Chapter 1 SC

Introduction to Accounting and Business

Learning Objectives
1. Understanding Accounting
2. Short history of Accounting
3. The Role of Accounting in Business
Nature of business
Types of business
Accounting and business organization
4. Profession of Accounting

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1. Definition of Accounting
Process of identification an
economic transaction

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Accounting — An Information Process
Process of identification
an economic transaction

Recording

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Definition of Accounting
Process of identification an economic
transaction

Recording

Summarizing

Preparing report

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Definition of Accounting
Process of identification an economic
transaction

Recording

Summarizing

Preparing report

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 Users of Accounting Information

• investors
Financial Accounting • creditors
EXTERNAL USERS
• regulators
• customers
• competitors

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Users of Accounting Information

• investors
• creditors
EXTERNAL USERS
• regulators
• customers
• competitors

• owners
INTERNAL USERS • managers
• employees

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 Definition of Accounting

 Usually, accounting is understood as the Language of

Business.
 The better the understanding of the language, the better
is the management of financial aspects of living.
 Many aspects of our lives are based on accounting,
personal financial planning, investments, income-tax,
loans, etc.
 We have different roles to perform in life-the role of a
student, of a family head, of a manager, of an investor,
etc.
 The knowledge of accounting is an added advantage in
performing different roles.
 However, we shall limit our scope of discussion to a
business organization.

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 Short history of accounting
 The history of accounting can be traced
back to ancient times.
 Accounting records can be traced
back to the ancient civilizations of China,
Babylonia, Greece and Egypt.
 Accounting was used to keep records
regarding the cost of labor and materials
used in building great structures like the
Pyramids.
 During 1400s, accounting grew further
because the needs for information of
merchants in the Venis City of Italy
increased.

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 Short history of accounting
 The first known description of double entry
book keeping was first published in 1994 by
Lucas Pacioli.
 He was a mathematician and a friend of
Leonardo Ileda Vinci.
 He is also known as father Accounting.
 Nowadays, there are accounting standards,
auditing regulations, and ethical standards for
accountants to follow.

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 Role of Accounting in Business

• Definition and nature of Business organization

• Types of business organization
• Based on ownership:
• Sole proprietorship
• Partnership
• Corporation
• Based on activities
• Service giving
• Merchandizing
• Manufacturing
• Different types of accounting

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Definition and nature of business organization

 A business organization is an entity aimed at carrying on

commercial enterprise by providing goods or services, to
meet needs of the customers.

 All business organizations: have the common features

such as formal structure, aim to achieve objectives, use of
resources, requirement of direction, and legal regulations
controlling them.
 business organization always require payment from
customer for service and good.

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 Types of business organization:
Based on ownership
1. A proprietorship:
• is owned by one individual.
• Requires low cost of organizing.
• Is limited to financial resources of the owner.
• Is used by small businesses.
2. A partnership:
o is similar to a proprietorship except that it is owned by two
or more individuals (partners).
o There should have to be at least two partner and the
maximum is determined by commercial code of the nation.
o Combines the skills and resources of more than one
person.

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 Types of business organization:
Based on ownership

3. A corporation:
Is organized under state or federal statues as a separate
legal entity.
Includes ownership divided into shares of stock, sold to
shareholders (stockholders).
Is able to obtain large amounts of resources by issuing stock.
Is used by large businesses.

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 Types of business organization:
Based on Activities

1.Service giving business: is a business organization that

engaged in services providing in the process of earning
revenue.
2.Merchandizing business: is a business organization that
engaged in buying and selling of inventory in the process of
earning revenue. Example, Wholesalers and Retailors
3.Manufacturing business: : is a business organization that
engaged in converting raw material in to finished good in the
process of earning revenue.

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 Profession of Accounting
Private Accountant public Accountant

 Accountants  Accountants and their

employed by a staff who provide
business firm or a services to the public
not-for-profit (i.e. individuals and
organization. corporations)
 Works on a fee basis
 Works on salary basis

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Chapter F1 Power Notes
Introduction to Accounting and Business

This is the last slide in Chapter 1.

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