Chapter 1: Introduction To Accounting

ACCTG 101
Chapter 1: Introduction to Accounting
Learning Objectives
1. Define accounting.
2. Describe the nature and purpose of accounting.
3. Give examples of branches of accounting.
4. State the function of accounting in a business.
5. Differentiate between external and internal users of accounting information.
6. Narrate the history/origin of accounting.
7. State the forms of business organization.
8. State the types of business according to their activities.
Definition of Accounting
 Accounting is a process of identifying, recording and communicating economic information
that is useful in making economic decisions.
Essential Elements of the Definition of Accounting

 Identifying – The accountant analyzes each business transaction and identifies whether the
transaction is an “accountable event” or “non-accountable event.” This is
because only “accountable events” are recorded in the books of accounts.
“Non-accountable events” are not recorded in the books of accounts.
 Recording – The accountant recognizes (i.e., records) the “accountable events” he has
identified. This process is called “journalizing.”
– After journalizing, the accountant then classifies the effects of the event on the
“accounts.” This process is called “posting.”
 Communicating – At the end of each accounting period, the accountant summarizes the
information processed in the accounting system in order to produce
meaningful reports. Accounting information is communicated
to interested users through accounting reports, the most common
form of which is the financial statements.
Financial Statements can be:
 Income Statement
 Cash flow Statement
 Statement of changes in equity
 Balance Sheet
Nature of Accounting
 Accounting is a process with the basic purpose of providing information about economic
activities intended to be useful in making economic decisions.
Types of information provided by accounting

1. Quantitative information
2. Qualitative information
3. Financial information
Functions of Accounting in Business
1. To provide external users (for own good) with information that is useful in making investment
and credit decisions; and
o External users- those who are directly involved in managing the business.
Examples: 1. Business owners who are directly involved in managing the business.
2. Board of Directors
3. Managerial Personnel
2. To provide internal users (whole company) with information that is useful in managing the
business.
o Internal Users- those who are not directly involved in managing the business.
Examples: 1. Existing and potential investors (e.g., stockholders who are not directly
involved in managing the business.
2. Lenders (e.g., banks) and Creditors (e.g., suppliers)
3. Non-managerial employees
4. Public
Brief History of Accounting

 Accounting can be traced as far back as the prehistoric times, perhaps more than 10,000 years
ago.
 Archaeologists have found clay tokens as old as 8500 B.C. in Mesopotamia which were usually
cones, disks, spheres and pellets. These tokens correspond to commodities like sheep, clothing
or bread. They were used in the Middle West in keeping records. After some time, the tokens
were replaced by wet clay tablets. During such time, experts concluded this to be the start of
the art of writing.
 Double entry records first came out during 1340 A.D. in Genoa.
 In 1494, the first systematic record keeping dealing with the “double entry recording system”
was formulated by Fra Luca Pacioli, a Franciscan monk and mathematician. The “double entry
recording system” was included in Pacioli’s book titled “Summa di Arithmetica Geometria
Proportioni and Proportionista,” published on November 10, 1494 in Venice.
 The concept of “double entry recording” is being used to this day. Thus, Fra Luca Pacioli is
considered as the father of modern accounting.
Common Branches of Accounting

Forms of Business Organizations
Advantages and Disadvantages

Types of Business According to Activities
1. Service business
2. Merchandising (Trading)
3. Manufacturing
Advantages and Disadvantages

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ACCTG 101

Chapter 1: Introduction to Accounting

Essential Elements of the Definition of Accounting

Types of information provided by accounting

Brief History of Accounting

Common Branches of Accounting

Advantages and Disadvantages

Advantages and Disadvantages

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