INTRODUCTION TO ACCOUNTING

LOGO - LOCO
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BENCH
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UNILEVER
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UNIVERSAL
ROBINA
CORPORATION
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SAN MIGUEL
CORPORATION
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PAGCOR
(PHILIPPINE
AMUSEMENT AND
GAMING
CORPORATION)
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SHELL
(PILIPINAS SHELL
PETROLEUM
CORPORATION)
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P&G
(PROCTER &

GAMBLE
INTERNATIONAL
INCORPORATED)
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NESTLE
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AYALA
CORRPORATION
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NETFLIX
THE LEARNERS SHALL BE ABLE TO:

 Demonstrate an understanding of:

 the definition,
 nature,
 function,
 and history of accounting
DEFINITION

WHAT IS ACCOUNTING?

✔ Accounting is a systematic process

✔An art

✔Service Activity
DEFINITION

AAA – systematic process of identifying, measuring and communication

economic information to permit informed judgment and decision by users of
the information.
AICPA – art of recording, classifying, and summarizing in a significant
manner and in terms of money, transactions and events.
ASC – sees accounting as 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.
NATURE OF ACCOUNTING
1. ACCOUNTING IS A SYSTEMATIC PROCESS.
PROCESS is a series of actions that produce something or that lead to a particular result. As such,
the performance of the four aspects of accounting, which are recording, classifying,
summarizing, and interpreting, leads to communicating to its users the relevant financial
information needed by the parties interested.

2. ACCOUNTING IS AN ART.
ART is a skill acquired by experience, study, or observation. It is also defined as an occupation
requiring knowledge or skill. The four aspects of accounting require both knowledge and skill
through experience, study, or observation as a means to produce the key end product which are
the financial reports.

3. ACCOUNTING IS A SERVICE ACTIVITY.

SERVICE is the occupation or function of serving. ACTIVITY is something that is done as work or
for a particular purpose. Accounting is a work or occupation for serving a particular purpose.
The following information about the business is usually communicated:

1. The result of its financial operation, that is, whether the business is profitable
or not

2. The status of its financial condition, that is, whether the business is stable and
has the capacity to settle financial obligations

3. The cash inflows and outflows during the period, that is, where the business
obtains its cash and where it spend said cash

4. Other information that are probable to happen in the future

NATURE OF ACCOUNTING IN BUSINESS
 - The medium of communication
Accounting is between the business entity and
often called the owner or other users is known
the Language of as ACCOUNTING
Business
- The final product of the accounting
process is called the Financial
Statements.
FUNCTIONS OF ACCOUNTING

• 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.
FUNCTIONS OF ACCOUNTING

The definition of accounting enumerates the following basic functions:

• Recording

• Classifying

• Summarizing

• Interpreting
PROCEDURAL STEPS IN ACCOUNTING

Recording Classifying Summarizing Interpreting

Mechanical Phase of Accounting Analytical Phase

RECORDING
Refers to the routine and mechanical process of writing down business transactions.

- Recording is otherwise known as journalizing or bookkeeping.

- Business transactions are recorded daily and chronologically.

- Business transactions are recorded in the books of accounts. There are two set
of books used to record business transactions- the journal and the ledger.

Journal- is considered as the book of original entry, all business transactions are
recorded in the journal for the first time.

Ledger- is called the book of final entry. It is in the ledger where the transactions
recorded in the journal are classified.
CLASSIFYING
Refers to the process of sorting or grouping similar business transactions and events into their respective kinds
of classes.

- The grouping of similar transactions is recorded in the ledger.

- The process of transferring the same information from the journal to the
ledger is technically known as posting.

- Posting of information is usually made at the end of the month.

SUMMARIZING
- Is the phase in the accounting process which involves preparation of the financial statements.

- The financial statements are the final product of accounting.

- The financial statements reflect the operating performance and financial condition of the
business.

- Ordinarily, the summarizing process starts from the preparation of the trial balance,
determination of adjusting entries, and the preparation of the worksheet.

The complete set of financial statements includes the following:

1. Statement of financial position

2. Statement of comprehensive income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes to the financial statements
INTERPRETING
Refers to the process of analyzing and evaluating the information presented in the face of the
financial statements and the accompanying notes.

The financial statements present the following information:

1. Profitability of the business

2. Liquidity of the business
3. Stability of the business
4. Management efficiency
 One basic functions is the
generation of relevant and
timely financial information
for interested parties.
BUSINESS

Refers to the regular conduct of legal activities primarily intended to accumulate profit.

The generation of profit is considered as the primary motive of a business entity

Most, if not all, of business activities undertaken by the management are directed towards
accumulation of profit.

A business is also formed to promote the welfare of its members. The different individuals
comprising the business have common objectives, aspirations, accountabilities, and
responsibilities.

The secondary obligation of a business towards society is called its Social Responsibility
like promoting the welfare of their employees; providing clean and safe working place;
sustaining a healthy environment
 CLASSIFICATION OF BUSINESS ACTIVITIES

EXTERNAL BUSINESS ACTIVITIES are transactions undertaken by the business

with outside parties or with parties that are not connected with the
business.
Examples:
selling of goods or products;
purchasing raw materials;
rendering services to customers; or
paying the creditors

INTERNAL BUSINESS ACTIVITIES are activities that happen within the business
only. Entities outside the business are not involved.

Examples:
conversion of raw materials to finished products;
payment of salaries;
processing of voluminous supporting documents;
preparation of budgetary requirements; or
checking the authenticity of transactions.
CHARACTERISTICS OF BUSINESS ACTIVITIES

Intended for Profit

Financial in Character Regularly Undertaken

Characteristics
of Business
Activities Connected with
Legally
Undertaken Business
 BASIC PRINCIPLE
There can be no income or expense if there are no business
transactions.

Income > Expenses = Net Income

Income < Expenses = Net Loss

Business Transaction refers to exchange of values.

Examples:

1. Selling of goods to customers for cash

2. Rendering services to clients on credit
3. Paying the salaries of employees
A business activity is regularly undertaken.

The term regularity refers to the frequency

of occurrence. Business activities should
continuously and regularly happen during
the period.
However, there are business activities that are not
regularly undertaken but are still classified as
business activities because they are connected to or
they affect the business.
A business activity is financial in character.

The activity must be financial in character to be classified as business

activity.

The term financial in character means that the activity is measurable in

terms
of money, or it affects the properties, financial obligations or capital of a
business.

All business activities or transactions that are financial in character must be

recorded and reported in order to determine the operating performance
and financial status of a business.
A business activity should be connected with
business operations.

The activity must be connected with business for it to be

classified as business activity. The transactions of the
owner that are not connected with business operations are
not business activities even though they are financial in
character.
A business activity should be legally undertaken

A business activity is considered legal when it

is properly authorized and not against the law,
customs, or traditions.
DIFFERENCE BETWEEN BOOKKEEPING AND ACCOUNTING

BOOKKEEPING
 Confined with the recording (could also classify and Accounting
summarize) monetary transactions, which is one part
of the accounting process.

ACCOUNTING
Bookkeeping
 Accounting is broader as it includes the bookkeeping
function + Interpreting (analysis phase)
THE HISTORY AND ORIGIN OF ACCOUNTING

2500 B.C.
Historical accounting records have been found in ancient civilizations like the Egyptian, Roman, and Greek Empires as well as
ancient Arabia. Back then, rulers kept accounting records for taxing and spending on public works.

1000 B.C.
The Phoenicians created an alphabet with accounting so that they were not cheated through trades with ancient Egyptians.

500 B.C.
Egyptians carried on with accounting records. They even invented the first bead and wire abacus.

423 B.C.
The auditing profession was born to double check storehouses as to what came in and out the door. The reports accountants
took were given orally, hence the name “auditor.”

1200 – 1493
The first requirement for businesses to keep accounting records spread across many of the Italian Republics in the 13th
century. They took these records mainly to keep track of the day to day transactions and credit accounts with other businesses.
THE HISTORY AND ORIGIN OF ACCOUNTING
1494 
Luca Pacioli, the father of accounting, writes his famous paper “Everything about Arithmetic, Geometry, and Proportion.” The
treatise that he writes is mainly a study that Pacioli performs on the common practices of merchants in Venice, Florence, and
Milan. He revealed that several merchants kept books of debits which means “he owes” as well as credits which means “he
trusts.” With this early double entry accounting system merchants were able to maintain records so that they could improve the
efficiency of their businesses. With these records came the primitive income and balance sheet statements.

1500 – 1700
As the time progressed, double entry records had large and small innovations added. For example, the East India Company
develops invested capital and dividend distribution during the 17th century. This also created the need for a change in financial
accounting and managerial accounting. They used the first presentation to gain investors, while they used the next presentation
for business efficiencies.

 1700 – 1900
During the Industrial Revolution, accounting really took off as industrial companies sought out to gain financing and maintain
efficiency through operations. Several of the double entry accounting methods was truly developed in this area as there was a
focus on business as never before. Shortly after, the first accounting organization was developed in New York in the year 1887.
The title and professional license of the Certified Public Accountant followed shortly in the year 1896.
THE HISTORY AND ORIGIN OF ACCOUNTING

1920 – 1940
The 20s accounting really became important to reduce the amount of fraud and scandals that were performed in businesses around the
country. U.S. GAAP was developed shortly after by the American Institute of Certified Public Accountants (AICPA) and the Financial
Accounting Standards Board (FASB) in the year 1939.

1940 – Present
Since this time the AICPA and FASB have been working together with the Securities Exchange Commission (SEC) to develop accounting
standards for business. Through the help of technology and computer systems all standards created for U.S. GAAP have been centrally
located into what is known as the “codification.” The codification reveals all of the current practices and standards, and even reveals
developing areas of standards of accounting that are currently being debated upon.
Several accounting systems like Peachtree and Quickbooks have also made the accounting profession automated. These programs ease
the reporting of transactions, but also comply with GAAP. Because of this there is a lesser need for accountants to post transactions, and
more of a need for the review of these transactions. In some firms, they don’t realize the change as they still employ a full accounting staff.
As time moves forward it is necessary for accountants to move into a role of reviewing transactions rather than posting them.
 HIGHLIGHTING PACIOLI (1494)

 Pacioli was born in Borgo San Sepolcro. He became a tutor to the three
sons of a rich merchant. Pacioli popularized the system of recording
business transactions using memorandum books, journal books, and ledger
books.
 The system of bookkeeping was largely influenced by how commercial
establishments in Venice kept track of their business transactions. This is
probably something that he had learned from his exposure to the Venetian
merchants.
 He is the “Father of Modern Accounting”

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