ACCOUNTING:

DEFINITION, NATURE,
FUNCTION AND
HISTORY
LAWRENCE J M. MARCELLA, CPA
Accounting is a service activity. Its function is to
provide quantitative information, primarily
financial in nature, about economic
entities, that is intended to be useful in making
economic decision.
- Accounting Standards Council (ASC)
Accounting is the art of recording, classifying
and summarizing in a significant manner and in
terms of money, transactions and events
which are in part at least of a financial character and
interpreting the results thereof.
- American Institute of Certified Public Accountants (AICPA)
Accounting is the process of identifying,
measuring, and communicating economic
information to permit informed judgment and
decisions by users of the information.

- American Accounting Association

 NATURE OF ACCOUNTING

FINANCIAL
ART (IN
NATURE)
PROCESS

Icons made by photo3idea_studio from www.flaticon.com

 FUNCTIONS OF ACCOUNTING

The functions of accounting in business can be attributed to the three

fundamental objectives of an information system.

❑To fulfill the stewardship function of the

management (or owners);

❑To help interested users come up with informed

decisions; and

❑To support daily operations of the business

 KEY DATES IN ACCOUNTING REVOLUTION – PH SETTING

TIME
EVENTS
PERIOD
The first income tax law in the Philippines is
1913
enacted.
The first Accountancy Law , Republic Act (RA)
1923 3105 in the Philippines was passed. This law
created the Board of Accountancy (BoA).
The Accountancy Law was revised and passed
1967
under RA 5166.
In the Philippines, the Accountancy Law was
1975 revised and passed under Presidential Decree
No. 692
 KEY DATES IN ACCOUNTING REVOLUTION – PH SETTING
TIME PERIOD EVENTS
Philippine Institute of Certified Public Accountant (PICPA) created
the Accounting Standards Council (ASC) to establish and improve
1981
the generally accepted accounting principles (GAAP) in the
Philippines.
The Philippines started transitioning from applying American-
1997 based accounting standards to applying International Accounting
Standards (IAS).

The Professional Regulation Commission (PRC) created the

2004
Financial Reporting Standard Council (FRSC).

The RA 9298, Philippine Accountancy Act of 2004 was passed

into law.

2005 to present The Philippines become fully compliant with IFRS.

THREE IMPORTANT ACTIVITIES IN THE ACCOUNTING PROCESS

Identifying means the recognition or nonrecognition of

“accountable” events (only economic events or transactions). An
event is accountable or quantifiable when it has an effect on
assets, liabilities and equity.

Measuring is the process of determining the monetary

amounts at which the elements of the financial statements are
to be recognized and carried in the balance sheet and income
statement.

Communicating is the process of preparing and distributing the

accounting reports to potential users of accounting information;
hence, accounting has been called the “universal language of
business.”
COMMUNICATING
RECORDING
• Popularly called journalization.
• Involves the routine and mechanical process of committing to
writing business transactions and events on the books
accounts in a chronological sequence in accordance with
established accounting rules and procedures.
CLASSIFYING
• Sorting or grouping of similar and interrelated transactions
and events into their respective classes through posting to
the ledger.

SUMMARIZING
• Refers to the preparation of financial statements.
 THE ACCOUNTING PROCESS
Analyzing the
Preparing the Preparing the
business
financial closing
documents or
statements entries
transactions

Preparing the Preparing a

Journalizing adjusting post closing
entries trial balance

Preparing the Preparing the

Posting unadjusted reversing
trial balance entries