INTRODUCTION TO

ACCOUNTING
DEFINITION OF ACCOUNTING
Accounting is a service entity. Its function is to provide quantitative information primarily
financial in nature, about economic entities that is intended to be useful in making economic decisions.
Accounting is 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 a financial character, and
interpreting the results thereof.
4 FUNCTIONS OF ACCOUNTING
1. Recording the process of putting into writing the financial activities of the enterprise
chronologically.
- Technically referred to as bookkeeping
Bookkeeping defined as the systematic and chronological recording of business transactions
2. Classifying the process of grouping into specific classifications similar or alike transactions.
3. Summarizing the process of preparing financial reports (interchangeably used to mean
financial statements) from the recorded and classified transactions and events of the
enterprise.
4. Interpreting the process that supplies answers to questions about the profitability, stability,
solvency and liquidity f the enterprise.
1. Profitability the ability of the enterprise to generate profit from its operations
2. Stability refers to the ability of the enterprise to stay viable, i.e.; generate
profit for the owners, sustain operations and pay for long term financial
obligations.
3. Solvency should mean that the enterprise is capable of paying its short term
obligations.
4. Liquidity refers to the enterprise having sufficient cash.

Purpose of Accounting
To provide the information necessary to the organizations management to enable it to plan and
control its business activities.
The manager who lacks training in accounting is unable to identify all the pertinent elements of
the decision-making process, and thus, it is highly doubtful that he or she can function as an effective
manager.

History of Accounting
Once upon a time, Luca Pacioli wrote a math book entitled Summa de Arithmetica, Geometria,
Proportioni et Proportionalita. It was just a little survey and should have been treated like ordinary
books of the time and read and then disappeared into historical archives and forgotten. A few brief
chapters on practical mathematics made this one special.
The time was 1494. Columbus had discovered America just years before. The author was
Franciscan monk.
The chapter on practical mathematics in business, he said that the successful merchant needs
three things: sufficient cash or credit, an accounting system that can tell him how hes doing, and good
bookkeeper to operate it. His accounting system consisted of journals and ledgers. It rested on the
invention of double-entry bookkeeping debits were on the left side because thats what debit meant,
the left. The numbers on the right were named credits.
If everything was done right, then the bookkeeper could do a trial balance (summa
summarium). Add up all the debits and then add up all the credits, he said. Ifeverything had been done
right, the totals should match. If not, that would indicate a mistake in your ledger, which mistake you
will have to look for diligently with the industry and intelligence God gave you. he wrote.
Double-entry bookkeeping was so simple and met the needs of business so well that it caught on
immediately.

Fra Luca Bartolomeo de Pacioli

(1445 1517)
An Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and seminal
contributor to the field now known as accounting. He is the Father of double-entry accounting and
Modern Accounting.

BRANCHES OF
ACCOUNTING
1. Financial Accounting the area of accounting which is concerned with the proper recording of
the transactions and events of an enterprise and the eventual preparation of financial reports.
Financial managers are responsible for setting financial objectives, making plans based
on those objectives, obtaining the finance needed to achieve the plans, and generally
safeguarding all the financial resources of the entity.
2. Management Accounting
Incorporates cost accounting data and adapts them for specific decisions which
management may be called upon to make.
3. Government Accounting
Accounting for all transactions and events involving receipt and disposition of
government funds and property. This specialized area of accounting is used by the government
and its political instrumentalities like cities and municipalities.
4. Auditing the examination and evaluation of the different activities of the organization.
Once accounts have been prepared, they may have to be checked in order to ensure
that they do not present a distorted picture
5. Taxation/ Tax Accounting accountant are frequently asked to prepare income and business
tax returns for employers and clients. Tax accounting would also include consultancy services on
the impact of taxation on business projects
Accountants involved in tax work are responsible for computing the amount of tax
payable.
6. Cost Accounting emphasis is accounting for costs of manufacturing goods. Cost accounting
seeks to assign values to a manufacturing enterprise finished and unfinished inventories and
cost of sales as well.
A cost accounting system contains a great deal more data, and thus once the data are
summarized there is much more information available to the management of the company.
7. Accounting Education concerned with the teaching of accounting as a field of study. The
curriculum for accounting education in business schools and universities basically includes
topical discussions on all the specialized areas or branches of accounting as well as subjects on
income and business taxation, management and finance.
8. Accounting Research research on the effects of economic events on the process
of accounting, and the effects of reported information on economic events. It encompasses a
broad range of research areas including financial accounting, management accounting, auditing
and taxation.