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COLLEGE OF MARY IMMACULATE

JP Rizal St., Poblacion, Pandi, Bulacan


(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

INTRODUCTION TO ACCOUNTING

Learning Objectives:
After studying this chapter, the students should be able to:
1. state the meaning and need of accounting;
2. discuss accounting as a source of information;
3. explain the objectives of accounting; and
4. describe the role of accounting.

WHAT IS ACCOUNTING? ITS DEFINITION AND MEANING

Over the centuries, accounting has remained confined to the financial record-keeping
functions of the accountant. But, today’s rapidly changing business environment has
forced the accountants to reassess their roles and functions both within the
organization and the society.

The role of an accountant has now shifted from that of a mere recorder of transactions
to that of the member providing relevant information to the decision-making team.
Broadly speaking, accounting today is much more than just bookkeeping and the
preparation of financial reports. Accountants are now capable of working in exciting
new growth areas such as: forensic accounting (solving crimes such as computer hacking
and the theft of large amounts of money on the internet); ecommerce (designing web-
based payment system); financial planning, environmental accounting, etc.

This realization came due to the fact that accounting is capable of providing the kind of
information that managers and other interested persons need in order to make better
decisions. This aspect of accounting gradually assumed so much importance that it has
now been raised to the level of an information system. As an information system, it
collects data and communicates economic information about the organization to a wide
variety of users whose decisions and actions are related to its performance.

The American Institute of Certified Public Accountants (AICPA) defines accounting as:

“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 financial character, and interpreting the results thereof.”

Accounting is considered an art


Accounting is considered an art because it requires the use of skills and creative
judgment. One has to be trained in this discipline to be able to perform accounting
functions well.

COLLEGE OF MARY IMMACULATE © 2020. All Rights Reserved.


For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.
COLLEGE OF MARY IMMACULATE
JP Rizal St., Poblacion, Pandi, Bulacan
(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

Accounting is also considered a science because it is a body of knowledge. However,


accounting is not an exact science since the rules and principles are constantly changing
(improved).

Accounting involves interconnected "phases"


Recording pertains to writing down or keeping records of business transactions.
Classifying involves grouping similar items that have been recorded. Once they are
classified, information is summarized into reports which we call financial statements.

Business transactions are expressed in terms of money


They are assigned amounts when processed in an accounting system. Example, it is not
enough to record that the company paid salaries for April. It must include monetary
figures – say for example, P20,000 salaries expense.

Concerned with transactions and events having financial character


For example, hiring an additional employee is qualitative information with no financial
character. Hence, it is not recorded. However, the payment of salaries, acquisition of an
office building, sale of goods, etc. are recorded because they involve financial value.

Interpreting the results


Interpreting results is part of the phases of accounting. Information is useless if they
cannot be interpreted and understood. The amounts, figures, and other data in the
financial reports have meanings that are useful to the users.

By studying the definition alone, we learned some important concepts in accounting. It


also gave us an idea of what accountants do.

You may not notice but the simple things you do and encounter everyday can actually
be related to some level of accounting. You make budgets, count change and check the
receipts from the supermarket. You may also have listed things you spent your money
with at one point in your life.

We are surrounded by business – from managing our own money to seeing profit
statements of big corporations. And where there is business, there sure is accounting.

THE NATURE OF ACCOUNTING


1. Accounting is a process
2. Accounting is an art
3. Accounting deals with financial information
4. Accounting is a means and not an end
5. Accounting is an information system

COLLEGE OF MARY IMMACULATE © 2020. All Rights Reserved.


For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.
COLLEGE OF MARY IMMACULATE
JP Rizal St., Poblacion, Pandi, Bulacan
(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

 Process – multiple steps that lead to a common end goal


 Art – entails creativity and skills to help us attain some objectives; art of
recording, classifying, summarizing, and finalizing financial data
 Financial information – deals only with information that are quantifiable
 Means and not an end – accounting is a tool to achieve an objective and not the
objective itself
 Information system – storehouse of information

FUNCTIONS OF ACCOUNTING IN BUSINESS

1. Keeping systematic record of business transactions


Does not only involve recording of transactions in the books; the records should be
systematic enough to enable easy understanding of readers.

2. Protecting properties of the business


The accounting records serve as the evidence that properties of a business do exist
or how much resources does a company have.

3. Communicating results to various parties in or connected with the business


The accounting reports produced at the end of each period are used by both internal
and external users; used to make well-informed decisions.

4. Meeting legal requirements


Aims to protect the public by providing them the necessary information to make
sound decisions.

HISTORY OF ACCOUNTING

The history of accounting or accountancy is thousands of years old and can be traced to
ancient civilizations. The early development of accounting dates back to ancient
Mesopotamia, and is closely related to developments in writing, counting and money
and early auditing systems by the ancient Egyptians and Babylonians. By the time of the
Emperor Augustus, the Roman government had access to detailed financial information.

Early development in Mesopotamia


People followed a system of writing and counting money. The development of
accounting may be related to the taxation and trading activities of temples.

The use of Bulla (plural Bullae) for record keeping found in Mesopotamia was
considered by experts as the beginning of the art of writing. The original bulla was a
lump of clay molded around a cord and stamped with a seal. Once the clay has dried,
the container (such as a vase or money bag) cannot be violated without visible damage
COLLEGE OF MARY IMMACULATE © 2020. All Rights Reserved.
For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.
COLLEGE OF MARY IMMACULATE
JP Rizal St., Poblacion, Pandi, Bulacan
(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

to the bulla, thereby ensuring the contents remain tamper-proof until they reach their
destination.

Development in the Roman Empire


The reign of Emperor Augustus (63BC-14AD) provided more evidence about the
development of accounting. The Roman government kept detailed financial information
of the deed of Emperor Augustus regarding the stewardship of Roman resources.

Roman historian Suetonius and Cassius Dio recorded that in 23BC, Augustus prepared a
rationarium (account) which listed public revenues, the amounts of cash in the aerarium
(treasury), in the provincial fisci (tax officials), and in the hands of the publican (public
contractors); and that it included the names of the freedmen and slaves from whom a
detailed account could be obtained

Luca Pacioli, The Father of Accounting


The Italian Luca Pacioli, recognized as The Father of accounting and bookkeeping was
the first person to publish a work on double-entry bookkeeping, and introduced the
field in Italy. His book Summa de Arithmetica, Geometria, Proportion at Proportionality
(Review of Arithmetic and Geometric Proportions) in Venice (1494) is considered as the
first book on double entry bookkeeping. A portion of this book contains knowledge of
business and book-keeping. However, Pacioli did not claim that he was the inventor of
double entry book-keeping but spread the knowledge of it. It shows that he probably
relied on then–current book-keeping manuals as the basis for his masterpiece. In his
book, he used the
present day popular terms of accounting Debit (Dr.) and Credit (Cr.)

Signing of charter by Queen Victoria


The modern profession of the chartered accountant originated in Scotland in the 19th
century when Queen Victoria granted a royal charter to the Institute of Accountants in
Glasgow.

Formation of accounting standards such PAS and PFRS

REFERENCES:

Joselito G. Florendo, Fundamentals of Accountancy, Business and Management 1, 1st


Edition 2016
Benedick Manalaysay, Fundamentals of Accountancy, Business, and Management I,
Anvil Publishing, 2019

COLLEGE OF MARY IMMACULATE © 2020. All Rights Reserved.


For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.

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