 Accounting is the art of recording, classifying and summarizing in a Economic activities of an enterprise are Economic activity

significant manner and in terms of money, transactions and events

referred to as transactions which may be -the activity of
which are, in part at least, of financial character, and interpreting
classified as external and internal. making, providing,
the results thereof (New York: American Institute of Certified Public
purchasing or selling
Accountants)
goods or services.
External/exchange transactions
 Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature about
- Economic events involving one
economic entities that is intended to be useful in making economic enterprise and another enterprise
decisions. (Accounting Standards Council)
Internal transactions
 Accounting is the process of identifying, measuring and
communicating economic information to permit informed judgment - Economic events involving the enterprise only
and decision by users of the information. (American Accounting - Take place entirely within the enterprise
Association) - Ex. Production and casualty loss

Important points:
1. Accounting is about quantitative information. 2. Measuring. (technical component)
2. Information is likely to be financial.  Process of assigning of peso amounts to the economic
3. Information should be useful in decision making. transactions and events.
 Amounts used in financial
The purpose of accounting is to provide quantitative information for transactions are: Historical Cost
the making of economic decision. - Historical cost -The original cost
- Current replacement cost incurred on the past
- Current selling price to acquire an asset.
Components of accounting, namely:
- Present or discounted value
1. Identifying. (analytical component)
Accountable Events 3. Communicating. (formal component)
 Process of recognition and – Only business
nonrecognition of business transactions are to
 Process of preparing and distributing reports to the
activities as “accountable be recorded in the potential users of accounting information.
events” books of account  Hence, this has been “language of business”
and personal
 Only economic activities are
transactions should
emphasized and recognized in be discarded.
financial accounting Aspects of accounting implicit in the communication
process:

a. Recording or Journalizing
 Systematically writing business transactions and events
after identified and measured, in books of account in a
systematic and chronological manner.
 Identifies and measures economic activities, processes
information into financial reports, and communicates these
reports to decision makers.
HISTORY AND EVOLUTION OF ACCOUNTING

b. Classifying  Ancient South Africa

 Sorting or grouping of Blombos Cave in South Africa, found markings used to count
Ledger
similar and interrelated -Group of “accounts” or store information that are almost 76,000 years old.
economic transactions which are systematically
after identified and categorized into asset,  Ancient Iran (between 4th millennium B.C. and 3rd
measured. liability, equity, revenue
millennium)
and expense accounts.
 Accomplished by Cylindrical tokens were used for bookkeeping on clay
posting to the ledger. scripts.

c. Summarizing  In Mesopotamia, circa 3500 B.C.

 Preparation of financial statements which are:
-Statement of Financial Position/Balance Sheet
-Statement of Comprehensive Income/Income
Statement
-Statement of Cash Flows
-Statement of Changes in Equity
-Notes to Financial Statement
Accounting as a science and art
 A social science with a body of knowledge which has been
systematically gathered, classified, and organized.
 A practical art which requires the use of creative skill and
judgment.
Accounting as an information system
Produced oldest known records of commerce, 5000 years
before the appearance of double entry.
 Egypt
Extensive records were kept for government accounting (for
in kind tax payment) simple list-making only.
 China
Used accounting of evaluating the efficiency of
governmental programs.
 Greece (5th century B.C.)
Legislation on financial matters included control of receipts
and expenditures of public monies through oversight of 10
state or “public accountants”