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    FABM1-Chapter 1

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    FABM1-Chapter 1

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    Johnny Buenaflor
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    FABM1—Chapter 1

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    FABM1-Chapter 1

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    Johnny Buenaflor

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    FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT

    FABM 1
    Chapter 1 — Introduction to Accounting
    I
    ntroduction:

    Accounting is, broadly speaking, a system that helps businesses track events that affect
    them. For example, the sale of Toyota cars is identified as an economic event that affects
    the company. The accountant will record this transaction and consolidate all records by
    the end of the month.

    The Accounting Process

    Accounting involves the processes of identifying, recording, and communicating


    financial information to internal and external users alike.

    Numbers is the language of business.

    The starting point of the accounting process is the identification of economics


    relevant to a business. To be identified as a relevant economic event, there should be a
    transfer of things with value. The recording of relevant economic events is the next step
    in the accounting process. Recording events should be done systematically and
    chronologically for easier tracking and interpretation. Records of events are inputted in
    the so-called accounting books.

    Finally, after a lapse of a specific period (usually one year), companies summarize all
    the recorded economic events into accounting reports. The most popular accounting
    reports are the financial statements.

    Nature of Accounting

    The basic features of accounting are as follows:

    1. Accounting is a process.

    2. Accounting is an art.

    3. Accounting deals with financial information and transactions.

    4. Accounting is a means and not an end.

    5. Accounting is an information system.

    Functions of Accounting
    FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
    1

    The American Accounting Association (AAA) defines accounting as "the process of


    identifying, measuring, and communicating economic information to permit informed
    judgments and decisions by the users of information."

    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.

    The main functions of accounting can be summarized as follows:

    1. Keeping systematic record of business transactions

    2. Protecting properties of the business

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

    4. Meeting legal requirements.

    History of Accounting

    It is believed that the history of accounting is thousands of years old and can even be
    traced to ancient civilizations. A number of history books suggest that the early
    development of accounting can be dated back to ancient Mesopotamia. During those
    times, 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 reign of Emperor Augustus (638-1440) provided more evidence about the
    development of accounting.

    Many consider the dissemination of the double-entry bookkeeping of Luca Pacioli


    in the fourteenth century Italy is the most important event in accounting history. In fact,
    Luca Pacioli is acknowledged as the father of modern accounting because of this. The
    double- entry bookkeeping system is defined as any bookkeeping system that has a
    debit and a credit for each transaction. Luca Pacioli's Summa de Arithmetica, Geometria,
    Proportioni et Proportionalita (Review of Arithmetic, Geometry, Ratio, and Proportion) is
    the first book printed with a treatise on bookkeeping. The double-entry bookkeeping
    system is the system being used to this very day. (Sangster et al. 2007)

    At present times, accounting standards are already available to guide accountants in


    their practice of the profession. Some of these standards include the PFRS (Philippine
    Financial Reporting Standard) and the PAS (Philippine Accounting Standards).

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