Chapter I: INTRODUCTION TO ACCOUNTING

According to Weygandt, J. et al, Accounting is the process of IDENTIFYING, RECORDING, and

COMMUNICATING economic events of an organization to interested users.

Economic events are referred to as transactions, specifically financial transactions (transactions involving
money)
Sales of bread and other bakery products
Purchases of flour that will be used for baking
Purchases of trucks needed to deliver products

NATURE OF ACCOUNTING
1. Accounting is a service activity.
- Accounting provides assistance to decision makers by providing them financial reports that will guide
them in coming up with sound decisions.

2. Accounting is a process.
- A process refers to the method of performing any specific job step by step according to the objectives
or targets. Accounting is identified as a process, as it performs the specific task of collecting, processing
and communicating financial information. In doing so, it follows some definite steps like the collection,
recording, classification, summarization, finalization, and reporting of financial data.

3. Accounting is both an art, science and a discipline.

- It started as a science. In the history of men where mankind had relied on their special skills and natural-
born intelligence, accounting was simply invented by them in a way they could understand it. (skill of
discovering something)

- It was defined as an art. The art is on the recording aspect, classifying, summarizing and interpreting.
When art is applied, processes and policies are made uniquely for the business including management
reports which are customized as needed by the users.

- It became a discipline because accountancy became a profession and the practice of it is governed by
sets of rules and accounting standards. The accountant is bound by Code of Ethical Standards.

4. Accounting deals with financial information and transactions.

- Accounting 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, from start to finish, accounting deals
with financial information and financial information only. It does not deal with non-monetary or non-
financial aspects of such information.

5. Accounting is an information system

- Accounting is 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.

FUNCTIONS of accounting
With the help of accounting, the following questions can be answered;
 Is my business earning? (profitability)
 How much daily or monthly sales do I need in order to recover my fixed-cost? (break-even)
 Do I need to hire additional workers to help me with my production?
 Can I afford to set up a new store in another place? Where do I get funds?
 Can I afford to pay back the loans?
 Is accounting important to you?
 Does it affect your daily activities? How?”