Chapter I: Introduction to Accounting
What is Accounting?
 Accounting is the process of identifying,
measuring, and communicating economic
information to permit informed judgments
and decisions by users of information
(AAA).
 It is a system that measures business
activities, processes given information into
reports, and communicates findings to
decision makers (PICPA)
Nature of Accounting
Accounting is the language of business. It is
the tool used to communicate financial information
to users of economic/business entity.
Accountants Accounting Users
Economic/Business Entity- Any organization that
uses resources to achieve its goals and objectives.
Two types:
 For-profit- entities who generate
income from their operation.
 Nonprofit- entities who carry out
charitable operation.
Users of Information- Group of persons who are
interested in the financial information of the
business. There are two kinds of users—External
and Internal.
History & Origin of Accounting
Scholars believe that accounting originates
from the early ancient civilizations.
 Scribes in ancient Egypt were known to
keep thorough records of the inventory of
goods for the pharaoh.
 In Mesopotamia, records of commerce had
been inscribed on clay tables.
However, it was not until the 14th century
that
a system of bookkeeping was introduced.
Luca Pacioli- Franciscan friar and a mathematician
who published the “Summa de Arithmetica,
Geometria, Proportioni et Proportionalita
(Everything about Arithmetic, Geometry, and
Proportion)” in 1494 which introduced the double-
entry bookkeeping. He is then called the Father of
Double-Entry Bookkeeping”.
Accountancy in the Philippines
The seeds of Philippines accountancy as a
recognized profession were planted on March 17,
1928, when Act No. 3105 was approved by the 6th
Legislature entitled:
“An Act Regulating the Practice of Public
Accounting; Creating the Board of Accountancy;
Providing for Examination, for the Granting of
Certificates, and the Registration of Certified Public
Accountants, for the Suspension or Revocation of
Certificates; and for Other Purposes.”
Since then, both the profession and the body
that regulates it (BOA) have grown rapidly. From 43
registered accountants in 1923, the number of
CPAs has grown to over 190,000 as at today.
 Don Vicente Fabella- First Filipino CPA in
the United States (Passed the Milwaukee,
Wisconsin CPA Board Exams in 1915), and
founder of Jose Rizal University in 1919.
 Belen Enrile-Gutierrez- First Filipina CPA
and one of the seven original trustees of
FEU in 1933.
On May 13, 2004, Republic Act No. 9298,
known as the “Philippine Accountancy Act of 2004”
was signed into law by President Gloria
Macapagal-Arroyo repealing the Presidential
Decree No. 692, the Revised Accountancy Law. It
is the governing law that regulates the practice of
accountancy in the Philippines since.
Function of Accounting in Business
The primary function of accounting is to provide
quantitative financial information that is useful in
making economic decision. These financial
information are expressed and stated in a set of
reports called Financial Statements.
Five major kinds of Financial Statements:
 Statement of Comprehensive Income- Also
known as Profit/Loss Statement and Income
Statement. It shows the result of the
company’s performance as a result of
operations at a particular period of time.
 Statement of Changes in Equity- Provides
information about the entity’s financial and
investing activities. This includes
investments and withdrawals of owners.
 Statement of Financial Position- Presents
the entity’s assets, liabilities, and capital at a
given point in time.
  Statement of Cash Flows-Provides
information about the entity’s cash inflows
and outflows resulting from its operations,
investments, and financing.
 Notes to Financial Statements- Provides
additional information to help explain
specific items in the record.
Core Competencies of Accountants
Core competencies are a unique
combination of human skills, knowledge, and
technology that provides value and result to the
users (AICPA).
 Communication Skills- Accountants make
financial reports and translate these to help
the users of accounting information easily
digest them. They need to have good
communication skills to effectively
understand the explicit and implied needs of
their clientele. Without this skill, an
accountant will not be able to properly
convey the meaning of accounting
information to other people in the business.
 Leadership Skills- A leader is someone who
can influence, inspire, and motivate others
to achieve results. Accountants need to
have this set of skills because the
information that they provide to people in
the business is used to make wise decision.
 Strategic and Critical Thinking Skills-Critical
thinkers are problem solvers, and being
able to think critically is important in
accounting. In the field, accountants are
faced with many challenges, one of which is
linking the data gathered to arrive at an
insightful advice toward strategic decision
making.
 Ability to Focus- Accountant’s primary
objective is to provide financial information
to its users. If they were unable to focus,
they will be sidetracked to other unimportant
concerns that will hinder them from
achieving their goal.
 Ability to Interpret Converging Information-
Accountants must continuously deal with
wide range and varying information to
provide insightful interpretations that are
timely and of value.
 Adeptness with Technology- The current
technological trends and inventions are
reshaping business functions and activities
nowadays. It is important then that
accountants continuously develop a working
and strategic knowledge of these
technological advancements to better
perform their work.
Core Values of Accountants (AICPA)
 Competence- It is one’s ability to perform
high quality work in a capably, efficient, and
appropriate manner (AICPA). A professional
accountant should perform professional
services with due care, competence, and
diligence and has a continuing duty to
maintain professional knowledge and skill at
a level required to ensure that a client or
employer receives the advantage of
competent professional service based on
up-to-date developments in practice,
legislation, and techniques.
 Continuing Education and Lifelong
Learning- Learning does not stop at school
or when accountants have already received
their certification. The business world is
changing every moment and the only way to
adapt to the changing business environment
is to learn new things every time.
 Objectivity- Accountants are entrusted with
information and their responsibility is to deal
with information without personal bias and
ensure that this will be free from distortions.
 Integrity- It is conducting oneself with
honesty and professional ethics.
Accountants, especially the certified ones,
owe it to the public that the accounting
information they provide is true and
accurate.
 Attuned to Broad Business Issues-
Accountants must be in tune with the overall
realities of the business (AICPA). They must
have a deep understanding of the business
environment in the local and global settings.
This understanding will lead them to a
sound interpretation of financial information.
Fundamental Principles that Must Be Observed
By Accountants (PICPA)
 Integrity- A professional accountant should
be straightforward and honest in performing
professional services.
 Objectivity- A professional accountant
should be fair and should not allow
prejudice or bias, conflict of interest, or
influence of others to override objectivity.
 Professional Competence and Due Care- A
professional accountant should perform
professional services with due care,
competence, and diligence. He/She has a
continuing duty to maintain professional
knowledge and skill at a level required to
ensure that a client or employer receives
the advantage of competent professional
service based on up-to-date developments
in practice, legislation, and techniques.
 Confidentiality- Accountants should respect
the confidentiality of information acquired
during the course of performing professional
services and should not use or disclose any
such information without proper and specific
authority or unless there is a legal or
professional right or duty to disclose it.
 Professional Behavior- A professional
accountant should act in a manner
consistent with the good reputation of the
profession and refrain from any conduct
which might bring discredit to the
profession.
 Technical Standards- A professional
accountant should carry out professional
services in accordance with the relevant
technical and professional standards.
He/She should conform to the technical and
professional standards of the Board of
Accountancy (BOA) or Professional
Regulation Commission (PRC), Securities
and Exchange Commission (SEC), Auditing
and Assurance Standard Council (AASC),
Accounting Standards Council (ASC), and
other relevant legislation.