ACCOUNTING

The Committee on Terminology of

American Institute of Accountants defined
accounting as an art of recording,
classifying, summarizing in a significant
manner and in terms of money, transactions
and events, which are in part, at least, of
financial character and interpreting the
result thereof.
 ACCOUNTING
Accounting is an art. It is the “language of
business”. Through the accounting data
prepared, the business communicates to the
different interested parties the results of its
operation and its financial condition. Aside from
this, the accountant’s opinion and estimation are
needed in preparing accounting data and reports.
Accounting, however, it is not only an art but a
science in a way that there are accounting
principles that serve as guide in accomplishing
data and preparing reports.
 NEED FOR ACCOUNTING
In order to appreciate and understand
the financial reports of the business, one
should have an understanding of how
data are gathered and recorded. All these
understandings are gained in the study
of accounting. It can also be one’s
profession a work which is interesting
and highly rewarding.
 NEED FOR ACCOUNTING
Human Beings have limitations. Everyday
transactions cannot be retained in the human
brain for quite a period of time without
confusions and complications. To avoid these,
transactions and other important event should be
recorded. Such written records serve as
reference for future recall.
In business, several parties are interested to its
records to seek answers to their questions and
bases for their decisions. Among the direct users
are the following:
 NEED FOR ACCOUNTING
Owners are interested to know whether the
business should be maintained, increased,
decreased, or disposed of completely. They are
interested to know whether they are getting a fair
return of his investment.
Management use financial information as a
measure for making future financial decisions ad
a measure of its effectiveness.
Prospective Investors are interested in the
financial statement to determine whether to
acquire ownership in the firm.
 NEED FOR ACCOUNTING
Creditors use financial statements as a
basis for granting loans.
Employees are interested in information to
enable them to assess the ability of the firm
to provide remuneration and other benefits.
Government needs accounting information
to regulate the firm’s activities and
determine the basis for taxation policies.
 PHASES OF ACCOUNTING
Recording. This is technically called as BOOKKEEPING. It is
defined as the systematic and chronological recording of
business transactions or events. It is systematic because it is
guided by prescribed rules and principles of accounting. It is
chronological because the recording is in the order of dates
of occurrence or discovery of the business transactions and
events. There are two kinds of bookkeeping: the single entry
bookkeeping and the double entry bookkeeping. The single
entry bookkeeping do not show the two-fold effects of
business transaction, instead, it only shows either the debit
or the credit of each transaction while the double entry
bookkeeping reflects the two-fold effects of business
transaction and has a debit and a credit.
 PHASES OF ACCOUNTING
Classifying. In this phase, items are
sorted and grouped. Similar items are
classified under the same name. They may
be classified as asset accounts, liability
accounts, capital accounts, revenue
accounts expenses accounts. This
classification is useful to the needs of the
management.
 PHASES OF ACCOUNTING

Summarizing. After each accounting period, data

recorded are summarized through financial
statements. These reports are submitted to the
management at the end of each accounting period
or as the need arise.
Interpreting. Usually, due to the technicality of
accounting reports, the accountant’s interpretation
on the financial statement is needed. In this case,
analysis reports are submitted together with the
financial statements.