What is Accounting

Accounting is the art of recording,

According to American Institute of Certified Public Accountant:
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.
According to Weygandt, J. et al: Accounting is the process of IDENTIFYING, RECORDING and
COMMUNICATING economic events of an organization to interested users.
Comunication process involves
a. Recording- bookkeeping or journalizing economic transactions and events
systematically.
b. Classifying- grouped under a common characteristic: assets, liabilities, capital,
revenue and expenses.
c. Summarizing- the preparation of financial statement which include: the balance
sheet, income statement, cash flow statement of changes in equity or statement of
recognized gain or losses and notes to financial statements.
IDENTIFYING – involves selecting economic events that are relevant to a particular
business transaction
*economic events of and organization are referred to as transactions
Examples of Economic Events or Transactions: in a bakery business
Purchase of flour that will be used for baking
Sales of bread and other bakery products
Purchase of trucks needed to deliver the products
RECORDING – involves keeping a chronological diary of events that are measured in
pesos, where journals and ledgers were referred as diary.
COMMUNICATING – occurs through the preparation and distribution of financial
and other accounting reports
Accounting Assumptions
Accrual
Income is recognized when earned regardless of when received and expense is recognized when incurred regardless of when
paid.
Going Concern or Continuity
Looks on a business that it will continue its operations for the foreseeable future.
Accounting Entity
The business enterprise is separate from the owners, managers and employees who comprise the firm.
Time Period
“One year period”
Calendar year- jan. 1 – dec. 31
Fiscal year- any consecutive months ( e.g. June 30-July 1)
Natural year- one year period that ends when business operations are at their lowest level of annual cycle.
Less than one year interim reporting which uses interim period.
Monetary unit
Must be stated in the Philippine peso, any changes in the value of peso may be ignored .
EXERCISE: Identify which of the following are relevant economic events.
• Company Y which borrowed P5M from a bank due to tight financial
condition.
• An agent who attended to the concern of a complaining customer.
• The company received advance payments from its customer.
• Meralco announced that it will increase energy prices by the end of
the month.
• A meeting of the top management was held in the discussion room
last month.
• ABS-CBN signed a contract with Lisa Soberano.
NATURE OF ACCOUNTING
According to Accounting Theory: Accounting is a systematic recording of financial
transactions and the presentation of the related information to
appropriate persons.
Basic Features of Accounting”
• Accounting is a service activity – provides assistance to decision
makers by providing them financial reports that will guide them in
coming up with sound decision
• Accounting is a process – process refers to the method of performing
any specific job step by step according to the objectives or targets.
Accounting is a process as it performs the specific task of collecting,
processing and communicating financial information, it follows some
definite steps like the collection, recording, classification,
summarization, finalization and reporting of financial data`
• Accounting is both an art and a discipline – the art of recording,
classifying, summarizing and finalizing financial data. Art refers to the
way something is performed, requires certain creativity and skills to
help attain some specific objectives. It is a systematic method
consisting of definite techniques and its proper application requires
skill and expertise, and it follows certain standards and professional
ethics and it is also a discipline.
• Accounting deals with financial information and transactions –
records financial transactions and data, classifies these and finalizes
their results given for a specified period of time, as needed by their
users. At every stage, accounting deals with financial information
only. It does not deal with non-monetary or non-financial aspects of
information
• Accounting is an information system – recognized and characterized
as a storehouse of information. As a service function, it collects
processes and communicates financial information of any entity. This
discipline of knowledge has evolved to meet the need for financial
information as required by various interested groups.