I.

Introduction to Accounting

WHAT IS ACCOUNTING?
Accounting is a system that helps business tracks events that affect them. This process
involves;

 I - Identifying the events that affect a business,

 R - Recording these events
 C - Communicating the summarized results of all events within a
particular period to interested parties.

 The accounting process since it aids then in improving their business.

 It can identify potential problems encountered by the company
 Consolidated records can be used to attract potential investors

WHAT IS ACCOUNTING PROCESS?

1. Identification of economic events relevant to a business.
 Sale of Toyota Cars
 Provision of services by a hospital
 Payment to suppliers
 Purchase of equipment for the manufacturing of Bench shirts
Take note: To be identified as a relevant economic event, there should be transfer of
things with value
2. Recording of relevant economic events
 History of financial activities
 Should be done systematically and chronologically for easier tracking and
interpretation
 Records of events are inputted in accounting books

3. Summarizes all the recorded economic events into accounting reports

 Provides meaningful and presentable information
 Makes information understandable to other parties
 Financial statements – most popular accounting reports
 II. NATURE OF ACCOUNTING
1. Accounting is a process
 A process is composed of multiple steps that lead to a common end goal.
 Accounting is a process because it performs the functions of identifying,
recording, communicating economic events with the end goal of providing
information to internal and external parties.

• Accounting
Process

• IRC economic events

Steps

• Provide information to EI users

End goal

2. Accounting is an art.
 Art refers to a way of performing something.
 It entails creativity and skills to help us attain some objectives
 Accounting is the art of recording, classifying, summarizing, and finalizing
financial data.
 Accounting is a combination of techniques and its application requires skill and
expertise.
3. Accounting deals with quantifiable financial information and transactions.
 Non-financial transactions are NOT the focus of the accounting process.
 However, non-financial data may be used to interpret and better estimate some
financial data.
4. Accounting is a means and not an end.
 It is a tool to achieve specific objectives.
5. Accounting is an information system.
 Storehouse of information
 Meets the need of financial information required by different interested groups
GROUP DISCUSSIONS:
1. Think of at least two types of business belonging to different industries (ex. Petron
from oil industry and Jollibee from the food industry.)
2. Give five examples of economic events that each company identifies and records in its
respective accounting books.
3. Discuss why these events or transactions are recorded in the accounting books.

III. FUNCTIONS OF ACCOUNTING

A. Keeping systematic record of business transactions
 Records should be systematic enough to enable easy understanding of readers
 “No matter how comprehensive the records are, if they are not produced
systematically, then they provide little to no value.”
B. Communicating results to various parties in or connected with the business
 Used by the management in their decision making function
 External users (e.g., potential investors, government agencies)
 Enable well-informed decisions
C. Meeting legal requirements
 To protect the public by providing them the necessary information to make
sound decisions
D. Protecting properties of the business
 Records serve as the evidence that properties of a business do exist or how
much of a particular resource does a company have
 Helps in preventing employee fraud and misappropriation of company resources

IV. HISTORY OF ACCOUNTING

It is believed that the history of accounting is thousands of years old and can even be
traced to ancient civilizations.
 A number of history books suggest that the early development of accounting can be
dated back to Ancient Mesopotamia.
 People followed a system of writing and counting money
 The development of accounting may be related to the taxation and trading activities
of temples.

 Reign of Emperor Augustus (63 BC – 14 AD)

o The roman government kept detailed financial information of the deeds of
Emperor Augustus regarding the stewardship of Roman resources.
 o This is evidenced by the Res Gastae Divi Augusti (The Deeds of the Divine
Augustus)
 The Roman historians Suetonius and Cassius Dio recorded that in 23 BC, Augustus
prepared a rationarium (account) which listed public revenues, the amount of cash in
the aerarium (treasury), in the provincial fisci (tax officials), and in the hands of the
publican (public contractors); and that it included the names of the freedmen and
slaves from whom a detailed account could be obtained.
 Luca Pacioli was known as “The father of Modern Accounting” because of his “double-
entry bookkeeping system” is defined as any bookkeeping system that has a debit and
a credit for each transaction.
o Luca Pacioli’s Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Review of Arithmetic, Geometry, Ratio, and Proportion) is
the first book printed with a treatise on bookkeeping. The double entry
bookkeeping system is the system being used to this very day.
 Chartered Account (modern profession)
o Chartered – fully qualified as a professional
o Chartered accountant – fully qualified accountant: an accountant who has
passed the examinations of a governing professional body that has been
granted a royal charter.
o Originated in Scotland during the 19th century
o Queen Victoria granted a royal charter to the Institute of Accountants in
Glasgow
 At present time, accounting standards are already available to guide accountants in
their practice of the profession.
o PFRS – Philippine Financial Reporting Standard
o PAS – Philippine Accounting Standards
Evaluation:
1. What is the title of the first book written with a treatise on bookkeeping?
a. Review of Algebra, Geometry, Statistics and Probability
b. Review of Arithmetic, Geometry, Statistics and Probability
c. Review of Arithmetic, Geometry, Ratio and Proportion
d. Review of Algebra, Geometry, Ration and Proportion
2. Which of the following DOES NOT belong to the group?
a. Potential Investors
b. Manager
c. Supervisor
d. CEO (Chief Executive Officers
3. Which of the following is NOT a step in the accounting process?
a. Communication
b. Verification
c. Identification
d. Recording
4. Who is considered as the father of modern accounting?
a. Cassius Dio
b. Suetonius
c. Augustus
d. Luca Pacioli
5. Which is not a nature of accounting?
a. Accounting is an art
b. Accounting consist of steps
c. Accounting is a means not an end
d. Accounting is an information system
6. What does PFRS stand for?
a. Philippine Financial Reporting Standard
b. Philippine Financier Results Standard
c. Philippine Financier Reporting Standard
d. Philippine Financial Results Standard
7. Which of the following statements describes the accounting process?
a. It involves identifying relevant economic events.
b. Recording economic events is an essential part of the accounting process
c. The accounting process is not complete if the financial information is not
communicated to interest users.
d. All of the above
8. Which of the following is NOT a relevant economic event?
a. An agent who attended to the concern of a complaining customer
 b. Patricia, manager of Company X, who sold an abandoned building of her
company
c. Company Y which borrowed P5M from a bank due to tight financial conditions
d. Company Z which paid its employees their salaries for the month of January.
9. Jamie, the chief accountant of company X, is preparing for a meeting with the top
management. This meeting is done monthly to evaluate the performance of the company. Which
step of the accounting process is most likely being done?
a. Recording
b. Communication
c. Identification
d. Classification
10. What does PAS stand for?
a. Philippine Accountability Standard
b. Philippine Accountancy Standard
c. Philippine Accounting Standard
d. Philippine Accountant Standard