12.08.

2021

INTRODUCTION TO ACCOUNTING

• DEFINE ACCOUNTING
• NATURE OF ACCOUNTING
• FUNCTION OF ACCOUNTING IN BUSINESS
• HISTORY OR ORIGIN OF ACCOUNTING

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INTRODUCTION TO ACCOUNTING

STARTER QUESTION
1. HOW DO YOU ACCOUNT YOUR WEEKLY OR MONTHLY ALLOWANCE?
2. WHEN DECIDING TO BUY A CLOTHES, WHAT IS THE BASIS OF YOUR DECISION?

INTRODUCTION TO ACCOUNTING
DEFINITION
-PROCESS OF IDENTIFYING, RECORDING AND COMMUNICATING ECONOMIC EVENTS OF AN ORGANIZATION
TO INTERESTED USERS (WEYGANDT, J. ET AL)
-IT 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
DECISIONS, IN MAKING REASONED CHOICES AMONG ALTERNATIVE COURSES OF ACTION (AICPA)

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INTRODUCTION TO ACCOUNTING
IDENTIFYING- THIS INVOLVES SELECTING ECONOMIC EVENTS THAT ARE RELEVANT TO A PARTICULAR BUSINESS
TRANSACTION. THE ECONOMIC EVENTS OF AN ORGANIZATION ARE REFERRED TO AS TRANSACTIONS.

RECORDING – THIS INVOLVES KEEPING A CHRONOLOGICAL DIARY OF EVENTS THAT ARE MEASURED IN PESOS. THE
DIARY REFERRED TO ARE THE JOURNALS AND LEDGERS

COMMUNICATING – OCCURS THROUGH THE PREPARATION AND DISTRIBUTION OF FINANCIAL AND OTHER
ACCOUNTING REPORTS

INTRODUCTION TO ACCOUNTING

NATURE OF ACCOUNTING
• ACCORDING TO ACCOUNTING THEORY (HTTP://ACCOUNTINGTHEORY.WEEBLY.COM/NATURE-AND-SCOPE-
OF-ACCOUNTING.HTML): “ ACCOUNTING IS A SYSTEMATIC RECORDING OF FINANCIAL TRANSACTIONS
AND THE PRESENTATION OF THE RELATED INFORMATION TO APPROPRIATE PERSONS.” BASED ON THIS
DEFINITION WE CAN DERIVE THE FOLLOWING BASIC FEATURES OF ACCOUNTING

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INTRODUCTION TO ACCOUNTING
NATURE OF ACCOUNTING
• ACCOUNTING IS A SERVICE ACTIVITY. ACCOUNTING PROVIDES ASSISTANCE TO DECISION MAKERS BY
PROVIDING THEM FINANCIAL REPORTS THAT WILL GUIDE THEM IN COMING UP WITH SOUND DECISIONS
• ACCOUNTING IS A PROCESS: A PROCESS REFERS TO THE METHOD OF PERFORMING ANY SPECIFIC JOB
STEP BY STEP ACCORDING TO THE OBJECTIVES OR TARGETS. ACCOUNTING IS IDENTIFIED AS A PROCESS,
AS IT PERFORMS THE SPECIFIC TASK OF COLLECTING, PROCESSING AND COMMUNICATING FINANCIAL
INFORMATION. IT FOLLOWS SOME DEFINITE STEPS LIKE THE COLLECTION, RECORDING, CLASSIFICATION,
SUMMARIZATION, FINALIZATION AND REPORTING OF FINANCIAL DATA

INTRODUCTION TO ACCOUNTING
NATURE OF ACCOUNTING
• ACCOUNTING IS BOTH AN ART AND A DISCIPLINE. ACCOUNTING IS THE ART OF RECORDING,
CLASSIFYING, SUMMARIZING AND FINALIZING FINANCIAL DATA. THE WORD‘ART’ REFERS TO THE WAY
SOMETHING IS PERFORMED. IT IS BEHAVIORAL KNOWLEDGE INVOLVING A CERTAIN CREATIVITY AND
SKILL TO HELP US ATTAIN SOME SPECIFIC OBJECTIVES. ACCOUNTING IS A SYSTEMATIC METHOD
CONSISTING OF DEFINITE TECHNIQUES AND ITS PROPER APPLICATION REQUIRES SKILL AND EXPERTISE.
SO BY NATURE, ACCOUNTING IS AN ART. AND BECAUSE IT FOLLOWS CERTAIN STANDARDS AND
PROFESSIONAL ETHICS, IT IS ALSO A DISCIPLINE

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INTRODUCTION TO ACCOUNTING
NATURE OF ACCOUNTING
• ACCOUNTING DEALS WITH FINANCIAL INFORMATION AND TRANSACTIONS: ACCOUNTING RECORDS
FINANCIAL TRANSACTIONS AND DATA, CLASSIFIES THESE AND FINALIZES THEIR RESULTS GIVEN FOR A
SPECIFIED PERIOD OF TIME, AS NEEDED BY THEIR USERS. AT EVERY STAGE, FROM START TO FINISH,
ACCOUNTING DEALS WITH FINANCIAL INFORMATION AND FINANCIAL INFORMATION ONLY. IT DOES NOT
DEAL WITH NON-MONETARY OR NON-FINANCIAL ASPECTS OF SUCH INFORMATION.

INTRODUCTION TO ACCOUNTING

NATURE OF ACCOUNTING
• ACCOUNTING IS AN INFORMATION SYSTEM: ACCOUNTING IS RECOGNIZED AND CHARACTERIZED AS A
STOREHOUSE OF INFORMATION. AS A SERVICE FUNCTION, IT COLLECTS PROCESSES AND COMMUNICATES
FINANCIAL INFORMATION OF ANY ENTITY. THIS DISCIPLINE OF KNOWLEDGE HAS EVOLVED TO MEET THE
NEED FOR FINANCIAL INFORMATION AS REQUIRED BY VARIOUS INTERESTED GROUPS.

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WHY ACCOUNTING IS CONSIDERED AS THE

LANGUAGE OF BUSINESS?

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FUNCTION OF ACCOUNTING IN BUSINESS

ACCOUNTING IS THE MEANS BY WHICH BUSINESS INFORMATION IS COMMUNICATED TO BUSINESS
OWNERS AND STAKEHOLDERS. THE ROLE OF ACCOUNTING IN BUSINESS IS TO PROVIDE INFORMATION FOR
MANAGERS AND OWNERS TO USE IN OPERATING THE BUSINESS. IN ADDITION, ACCOUNTING INFORMATION
ALLOWS BUSINESS OWNERS TO ASSESS THE EFFICIENCY AND EFFECTIVENESS OF THEIR BUSINESS
OPERATIONS. PREPARED ACCOUNTING REPORTS CAN BE COMPARED WITH INDUSTRY STANDARDS OR TO A
LEADING COMPETITOR TO DETERMINE HOW THE BUSINESS IS DOING. BUSINESS OWNERS MAY ALSO USE
HISTORICAL FINANCIAL ACCOUNTING STATEMENTS TO CREATE TRENDS FOR ANALYZING AND FORECASTING
FUTURE SALES
ACCOUNTING HELPS THE USERS OF THESE FINANCIAL REPORTS TO SEE THE TRUE PICTURE OF THE
BUSINESS IN FINANCIAL TERMS. IN ORDER FOR A BUSINESS TO SURVIVE, IT IS IMPORTANT THAT A
BUSINESS OWNER OR MANAGER BE WELL-INFORMED.

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HISTORY OF ACCOUNTING
ACCOUNTING IS AS OLD AS CIVILIZATION ITSELF. IT HAS EVOLVED IN RESPONSE TO VARIOUS SOCIAL AND
ECONOMIC NEEDS OF MEN. ACCOUNTING STARTED AS A SIMPLE RECORDING OF REPETITIVE EXCHANGES.
THE HISTORY OF ACCOUNTING IS OFTEN SEEN AS INDISTINGUISHABLE FROM THE HISTORY OF FINANCE AND
BUSINESS.
FOLLOWING IS THE EVOLUTION OF ACCOUNTING:

THE CRADLE OF CIVILIZATION

AROUND 3600 B.C., RECORD-KEEPING WAS ALREADY COMMON FROM MESOPOTAMIA, CHINA AND INDIA TO
CENTRAL AND SOUTH AMERICA. THE OLDEST EVIDENCE OF THIS PRACTICE WAS THE “ CLAY TABLET” OF
MESOPOTAMIA WHICH DEALT WITH COMMERCIAL TRANSACTIONS AT THE TIME SUCH AS LISTING OF
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE.

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HISTORY OF ACCOUNTING
14TH CENTURY - DOUBLE-ENTRY BOOKKEEPING
THE MOST IMPORTANT EVENT IN ACCOUNTING HISTORY IS GENERALLY CONSIDERED TO BE THE
DISSEMINATION OF DOUBLE ENTRY BOOKKEEPING BY LUCA PACIOLI
(‘THE FATHER OF ACCOUNTING’) IN 14TH CENTURY ITALY. PACIOLI WAS MUCH REVERED IN HIS DAY, AND
WAS A FRIEND AND CONTEMPORARY OF LEONARDO DA VINCI. THE ITALIANS OF THE 14TH TO 16TH
CENTURIES ARE WIDELY ACKNOWLEDGED AS THE FATHERS OF MODERN ACCOUNTING AND WERE THE FIRST
TO COMMONLY USE ARABIC NUMERALS, RATHER THAN ROMAN, FOR TRACKING BUSINESS ACCOUNTS.
LUCA PACIOLI WROTE SUMMA DE ARITHMETICA, THE FIRST BOOK PUBLISHED THAT CONTAINED A DETAILED
CHAPTER ON DOUBLE-ENTRY BOOKKEEPING

FRENCH REVOLUTION (1700S)

THE THOROUGH STUDY OF ACCOUNTING AND DEVELOPMENT OF ACCOUNTING THEORY BEGAN DURING THIS
PERIOD. SOCIAL UPHEAVALS AFFECTING GOVERNMENT, FINANCES, LAWS, CUSTOMS AND BUSINESS HAD
GREATLY INFLUENCED THE DEVELOPMENT OF ACCOUNTING.

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HISTORY OF ACCOUNTING
THE INDUSTRIAL REVOLUTION (1760-1830)
MASS PRODUCTION AND THE GREAT IMPORTANCE OF FIXED ASSETS WERE GIVEN ATTENTION DURING THIS
PERIOD.

• 19TH CENTURY – THE BEGINNINGS OF MODERN ACCOUNTING IN EUROPE AND AMERICA

THE MODERN, FORMAL ACCOUNTING PROFESSION EMERGED IN SCOTLAND IN 1854 WHEN QUEEN VICTORIA
GRANTED A ROYAL CHARTER TO THE INSTITUTE OF ACCOUNTANTS IN GLASGOW, CREATING THE
PROFESSION OF THE CHARTERED ACCOUNTANT (CA).
IN THE LATE 1800S, CHARTERED ACCOUNTANTS FROM SCOTLAND AND BRITAIN CAME TO THE U.S. TO AUDIT
BRITISH INVESTMENTS. SOME OF THESE ACCOUNTANTS STAYED IN THE U.S., SETTING UP ACCOUNTING
PRACTICES AND BECOMING THE ORIGINS OF SEVERAL U.S. ACCOUNTING FIRMS. THE FIRST NATIONAL U.S.
ACCOUNTING SOCIETY WAS SET UP IN 1887. THE AMERICAN ASSOCIATION OF PUBLIC ACCOUNTANTS WAS
THE FORERUNNER TO THE CURRENT AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA).

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HISTORY OF ACCOUNTING
THE PRESENT - THE DEVELOPMENT OF MODERN ACCOUNTING STANDARDS AND COMMERCE
THE ACCOUNTING PROFESSION IN THE 20TH CENTURY DEVELOPED AROUND STATE REQUIREMENTS FOR
FINANCIAL STATEMENT AUDITS. BEYOND THE INDUSTRY’S SELF-REGULATION, THE GOVERNMENT ALSO SETS
ACCOUNTING STANDARDS, THROUGH LAWS AND AGENCIES SUCH AS THE SECURITIES AND EXCHANGE
COMMISSION (SEC). AS ECONOMIES WORLDWIDE CONTINUED TO GLOBALIZE, ACCOUNTING REGULATORY
BODIES REQUIRED ACCOUNTING PRACTITIONERS TO OBSERVE INTERNATIONAL ACCOUNTING STANDARDS.
THIS IS TO ASSURE TRANSPARENCY AND RELIABILITY, AND TO OBTAIN GREATER CONFIDENCE ON
ACCOUNTING INFORMATION USED BY GLOBAL INVESTORS.

NOWADAYS, INVESTORS SEEK INVESTMENT OPPORTUNITIES ALL OVER THE WORLD. TO REMAIN
COMPETITIVE, BUSINESSES EVERYWHERE FEEL THE NEED TO
OPERATE GLOBALLY. THE TREND NOW FOR ACCOUNTING PROFESSIONALS IS TO OBSERVE ONE SINGLE SET
OF GLOBAL ACCOUNTING STANDARDS IN ORDER TO HAVE GREATER TRANSPARENCY AND COMPARABILITY
OF FINANCIAL DATA ACROSS BORDERS.

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ASYNCHRONOUS

ESSAY – “THE IMPORTANCE OF ACCOUNTING IN BUSINESS ORGANIZATION”

TO BE SUBMITTED TODAY BEFORE 8:00PM.
SEND IT TO [email protected]

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