Topic I

Introduction
to Accounting
Learning Objectives:
Define Accounting
Describe the nature of
Accounting
Explain the functions of
Accounting in business
Narrate the history/origin of
Accounting
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 (AAA)
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 financial
character, and interpreting the results
thereof American Institute of Certified
Public Accountants (AICPA)
Accounting
is a service activity that provides
quantitative information, primarily financial
in nature, about economic entities, that is
intended to be useful in making economic
decisions Accounting Standard Council (ASC)

o Accounting system is a means of collecting,

recording, summarising, analyzing and
reporting in monetary terms, the information
about the business.
Accounting Terms:
Business Transactions are interactions
between businesses and other stakeholders;
these have to be identified, measured, and
documented through accounting process
Economic information are data or facts that
affects the economy or economic decisions;
these are information helpful in the decision
making of the business especially in money
matters
Nature of Accounting
Accounting as an art
- art refers to the design of how something can
be performed; a behavioral knowledge involving
creativity and skill
- accounting activity is systematic in nature, it
has definite techniques and its proper application
requires a particular skill and expertise
* Accounting deals with transactions that are
financial in nature; business transactions have to
be measured in terms of money for it to be useful
in accounting
Nature of Accounting
Accounting is a process
- a process is a systematic series of actions
directed towards a particular outcome
- accounting process involves identifying,
measuring, and communicating financial
information
- it has to follow logical steps in the
accounting cycle like recording, classifying,
summarizing financial transactions, and
communicating the results
Nature of Accounting
Accounting is an information system
- information system is a set of interrelated
components that work together to achieve a
common purpose
- it includes collected financial data, proposed
financial information, and communicated financial
statements
* For businessmen, entrepreneurs, managers, and
stakeholders, accounting is a service activity. It
provides the service of ensuring the financial
statements are made available to users on a timely
basis.
Functions of Accounting
1. To fulfill the stewardship function of the
management or owners
2. To help interested users come up with
informed decisions
3. To support daily operations of the business
Bookkeeping and Accounting
According to Prof. G.A. Lee the accounting system has
two stages:
o Bookkeeping
- involves the chronological recording of finance
transactions in a set of books in a systematic
manner; this is part of the accounting process
o Accounting
- concerned with the maintenance of accounts giving
stress to the design of the system of records, the
preparation of reports based on the recorded data
and the interpretation at the reports
- accounting includes bookkeeping function
Accounting and Accountancy
o Accountancy
- refers to a systematic knowledge of accounting.
- explains how to deal with various aspects of
accounting
- it educates us why and how to maintain the
books of accounts and how to summarise the
accounting information and communicate it to
the users
* In the words of Kohler, accountancy refers to
the entire body of the theory and practice of
accounting.
History of Accounting
Accounting exist already during ancient civilization;
and in the ancient relies of Babylon, it was proved
to exist as long as 2600 B.C.
However, modern accounting was traced in
Renaissance period.
Frater Luca Bartolomes Pacioli, Italian monk and
mathematician, wrote Summa de Arithmetica,
Geometria, Proportioni et Proportionalita which was
published in Venice in November 1494; it included
24-page treatise in bookkeeping, Particularis de
Computis et Scripturiz (Details of Calculation and
Recording), and talks about recordkeeping and
double-entry accounting
History of Accounting
Pacioli popularized the system of recording
business transactions using memorandum
books, journal books, and ledger books; this
was influenced by commercial establishments
in Venice
Frater Luca Bartolomes Pacioli was regarded as
the Father of Modern Accounting
Qualitative Characteristics of
Accounting Information
Reliability
Relevance
Understandability
Comparability

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Attributes of Accounting
Accounting Process
1. Identification of Financial Transactions and
Events
2. Measuring the Identified Transactions
3. Recording
4. Classifying
5. Summarising
6. Analysis and Interpretation
7. Communicating 15
ACCOUNTING PROCESS
Financial Transactions or
Communicating to the Events
Users
Journal
1. Cash Book Recording
2. Purchase Book
Analysis and Interpretation 3. Sales Book
4. Purchases Return
Book
5. Sales Return Book
6. Bills Payable Book
Summarizing 7. Bills Receivable Book
Trial Balance 8. Journal Proper
Trading and Profit and Loss
Account Classifying (Posting into
Balance Sheet. Ledger)
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