FUNDAMENTALS OF

ACCOUNTANCY
BUSINESS AND
MANAGEMENT 1
SUBJECT DESCRIPTION:
This is an introductory course in accounting,
business, and management data analysis that
will develop students’ appreciation of
accounting as language of business and an
understanding of basic accounting concepts and
principles that will help them analyze business
transactions.
Introduction to Accounting
& Users of Accounting
Information
LESSON 1
LESSON OBJECTIVES
At the end of this lesson, you are expected to:

a. define accounting and describe its nature

b. narrates the history/origin of accounting.

c. cite users of financial information and identify

whether they are external or internal users
What is Accounting?
Accounting

➢ Is the process of IDENTIFYING,

RECORDING, and COMMUNICATING
economic events of an organization to
interested users.” (Weygandt, J. et. al)
➔ IDENTIFYING – this involves selecting economic
events that are relevant to a particular business
transaction
➔ RECORDING – this involves keeping a chronological
diary of events that are measured in pesos. The diary
referred to in the definition are the journals and
ledgers.
➔ COMMUNICATING – occurs through the preparation
and distribution of financial and other accounting
reports.
 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 identified as a
process, as it performs the
specific task of collecting,
processing and communicating
financial information.

In doing so, it follows some

definite steps like the collection,
recording, classification,
summarization, finalization, and
reporting of financial data.
❏ 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.
❏ So by nature, accounting is an art. And because it
follows certain standards and professional ethics, it
is also a discipline
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.
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.
14th Century - Double-Entry Bookkeeping
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.
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 In the late 1800s, chartered

accounting profession accountants from Scotland and
Britain came to the U.S. to audit
emerged in Scotland in 1854 British investments. Some of
when Queen Victoria these accountants stayed in the
granted a Royal Charter to U.S., setting up accounting
the Institute of Accountants practices and becoming the
origins of several U.S.
in Glasgow, creating the
accounting firms. The first
profession of the Chartered national U.S. accounting society
Accountant (CA). was set up in 1887.
The American Association of Public Accountants was
the forerunner to the current American Institute of
Certified Public Accountants (AICPA). In this period
rapid changes in accounting practice and reports
were made.

Accounting standards to be observed by accounting

professionals were promulgated. Notable practices
such as mergers, acquisitions and growth of
multinational corporations were developed.
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.
Users Of Financial
Information
INTERNAL USERS

❏ Internal users of accounting information are those

individuals inside a company who plan, organize, and
run the business.
❏ These users are directly involved in managing and
operating the business. These include marketing
managers, production supervisors, finance directors,
company officers and owners.
Management
➢ Information need: income/earnings for the period, sales,
available cash, production cost
➢ Decisions supported: analyze the organization's
performance and position and take appropriate measures
to improve the company results. sufficiency of cash to pay
dividends to stockholders; pricing decisions
Employees
➢ Information need: profit for the period, salaries paid to
employees
➢ Decisions supported: job security, consider staying in the
employ of the company or look for other employment
opportunities
Owners
➢ Information need: profit or income for the period,
resources or assets of the business, liabilities of the
business
➢ Decisions supported: considerations regarding additional
investment, expanding the business, borrowing funds to
support any expansion plans.
EXTERNAL USERS

External users are individuals and organizations outside a

company who want financial information about the
company. These users are not directly involved in
managing and operating the business.
The two most common types of external users
➔ Potential Investors use accounting information to
make decisions to buy shares of a company.
➔ Creditors (such as suppliers and bankers) use
accounting information to evaluate the risks of
granting credit or lending money.
Also included as external users are government regulatory
agencies such as Securities and Exchange Commission (SEC),
Bureau of Internal Revenue (BIR), Department of Labor and
Employment (DOLE), Social Security System (SSS), and Local
Government Units (LGUs).
External users of accounting information
Creditors
➢ for determining the credit worthiness of an organization. Terms of
credit are set by creditors according to the assessment of their
customers' financial health. Creditors include suppliers as well as
lenders of finance such as banks.
Tax Authorities (BIR)
➢ for determining the credibility of the tax returns filed on behalf of
a company.
Investors
➢ for analyzing the feasibility of investing in a company. Investors
want to make sure they can earn a reasonable return on their
investment before they commit any financial resources to a
company.
Customers
➢ for assessing the financial position of its suppliers which
is necessary for them to maintain a stable source of
supply in the long term.
Regulatory Authorities (SEC, DOLE)
➢ for ensuring that a company's disclosure of accounting
information is in accordance with the rules and
regulations set in order to protect the interests of the
stakeholders who rely on such information in forming
their decisions.