Introduction

to Accounting
Teacher:
Maria Edna T. Babista
 Introduction to Accounting
Lesson 1
Definition of accounting and its Nature
Lesson 2
Functions of Accounting in Business
Lesson 3 History/Origin of Accounting
 Decision-making
Recording
Economic entities Service activity
ACCOUNTIN
G
Quantitative information

Classifying Interpreting
Reasoned choices
Summarizing
 Accounting
SYSTEM that helps business track events that
affect them
PROCESS involves identifying the events that
affect business, recording these events, and
communicating the summarized results of all
events within a particular period to interested
parties.
 Accounting

AMERICAN ACCOUNTING ASSOCIATION

(AAA)
“…the process of identifying, measuring, and
communicating economic information to permit
informed judgements and decisions by the
users of information.”
 Accounting

> The American Institute of Certified Public

Accountants (AICPA) defines accounting as
the art of recording, classifying and
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 results thereof.
 Functions of Accounting
IDENTIFYING
The economic events relevant to business
• There should be a transfer of things with value
• Purchase of equipment
• Exchange of cash for equipment/labor
• Payment for suppliers
• With proof of transactions
 Functions of Accounting
RECORDING
Writing the economic event relevant to
business
• Records will serve as history of its financial
activities
• Done systematically and chronologically for
easier tracking and interpretation
 Functions of Accounting

CLASSIFYING
Sorting or grouping of similar transactions
and events in a specific period of time
• purchase / sales / loan, etc.
• a plus or a minus
 Functions of Accounting
SUMMARIZING
Involves grouping of various accounts
referred to the classifying process there the
accounts are grouped into assets, liabilities,
owner’s equity, revenue, cost and expenses
taken from the general ledger
All recorded economic events into
accounting reports (1year)
 Functions of Accounting

REPORTING
Preparation of the financial statements
such as statement of financial position,
statement of comprehensive income,
statement of owner’s equity and statement
of cash flows
 Functions of Accounting
REPORTING
• Financial reports/ financial statements
• All events are put together to provide meaningful
and presentable information
• All transactions during the period are added and
presented as one whole amount
• For more simplified and understandable
presentation of information
 Functions of Accounting

INTERPRETING
Final function in the accounting process
• Data from the financial reports is being used
as basis for the future and framing of
business policies
 Nature of Accounting
• SERVICE ACTIVITY
• PROCESS
• ART
• FINANCIAL INFORMATION AND
TRANSACTION
• MEANS AND NOT AN END
• INFORMATION SYSTEM
 Nature of Accounting

Accounting is a SERVICE ACTIVITY

• Providing professional service
particularly preparing financial reports
• Specialized field
 Nature of Accounting

Accounting is a PROCESS
• Multiple steps that lead to a common goal
• Identifying, recording, summarizing, and
reporting economic events
• End goal of providing information to internal
and external parties
 Nature of Accounting

Accounting is an ART
• “way of performing something”
• Entails creativity and skills to attain certain
objectives
• Combination of techniques and its
application (requires skill and expertise)
 Nature of Accounting

Accounting deals with FINANCIAL

INFORMATION AND TRANSACTION
• Deals with quantifiable financial transactions
• Events identified by accountant, recorded in the books,
communicated to different parties
• Nonfinancial transactions are not the focus of accounting
process. However, nonfinancial data may be used to
interpret and better estimate some financial data
 Nature of Accounting
Accounting is an INFORMATION SYSTEM
• Storehouse of information
• Collects, process and communicates
financial information
Accounting is a MEANS AND NOT AN END
• Tool in achieving specific objective and not
the objective itself
 History of Accounting

Early Development in Mesopotamia

• System of writing and counting money
• Taxation and trading activities
 History of Accounting
Development in the Roman Empire
• Reign of Emperor Augustus
• Detailed financial information of deeds of Emperor
Augustus regarding stewardship in Roman
resources
• Prepared rationarium (account) which listed public
revenues, the amount of cash in aerarium
(treasury), in the provincial fisci (tax officials) and
in the hands of the publicani (public contractors)
 History of Accounting
Dissemination of double- entry bookkeeping the
14th century Italy
• Father of modern accounting - LUCA PACIOLI
• Double- entry bookkeeping system
• Debit and credit for each transaction
• DEBIT – to take away money from the account
• CREDIT – to add money from the account
• System being used this day
 History of Accounting

Signing of Charter by Queen Victoria

ROYAL CHARTER RECOGNITION
• Scotland in 19th Century
• Origin of the accountant at a modern
profession
• Granted by Queen Victoria in Glasgow
• Institute of Accountants
 History of Accounting

Harmonization of Accounting
Standards
• Philippines Financial Reporting
Standard (PFRS)
• Philippines Accounting Standards
(PAS)
 Communication of Accounting

• Interaction between customers investors, creditors,

and other groups
• FINANCIAL STATEMENTS
• Empowered to make economic decisions
• Two types of financial statements
EXTERNAL USERS
INTERNAL USERS
 Communication of Accounting
EXTERNAL USERS
(Secondary Users)
Individuals and organization outside a
company who want financial information
about the company.
Not directly involved in managing and
operating the business.
Potential investors and creditors.
 External Users
CUSTOMERS
 People or entities that acquire goods and services
for a fee
 Main source of income of business
 For assessing the financial position of its suppliers
which is necessary for them to maintain a stable
source of supply in the long term
 Provide hint at the quality of products and services
the business offers
 External Users
CREDITORS
 Possible sources of additional funds
 Lend their resources (usually money) in
exchange for a fee (usually interest) why?
 Banks, lending institutions, wealthy
individuals, government
 They first examine its financial statements
before granting loans. Why?
 Level of profit vs level of borrowings
 External Users
POTENTIAL INVESTORS
 Aside from the owners, investors provide additional
fuel to drive the company
 Put their resources (usually money) in a business
hoping to earn a decent amount of return
 May win or lose in their business (unlike creditors)
 Financial ratios
 Earn more profit that creditors
 For analyzing the feasibility of investing in a
company
 External Users
GOVERNMENT
 Regulate the business in the economy.
 Agencies assigned to check if the business follow
guidelines provided by the law in their operations.
 Taxing authorities.
 Looks at the income, revenue, and expenses of a
company.
 Revenue and expenses are closely scanned for
taxing purposes.
 External Users
ACADEME
 Professors, researchers, students
 Fin statements for academic purposes
 Banking and finance, entrep, economics,
etc.
 Serves as blueprint to help students
 Identify particular trends in the industry
 For improvement of accountancy practices
and standards
 External Users
PUBLIC
 Gives hint about the condition of the economy
 If the economy is not doing well, the public cut on
their expenses and increase their savings
 Whether or not it is wise to start a business given
the current economic conditions
 To stay on your current job or look for higher-
paying job
 Determine the best use of a person’s resources
 Communication of Accounting
INTERNAL USERS
(Primary Users)
 Individuals inside a company who plan,
organize, and run the business.
 Directly involved in managing and operating
the business.
 Marketing managers, production
supervisors, finance directors, company
officers and owners.
 Internal Users
MANAGEMENT
 Employees within the company that can implement
decisions affecting the company’s operations.
 MANAGER- members of the board of directors, top
management, middle- level managers, supervisors.
 Information need: income/ earning for the period, sales,
available cash, production cost.
 Decisions supported: analyze the organization’s
performance and position and take appropriate measures to
improve the company results, sufficiency of cash to pay
dividends to stockholders; pricing decisions.
 Internal Users
EMPLOYEES
 Employees aside from the managers.
 Good-performing companies have employees that
are motivated and competent.
 Information need: profit for the period, salaries paid
to employees, additional benefits (bonus,
insurance).
 Decisions supported: job security, consider staying
in the employ of the company or look for other
employment opportunities.
 Internal Users
OWNERS/ STOCKHOLDERS
 Existing investors of the company.
 Already invested their resources in the
company.
 Some take active role in the
management.
 Some just wait for generation of profits.
 Internal Users
OWNERS/ STOCKHOLDERS
Information need : profit or income for the
period, resources or assets of the business,
liabilities of the business.
Decisions supported: considerations
regarding additional investment, expanding
the business, borrowing funds to support any
expansion plans.
 ACTIVITY
Search for a business and fill out the given
template
Name of Business:____________________
Name of the Founder/Owner:____________
Scope of Business:____________________
Decision/Question that can be supported by
Accounting Information:_________________