DISCUSSION 1.

1
INTRODUCTION

Accounting is, broadly speaking, a system that helps businesses track events that
affect them. This process involves identifying the events that affect a business,
recording these events, and communication the summarized results of all events
within a particular period of interested parties.

Almost all companies allot a significant amount of resources to the accounting

process since it aids them improving their business.       

For example, sale of Toyota Cars. The Accountant will record this transaction and
consolidate all records by the end of the month. The consolidated records can be used
by the top management to identify potential problems encountered by the company. 
Clearly, accounting process is very beneficial to a company.

The Accounting Process

 The starting point of accounting process is the identification of economic events relevant to a

business.
 The recording of relevant economic events is the next step in the accounting process. After a
company identifies the relevant economic events, it records those events which will serve as
the history of its financial activities.
 Finally, after a lapse of specific period ( usually one year), companies summarize  all the
recorded economic events into accounting reports

Nature of Accounting

The basic feature of accounting is as follows:

 1.  Accounting is a process. A process is composed of multiple steps that lead to a common end
goal. The enrolment process in school may involve reservation of slots, filling out documents,
attending school orientation, and payment of necessary fees.
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 a combination of techniques and
its application requires applied skill and expertise. This is a reason why accounting can be
considered as an art.
3. Accounting deals with financial information and transactions. Accounting deals only with
quantifiable financial transactions. These are the only events identified by the accountant,
recorded in the books, and communicated to different parties. Non-financial transactions are
not the focus of the accounting process but may be used to interpret some financial data.
4. Accounting is a means and not an end. It is a tool to achieve specific objectives.  It is not the
objective itself.
5. Accounting is an information system. Accounting is recognized and characterized as
storehouse information. As a service function, it collects processes and communicates
financial information of an entity.

Functions of Accounting

            The American Accounting association (AAA) defines accounting as “the

process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by the users of information”

        Meanwhile, the American Institute of certified Public accountants (AICPA)

defines accounting as “the art of recording, classifying, and summarizing in a
significant manner and terms of money, transactions and events which are in part at
least of financial character and interpreting the results thereof.”

 Keeping Systematic Record of Business. Transactions in the accounting books. The 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.

 
  Protecting Properties of the Business. The accounting records serve as the evidence that the
properties of a business do exist or how much of  particular resource does a company have. If
the accounting records show that the amount of cash should be P1,000,000, any excess and
deficiency will be noticed immediately. Moreover, the accounting system helps in preventing
employee fraud and misappropriation of the company resources.

 Communicating Results to Various Parties in or Connected with the business. The

accounting reports produced at the end of each period are not only used by the external
parties (e.g, potential investors, government agencies), but also by the management in their
decision-making function. Communication of the result of the operations of a company is
essential for all concerned parties to enable them to take well-informed decisions.

 Meeting Legal requirements. In the Philippines, the government requires some companies
(particularly those with public accountability) to provide financial reports quarterly, semi-
annually, or annually. This Procedure aims to protect the public by providing them the
necessary information to make sound decisions.

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 books suggest that the early
development of accounting can be dated back to ancient Mesopotamia.

            The reign of Emperor Augustus (63 B.C. and 14 A.D) provided more evidence
about the development of accounting. The roman historians Suetonius and Cassius
Dio recorded that in 23 B.C Augustus prepared a rationarium (account) which listed
public revenues, the amounts of cash in the aerarium (treasury), in the provincial fisci
(tax officials), and the hands of publicani (public contractors); and that included the
name of the freedmen and slaves from whom a detailed account could be obtained.

            Many consider the dissemination of the double-entry bookkeeping of Luca

Pacioli in the fourteenth century; Italy is the most important event in accounting
history. In fact, Luca Pacioli is acknowledged as the father of modern accounting
because of this. The double-entry bookkeeping system is defined as any bookkeeping
system that has a debit and a credit for each transaction.

            Modern profession of the chartered accountant originated in scotland in

nineteenth century when Queen Victoria granted a royal charter to the institute of
Accountants Glasgow. At the present times, accounting standards are already
available to guide accountants in their practice of the profession. Some of these
standards include the PFRS (Philippine Financial Reporting Standard) and the PAS
(Philippine Accounting Standards).

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