Bookkeeping refers to the recording aspect of the
accounting process or cycle.
• Accounting has a wider scope and involves not only
the recording aspect but also the preparation and
interpretation of financial statement.

• Bookkeeping is chronological recording of business

transactions and events in the books of accounts and
includes the preparation of trial balance. Accounting
connotes applications of proper accounting
procedure and principles from the recording stage
up to the preparations of financial statements.
• Bookkeeping is usually performed by bookkeeper; he is
responsible for keeping the financial records of the
business, the nature of his work is more on clerical and
mechanical. While in accounting is undertake by the
accountant, he review the work of the bookkeeper and in
some instances, his works involves some level of
bookkeeping.

• Accountant should have a higher degree of knowledge and

analytic skills, in big business accountants are usually
Certified Public Accountant.
The Origin / History of
Accounting
• The Accounting or record keeping of business
transaction can be traced back to the book
Summa de Arithmetica Geometrica
Proportione e Proportionalita (Everything
about Arithmetic, Geometry and Proportion)
by the Franciscan monk, Luca Pacioli. He is
considered as the father of accounting.
 Franciscan monk, Luca Pacioli.
“A person should not go to sleep at night until the debits equal the credits”
- Luca Pacioli
It is believed that the history of accounting is thousands of years
old and can even be traced to ancient civilizations. A history
books suggest that the early development of accounting can be
dated back to ancient Mesopotamia. During those times, people
followed a system of writing and counting money. Development
of accounting may relate to the taxation and trading activities of
temples.

Emperor Augustus (63BC – 14 AD) provided more evidence

about the development of accounting. The Roman government
kept detailed financial information of the deeds, of Emperor
Augustus regarding the stewardship of Roman resources.
The evidenced by the Res Gestae Divi (The Deeds of the Devine
Augutus). The Roman historians Suestonius and Cassius Dio
recorded that 23BC, Augustus prepared a rationarium (account)
which listed public revenues, the amounts of cash in the aerarium
(treasury), in the provincial fisci (tax officials), and in the hands of
the hands of the publican (public contractors).
But it was Pacioli who was the first to describe the system of debits
and credits in journals and ledgers that is still the basis of today’s
accounting system. In 1854 Scotland, Queen Victoria granted a
royal charter to the institute of Accountants in Glasgow, creating
the profession of Charter Accountant (CA), this was the start of the
modern accounting profession.