The trend now for accounting professionals is to observe one s
global accounting standards in order to have greater transp
comparability of financial data across borders.
FUNDAMENTALS OF – this involves keeping a chronological diary of events that are me
pesos. The diary referred to in the definition are the journals and ledg
ACCOUNTANCY will be discussed in future chapters.
COMMUNICATING – occurs through the preparation and distribution
and other accounting reports.
Introduction to Accounting
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
The economic events of an organization are referred to as transactions.
Examples of economic events or transactions - In a bakery business:
• sales of bread and other bakery products
Nature of accounting
• purchases of flour that will be used for baking
According to Accounting Theory (http://accountingtheory.weebly.com
• purchases of trucks needed to deliver the products
and-scope-of-accounting.html): “Accounting is a systematic reco
financial transactions and the presentation of the related inform
RECORDING The accounting profession in the 20th century developed around
appropriate persons.” Based on this definition we can derive the
state requirements for financial statement audits. Beyond the industry's self-
basic features of accounting:
regulation, the government also sets accounting standards, through laws and
agencies such as the Securities and Exchange Commission (SEC). As
• Accounting is a service activity. Accounting provides assistance
economies worldwide continued to globalize, accounting regulatory bodies
makers by providing them financial reports that will guide them in
required accounting practitioners to observe International Accounting
with sound decisions.
Standards. This is to assure transparency and reliability, and to obtain greater
confidence on accounting information used by global investors. • Accounting is a process: A process refers to the method of perfor
Nowadays, investors seek investment opportunities all over the world. To specific job step by step according to the objectives or targets. Acco
remain competitive, businesses everywhere feel the need to operate globally.
, identified as a process, as it performs the specific task of collecting, Analysing the situation - function of accounting in busi
processing and communicating financial information. In doing so, it follows Juan is a retired government employee who is good at baking. O
some definite steps like the collection, recording, classification, decided to put up a bakery shop in his barangay. He renovated a po
summarization, finalization, and reporting of financial data. house to serve as the area for the production of bread. He purcha
equipment and raw materials to produce five different types of brea
• Accounting is both an art and a discipline. Accounting is the art of recording, also hired Jose to help him with the baking and, at the same time
classifying, summarizing and finalizing financial data. The word ‘art’ refers to charge of sales. Mr. Juan pays Jose on a weekly basis. Every day,
the way something is performed. It is behavioral knowledge involving a certain wife deposits the daily cash sales in their bank account at XY Sav
creativity and skill to help us attain some specific objectives. Accounting is a With the help of accounting, what possible decisions or questions o
systematic method consisting of definite techniques and its proper application can accounting provide an answer to?
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. Possible Answers:
• Accounting deals with financial information and transactions: Accounting • Is my business earning? (profitability)
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 • How much daily or monthly sales do I need in order to reco
stage, from start to finish, accounting deals with financial information and cost? (break-even)
financial information only. It does not deal with non-monetary or non-financial
aspects of such information. • Do I need to hire additional workers to help me with my prod
• Accounting is an information system: Accounting is recognized and • Can I afford to set up a new store in another place? Where
characterized as a storehouse of information. As a service function, it collects funds?
processes and communicates financial information of any entity. This discipline
of knowledge has evolved to meet the need for financial information as • Can I afford to pay a bank loan?
required by various interested groups.
History of accounting
Function of accounting in business
Accounting is the means by which business information is communicated Accounting is as old as civilization itself. It has evolved in r
to business owners and stakeholders. The role of accounting in business is to various social and economic needs of men. Accounting started a
provide information for managers and owners to use in operating the business. In recording of repetitive exchanges. The history of accounting is ofte
addition, accounting information allows business owners to assess the efficiency indistinguishable from the history of finance and business.
and effectiveness of their business operations. Prepared accounting reports can Following is the evolution of accounting:
be compared with industry standards or to a leading competitor to determine how
the business is doing. Business owners may also use historical financial • The Cradle of Civilization
accounting statements to create trends for analyzing and forecasting future sales.
Around 3600 B.C., record-keeping was already common from Me
Accounting helps the users of these financial reports to see the true picture of China and India to Central and South America. The oldest evide
the business in financial terms. In order for a business to survive, it is important practice was the “clay tablet” of Mesopotamia which dealt with c
that a business owner or manager be well-informed. transactions at the time such as listing of accounts receivable and
payable.
, The Present - The Development of Modern Accounting Stan
• 14th Century - Double-Entry Bookkeeping Commerce
In this period rapid changes in accounting practice and re
The most important event in accounting history is generally considered to be made. Accounting standards to be observed by accounting profess
the dissemination of double entry bookkeeping by Luca Pacioli (‘The Father of promulgated. Notable practices such as mergers, acquisitions an
Accounting’) in 14th century Italy. Pacioli was much revered in his day, and multinational corporations were developed. A merger is when on
was a friend and contemporary of Leonardo da Vinci. The Italians of the 14th to takes over all the operations of another business entity resu
16th centuries are widely acknowledged as the fathers of modern accounting dissolution of another business. Businesses expanded by acq
and were the first to commonly use Arabic numerals, rather than Roman, for companies. These types of transactions have challenged
tracking business accounts. Luca Pacioli wrote Summa de Arithmetica, the first professionals to develop new standards that will address accoun
book published that contained a detailed chapter on double-entry bookkeeping. related to these business combinations.
• French Revolution (1700s)
Branches of Accounting
The thorough study of accounting and development of accounting theory
began during this period. Social upheavals affecting government, finances, According to Investopedia, http://www.investopedia.com /university/ac
laws, customs and business had greatly influenced the development of /accounting2.asp: “Accounting is divided into several branches to bet
accounting. the needs of different users with varying information needs. These bra
sometimes overlap and they are often closely intertwined.”
• The Industrial Revolution (1760-1830)
Mass production and the great importance of fixed assets were given attention Financial Accounting
during this period.
Financial accounting is the broadest branch and is focused on th
• 19th Century – The Beginnings of Modern Accounting in Europe and external users. Financial accounting is primarily concerned with the
America measurement and communication of economic activities. This inf
communicated in a complete set of financial statements. It is assume
The modern, formal accounting profession emerged in Scotland in 1854 when branch that the users have one common information need. Financial
Queen Victoria granted a Royal Charter to the Institute of Accountants in conforms with accounting standards developed by standard-setting
the Philippines, there is a Council created to set these standards.
Glasgow, creating the profession of the Chartered Accountant (CA).
Examples of these financial reports include:
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 balance sheet (statement of financial condition)
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
• income statement (the profit and loss statement, or P&L)
1887. The American Association of Public Accountants was the forerunner to
the current American Institute of Certified Public Accountants (AICPA). • statement of cash flows
, Financial accounting is primarily concerned with processing historical data. accounting records but the CPA reviews a selected sample of these
Although financial accounting generally meets the needs of external users, and issues an audit report.
internal users of accounting information also use these information for their
decision-making needs. Internal auditing deals with determining the operational efficienc
company regarding the protection of the company’s assets, accu
reliability of the accounting data, and adherence to certain ma
Management (or Managerial) Accounting policies. It focuses on evaluating the adequacy of a company's intern
structure by testing segregation of duties, policies and procedures, d
Management accounting emphasizes the preparation and analysis of accounting authorization, and other controls implemented by management.
information within the organization. The objective of managerial accounting is to
provide timely and relevant information for those internal users of accounting Tax Accounting
information, such as the managers and employees in their decision-making
needs. Oftentimes, these are sensitive information and is not distributed to those Tax accounting helps clients follow rules set by tax authorities. It
outside the business - for example, prices, plans to open up branches, customer planning and preparation of tax returns. It also involves determinatio
list, etc. tax and other taxes, tax advisory services such as ways to minimize ta
evaluation of the consequences of tax decisions, and other tax-related
Managerial accounting involves financial analysis, budgeting and forecasting,
cost analysis, evaluation of business decisions, and similar areas.
Cost Accounting
Government Accounting
Sometimes considered as a subset of management accounting,
Government accounting is the process of recording, analyzing, classifying, accounting refers to the recording, presentation, and analysis
summarizing, communicating and interpreting financial information about the manufacturing costs. Cost accounting is very useful in manufactu
government in aggregate and in detail reflecting transactions and other economic businesses since they have the most complicated costing process.
events involving the receipt, spending, transfer, usability and disposition of assets
and liabilities. This branch of accounting deals with how the funds of the Cost accountants also analyze actual and standard costs to h
government are recorded and reported. managers determine future courses of action regarding the compa
operations.
Government accounting deals with these transactions, the recording of Cost accounting will also help the owner set the selling price of his
inflow and outflow of funds of the government. For example, if the cost accounting records shows that the total cost t
one can of sardines is PHP50, then the owner can set the sellin
PHP60.
Auditing
Accounting Education
There are two types of auditing: external and internal auditing. External
auditing refers to the examination of financial statements by an independent This branch of accounting deals with developing future accountants b
CPA (Certified Public Accountant) with the purpose of expressing an opinion relevant accounting curriculum. Accounting professionals can beco
as to fairness of presentation and compliance with the generally accepted members of educational institutions. Accounting educators contrib
accounting principles (GAAP). The audit does not cover 100% of the development of the profession through their effective teaching, publ
their research and influencing students to pursue careers in a
global accounting standards in order to have greater transp
comparability of financial data across borders.
FUNDAMENTALS OF – this involves keeping a chronological diary of events that are me
pesos. The diary referred to in the definition are the journals and ledg
ACCOUNTANCY will be discussed in future chapters.
COMMUNICATING – occurs through the preparation and distribution
and other accounting reports.
Introduction to Accounting
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
The economic events of an organization are referred to as transactions.
Examples of economic events or transactions - In a bakery business:
• sales of bread and other bakery products
Nature of accounting
• purchases of flour that will be used for baking
According to Accounting Theory (http://accountingtheory.weebly.com
• purchases of trucks needed to deliver the products
and-scope-of-accounting.html): “Accounting is a systematic reco
financial transactions and the presentation of the related inform
RECORDING The accounting profession in the 20th century developed around
appropriate persons.” Based on this definition we can derive the
state requirements for financial statement audits. Beyond the industry's self-
basic features of accounting:
regulation, the government also sets accounting standards, through laws and
agencies such as the Securities and Exchange Commission (SEC). As
• Accounting is a service activity. Accounting provides assistance
economies worldwide continued to globalize, accounting regulatory bodies
makers by providing them financial reports that will guide them in
required accounting practitioners to observe International Accounting
with sound decisions.
Standards. This is to assure transparency and reliability, and to obtain greater
confidence on accounting information used by global investors. • Accounting is a process: A process refers to the method of perfor
Nowadays, investors seek investment opportunities all over the world. To specific job step by step according to the objectives or targets. Acco
remain competitive, businesses everywhere feel the need to operate globally.
, identified as a process, as it performs the specific task of collecting, Analysing the situation - function of accounting in busi
processing and communicating financial information. In doing so, it follows Juan is a retired government employee who is good at baking. O
some definite steps like the collection, recording, classification, decided to put up a bakery shop in his barangay. He renovated a po
summarization, finalization, and reporting of financial data. house to serve as the area for the production of bread. He purcha
equipment and raw materials to produce five different types of brea
• Accounting is both an art and a discipline. Accounting is the art of recording, also hired Jose to help him with the baking and, at the same time
classifying, summarizing and finalizing financial data. The word ‘art’ refers to charge of sales. Mr. Juan pays Jose on a weekly basis. Every day,
the way something is performed. It is behavioral knowledge involving a certain wife deposits the daily cash sales in their bank account at XY Sav
creativity and skill to help us attain some specific objectives. Accounting is a With the help of accounting, what possible decisions or questions o
systematic method consisting of definite techniques and its proper application can accounting provide an answer to?
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. Possible Answers:
• Accounting deals with financial information and transactions: Accounting • Is my business earning? (profitability)
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 • How much daily or monthly sales do I need in order to reco
stage, from start to finish, accounting deals with financial information and cost? (break-even)
financial information only. It does not deal with non-monetary or non-financial
aspects of such information. • Do I need to hire additional workers to help me with my prod
• Accounting is an information system: Accounting is recognized and • Can I afford to set up a new store in another place? Where
characterized as a storehouse of information. As a service function, it collects funds?
processes and communicates financial information of any entity. This discipline
of knowledge has evolved to meet the need for financial information as • Can I afford to pay a bank loan?
required by various interested groups.
History of accounting
Function of accounting in business
Accounting is the means by which business information is communicated Accounting is as old as civilization itself. It has evolved in r
to business owners and stakeholders. The role of accounting in business is to various social and economic needs of men. Accounting started a
provide information for managers and owners to use in operating the business. In recording of repetitive exchanges. The history of accounting is ofte
addition, accounting information allows business owners to assess the efficiency indistinguishable from the history of finance and business.
and effectiveness of their business operations. Prepared accounting reports can Following is the evolution of accounting:
be compared with industry standards or to a leading competitor to determine how
the business is doing. Business owners may also use historical financial • The Cradle of Civilization
accounting statements to create trends for analyzing and forecasting future sales.
Around 3600 B.C., record-keeping was already common from Me
Accounting helps the users of these financial reports to see the true picture of China and India to Central and South America. The oldest evide
the business in financial terms. In order for a business to survive, it is important practice was the “clay tablet” of Mesopotamia which dealt with c
that a business owner or manager be well-informed. transactions at the time such as listing of accounts receivable and
payable.
, The Present - The Development of Modern Accounting Stan
• 14th Century - Double-Entry Bookkeeping Commerce
In this period rapid changes in accounting practice and re
The most important event in accounting history is generally considered to be made. Accounting standards to be observed by accounting profess
the dissemination of double entry bookkeeping by Luca Pacioli (‘The Father of promulgated. Notable practices such as mergers, acquisitions an
Accounting’) in 14th century Italy. Pacioli was much revered in his day, and multinational corporations were developed. A merger is when on
was a friend and contemporary of Leonardo da Vinci. The Italians of the 14th to takes over all the operations of another business entity resu
16th centuries are widely acknowledged as the fathers of modern accounting dissolution of another business. Businesses expanded by acq
and were the first to commonly use Arabic numerals, rather than Roman, for companies. These types of transactions have challenged
tracking business accounts. Luca Pacioli wrote Summa de Arithmetica, the first professionals to develop new standards that will address accoun
book published that contained a detailed chapter on double-entry bookkeeping. related to these business combinations.
• French Revolution (1700s)
Branches of Accounting
The thorough study of accounting and development of accounting theory
began during this period. Social upheavals affecting government, finances, According to Investopedia, http://www.investopedia.com /university/ac
laws, customs and business had greatly influenced the development of /accounting2.asp: “Accounting is divided into several branches to bet
accounting. the needs of different users with varying information needs. These bra
sometimes overlap and they are often closely intertwined.”
• The Industrial Revolution (1760-1830)
Mass production and the great importance of fixed assets were given attention Financial Accounting
during this period.
Financial accounting is the broadest branch and is focused on th
• 19th Century – The Beginnings of Modern Accounting in Europe and external users. Financial accounting is primarily concerned with the
America measurement and communication of economic activities. This inf
communicated in a complete set of financial statements. It is assume
The modern, formal accounting profession emerged in Scotland in 1854 when branch that the users have one common information need. Financial
Queen Victoria granted a Royal Charter to the Institute of Accountants in conforms with accounting standards developed by standard-setting
the Philippines, there is a Council created to set these standards.
Glasgow, creating the profession of the Chartered Accountant (CA).
Examples of these financial reports include:
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 balance sheet (statement of financial condition)
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
• income statement (the profit and loss statement, or P&L)
1887. The American Association of Public Accountants was the forerunner to
the current American Institute of Certified Public Accountants (AICPA). • statement of cash flows
, Financial accounting is primarily concerned with processing historical data. accounting records but the CPA reviews a selected sample of these
Although financial accounting generally meets the needs of external users, and issues an audit report.
internal users of accounting information also use these information for their
decision-making needs. Internal auditing deals with determining the operational efficienc
company regarding the protection of the company’s assets, accu
reliability of the accounting data, and adherence to certain ma
Management (or Managerial) Accounting policies. It focuses on evaluating the adequacy of a company's intern
structure by testing segregation of duties, policies and procedures, d
Management accounting emphasizes the preparation and analysis of accounting authorization, and other controls implemented by management.
information within the organization. The objective of managerial accounting is to
provide timely and relevant information for those internal users of accounting Tax Accounting
information, such as the managers and employees in their decision-making
needs. Oftentimes, these are sensitive information and is not distributed to those Tax accounting helps clients follow rules set by tax authorities. It
outside the business - for example, prices, plans to open up branches, customer planning and preparation of tax returns. It also involves determinatio
list, etc. tax and other taxes, tax advisory services such as ways to minimize ta
evaluation of the consequences of tax decisions, and other tax-related
Managerial accounting involves financial analysis, budgeting and forecasting,
cost analysis, evaluation of business decisions, and similar areas.
Cost Accounting
Government Accounting
Sometimes considered as a subset of management accounting,
Government accounting is the process of recording, analyzing, classifying, accounting refers to the recording, presentation, and analysis
summarizing, communicating and interpreting financial information about the manufacturing costs. Cost accounting is very useful in manufactu
government in aggregate and in detail reflecting transactions and other economic businesses since they have the most complicated costing process.
events involving the receipt, spending, transfer, usability and disposition of assets
and liabilities. This branch of accounting deals with how the funds of the Cost accountants also analyze actual and standard costs to h
government are recorded and reported. managers determine future courses of action regarding the compa
operations.
Government accounting deals with these transactions, the recording of Cost accounting will also help the owner set the selling price of his
inflow and outflow of funds of the government. For example, if the cost accounting records shows that the total cost t
one can of sardines is PHP50, then the owner can set the sellin
PHP60.
Auditing
Accounting Education
There are two types of auditing: external and internal auditing. External
auditing refers to the examination of financial statements by an independent This branch of accounting deals with developing future accountants b
CPA (Certified Public Accountant) with the purpose of expressing an opinion relevant accounting curriculum. Accounting professionals can beco
as to fairness of presentation and compliance with the generally accepted members of educational institutions. Accounting educators contrib
accounting principles (GAAP). The audit does not cover 100% of the development of the profession through their effective teaching, publ
their research and influencing students to pursue careers in a
