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    Introduction To The Fundamentals of Accounting

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    Ana Marie Valenzuela
    The document provides a history of accounting from ancient times to modern times. It discusses the development of accounting practices like the abacus in 5000 BC in ancient Mesopotamia. It notes the birth of double-entry bookkeeping in the 14th century in Italy pioneered by Luca Pacioli. The 19th century saw the dawn of modern accounting with the industrial revolution transforming accounting into a profession. The document also defines accounting and discusses its various branches like financial, management, cost, and tax accounting.

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    Introduction To The Fundamentals of Accounting

    Uploaded by

    Ana Marie Valenzuela
    188 views72 pages
    The document provides a history of accounting from ancient times to modern times. It discusses the development of accounting practices like the abacus in 5000 BC in ancient Mesopotamia. It notes the birth of double-entry bookkeeping in the 14th century in Italy pioneered by Luca Pacioli. The 19th century saw the dawn of modern accounting with the industrial revolution transforming accounting into a profession. The document also defines accounting and discusses its various branches like financial, management, cost, and tax accounting.

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    The document provides a history of accounting from ancient times to modern times. It discusses the development of accounting practices like the abacus in 5000 BC in ancient Mesopotamia. It notes the birth of double-entry bookkeeping in the 14th century in Italy pioneered by Luca Pacioli. The 19th century saw the dawn of modern accounting with the industrial revolution transforming accounting into a profession. The document also defines accounting and discusses its various branches like financial, management, cost, and tax accounting.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    188 views72 pages

    Introduction To The Fundamentals of Accounting

    Uploaded by

    Ana Marie Valenzuela
    The document provides a history of accounting from ancient times to modern times. It discusses the development of accounting practices like the abacus in 5000 BC in ancient Mesopotamia. It notes the birth of double-entry bookkeeping in the 14th century in Italy pioneered by Luca Pacioli. The 19th century saw the dawn of modern accounting with the industrial revolution transforming accounting into a profession. The document also defines accounting and discusses its various branches like financial, management, cost, and tax accounting.

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    of 72

    HISTORY OF ACCOUNTING

    5000 BC
    ABACUS functioned as a calculator in the ancient times
    Was developed by the SUMERIANS ( FROM
    MESOPOTAMIA) ( MODERN DAY IRAQ )
    HISTORY OF ACCOUNTING
    14TH CENTRY – THE BIRTH OF DOUBLE ENTRY
    BOOK KEEPING
    FOUNDER: LUCA PACIOLI OF ITALY
    “FATHER OF ACCOUNTING”
    Wrote “EVERYTHING ABOUT ARITHMETIC,
    GEOMETRY, PROPORTION”
     Similarto modern day accounting cycle
     Explains extensively the use of BALANCE

    SHEET, METHOD OF RECORDING


    MEMORANDUMS
    HISTORY OF ACCOUNTING
    19TH CENTURY – THE DAWN OF MODERN
    ACCOUNTING IN EUROPE AND AMERICA
    Industrial revolution which replaced hand tools with
    MACHINE or POWER TOOLS.
    TRANSFORMED ACCOUNTING INTO AN ACTUAL
    PROFESSION
    economic entities
    decision making Service activity
    ACCOUNTING
    quantitative information
    recording summarizing
    service activity
    classifying
    interpreting
    WHAT IS ACCOUNTING?
    DEFINITION AND NATURE
    ACCOUNTING AS A SERVICE ACTIVITY
    Service is the occupation or function of serving;
    Its function is to provide QUANTITATIVE
    INFORMATION, PRIMARILY FINANCIAL IN
    NATURE, about ECONOMIC ENTITIES, that is
    intended to be useful in making ECONOMIC
    DECISION.
    FROM ASC: ACCOUNTING STANDARDS COUNCIL
    WHAT IS ACCOUNTING?
    DEFINITION AND NATURE
    ACCOUNTING AS AN ART
    ART is a skill acquired by EXPERIENCE.
    It is an art of RECORDING, CLASSIFYING and
    SUMMARIZING in a significant manner in terms of
    money, transactions and events which are in part at
    least of a financial character and INTERPRETING the
    results thereof
    From AICPA: AMERICAN INSTITUTE OF CERTIFIED
    PUBLIC ACCOUNTANTS
    WHAT IS ACCOUNTING?
    DEFINITION AND NATURE
    ACCOUNTING AS A SYSTEMATIC PROCESS
    PROCESS is a series of actions that produce
    something or that lead to a particular result.
    It is the process of IDENTIFYING, MEASURING
    and COMMUNICATING economic information to
    permit informed judgment and decision by users of
    the information.
    FROM AAA: AMERICAN ACCOUNTING
    ASSOCIATION
    Users of accounting Information
    • Current Investors
    • Potential investors
    EXTERNAL USERS • Creditors
    • Supplier/Bankers
    • Regulators/Govt
    • Owners • Customers
    • Managers
    • Employees
    INTERNAL USERS
    OBJECTIVES
    At the end of the lesson, you should be able to:
    1.Define and differentiate the different branches of
    accounting.
    2.Explain the services provided by each of the branches.
    BRANCHES OF ACCOUNTING
    FINANCIAL ACCOUNTING
    MANAGEMENT ACCOUNTING
    COST ACCOUNTING
    GOVERNMENT ACCOUNTING
    AUDITING
    TAX ACCOUNTING
    ACCOUNTING EDUCATION
    ACCOUNTING RESEARCH
    FINANCIAL ACCOUNTING
    is the reporting of the financial position and
    performance of a firm through financial statements
    issued to external users.
    Deals with the framework covering accounting
    principles and concepts relative to MEASUREMENT
    and VALUATION applied to the preparation and
    presentation of FINANCIAL STATEMENTS.
    MANAGEMENT ACCOUNTING
    process of identifying, measuring, analyzing,
    interpreting and communicating information for the
    pursuit of an organization's goals. 
     aimed at helping managers within the
    organization make decisions. (INTERNAL USERS)
    COST ACCOUNTING
    aims to capture a company's costs of production by
    assessing the input costs of each step of production.
    GOVERNMENT ACCOUNTING
     refers to the field of  that specifically finds
    application in the public sector.
    AUDITING
    OBJECTIVE, INDEPENDENT examination and
    EVALUATION of the FINANCIAL STATEMENTS of
    an organization to make sure that the records are a
    fair and accurate representation of the
    transactions they claim to represent.
    TAXATION
    Tax accounting consists of accounting methods
    that focus on taxes rather than the appearance of
    public financial statements. Tax accounting is
    governed by the Internal Revenue Code (BIR) which
    dictates the specific rules that companies and
    individuals must follow when preparing
    their tax returns.
    ACCOUNTING EDUCATION
    Involves planned grading and formal teaching in an
    educational institution. Imparts knowledge to
    students enrolled in an accounting subject matter.
    Either basic accounting or higher accounting subjects
    P
    ACCOUNTING RESEARCH
    Involves a careful and diligent study aimed at
    discovering and interpreting facts, REVISING
    ACCEPTED THEORIES IN THE LIGHT OF NEW
    FACTS, OR REVISED APPLICATION OF SUCH NEW
    OR REVISED THEORIES for the generation of new
    knowledge.
    USERS OF ACCOUNTING
    INFORMATION ( according to the
    CONCEPTUAL FRAMEWORK )
    PRIMARY USERS
    EXISTING AND POTENTIAL INVESTORS
    SUPPLIERS, LENDERS AND OTHER CREDITORS

    SECONDARY USERS
    - EMPLOYEES
    - CUSTOMERS
    - GOVERNMENT AND THEIR AGENCIES
    - PUBLIC
    PRIMARY USERS OF
    ACCOUNTING INFORMATION
    EXISTING AND POTENTIAL INVESTORS,
    STOCKHOLDERS OWNERS
    These parties provide the financial
    resources to keep the business going.
    They decide whether to invest or not
    depending on the estimated amount of
    income on the investment.
    PRIMARY USERS OF
    ACCOUNTING INFORMATION
    SUPPLIERS, LENDERS AND OTHER CREDITORS
    INCLUDING FINANCIAL INSTITUTIONS
    Use financial information to determine the
    capacity of the business organization to pay
    its OBLIGATIONS/DEBTS and their
    INTERESTS at the appropriate time.
    SECONDARY USERS
    EMPLOYEES
    They are not directly involved in the decision making of
    the company.
    They are interested in the financial information of the
    FUTURE PROFITABILITY of the company.
    SECONDARY USERS
    CUSTOMERS
    Have an interest about the continuance of an entity
    when they have a long term involvement with or are
    dependent on the entity.
    SECONDARY USERS
    GOVERNMENT AND THEIR AGENCIES
    Financial information is important for TAX PURPOSES
    and in checking of compliance with SECURITIES AND
    EXCHANGE COMMISSION (SEC)
    They are interested in the allocation of resources and
    therefore the activities of the entity.
    SECONDARY USERS
    PUBLIC
    They are provided with the information about the
    LATEST TRENDS and the range of activities.
    TYPES OF BUSINESS
    ORGANIZATIONS
    SOLE/ SINGLE PROPRIETORSHIP
    Is a business owned and managed by only ONE
    PERSON.
    ADVANTAGES:
     Minimal costs and requirements in the formation
     The owner can withdraw the assets and profits of the

    business anytime at his or her own discretion


     Decision making is solely in the hands of the owner

     The duration of the life of the business solely depends on its

    owner
    Disadvantages
    Resources are limited as the capital is provided only by
    the OWNER.
    The liability of the owner is UNLIMITED as he or she is
    accountable to all creditors of the business.
    Infusion of knowledge in the management of the
    business is limited to one person only, WHICH IS THE
    OWNER.
    TYPES OF BUSINESS
    ORGANIZATIONS
    PARTNERSHIP
    Is a business organization owned and managed by two or
    more persons who agree to contribute MONEY, PROPERTY
    OR INDUSTRY to the common fund for the purpose of
    DIVIDING THE PROFITS AMONG THEMSELVES.
    ADVANTAGES
     There are minimal costs and requirements in the formation
     There are more funds contributed from the investment of the

    partners
     There is infusion of MORE KNOWLEDGE, EXPERIENCE

    INDUSTRY from TWO OR MORE PARTNERS.


    Disadvantages
     The partners are liable for the actions of each partner as a
    result of MUTUAL AGENCY.
     A general partner as unlimited liability if the other partners are

    limited partners or are insolvent


     Disagreement between or among partners can lead to the

    withdrawal of one or more partners( thus causing dissolution)


     DEATH, RETIREMENT, WITHDRAWAL OR INCAPACITY of a

    partner results in the DISSOLUTION OF THE PARTNERSHIP.


     Admission of a NEW PARTNER depends upon the approval of

    the OTHER PARTNERS.


    TYPES OF BUSINESS
    ORGANIZATIONS
    CORPORATION
    It is an Artificial being created by an operation of law,
    having the rights of succession and the powers
    attributes and properties expressly authorized by law or
    incident to its existence ( Sec 2. Corp code of the
    philippines)
    Advantages
    The stockholders only have LIMITED LIABILITY, as their
    liability extends only to the amount of their capital
    investment
    Has life of 50 years
    Cannot be dissolved even with the death of the
    stockholders
    More infusion of funds from stockholders
    Shares of stocks can be transferred without the consent of
    other shareholders.
    The power is with the BOARD OF DIRECTORS
    Disadvantages
    Has many requirements than a partnership.
    Government exercises strict control over corporations
    and imposes high taxes
    Distribution of net income depends on the declaration
    of stock dividends.
    TYPES OF BUSINESS
    ORGANIZATIONS
    COOPERATIVES
    Is an association of SMALL PRODUCERS and
    CONSUMERS who come together voluntarily to form a
    business which they own, manage and patronize

    Advantages
     The prices of products offered to consumers are lower due to
    direct purchase of cooperative members from producers or
    manufacturers.
     Managed by MEMBERS THEMSELVES; thus saving on

    management costs which leads to lower prices of products


    inuring to the benefit of consumers
    Disadvantages
     There is limited capital due to underprivileged members
     The cooperative is STRICTLY for members only and shares

    cannot be transferred to non members


     Lack of efficient management as it is managed only by its

    members.
    TYPES OF BUSINESS
    ACCORDING TO ACTIVITIES
    SERVICE
    MERCHANDISING
    MANUFACTURING
    TYPES OF BUSINESS
    ACCORDING TO ACTIVITIES
    SERVICE
    Is a type of business operation engaged in the rendering
    of SERVICES.
    It earns based on the SKILL or QUALITY it offers.
    Example: DENTAL CLINIC, BARBERSHOP, LAUNDRY,
    ACCOUNTING
    TRADING MERCHANDISING
    Is a type of business engaged in the buying and selling
    goods.
    It includes the process of MANAGING and
    MARKETING the product.
    EXAMPLE: GROCERY, SARI-SARI STORE
    MANUFACTURING
    Is engaged in the production of items to be sold.
    It involbes the PURCHASING and CONVERTING OF
    RAW MATERIALS to WORK IN PROCESS to
    FINISHED GOODS.
    Example: SHOE FACTORY, FOOD PROCESSING,
    PHONE COMPANIES.
    ACCOUNTING CONCEPTS AND
    PRINCIPLES
    GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES ( GAAP)
    These are broad general statements or rules and
    procedures that serves as guides in the practice of
    accounting.
    These are standards, assumptions and concepts with
    general acceptability
     Philippine Setting
     Philippine Accounting Standards (PAS)

     Philipine Financial Reporting Standards (PFRS)


    ACCOUTNING SYSTEM
    Comprises methods used by a business to keep records
    of its financial activities and to summarize these
    accounts in the accounting report.
    TRANSACTION
    Is a completed action which can be expressed in
    monetary terms.
    FUNDAMENTAL CONCEPTS
    1.) Entity concept – regards the business enterprise as separate and
    distinct from its owners and from other business enterprises.
    2.) Periodicity – is the concept behind providing financial
    accounting information about the economic activities of an
    enterprise for specified time period.
    ACCOUNTING PERIOD:
    CALENDAR YEAR – 12 month period that starts on January and ends
    on December 31
    FISCAL YEAR – 12 month period that starts on ANY MONTH of the
    year other than JANUARY and ends 12 months after the starting
    period.
    .
    3.) GOING CONCERN
    ASSUMES THAT THE BUSINESS will CONTINUE TO
    OPERATE INDEFINITELY.
    BASIC ACCOUNTING
    PRINCIPLES
    1.) Objectivity principle
    States that all business transactions that will be entered in
    the accounting records must be duly supported by
    verifiable evidence.
    2.) Historical cost
    Means that all properties and services acquired by the
    business must be recorded at their ORIGINAL
    ACQUISITION COST.
    3.) Accrual principle
    States that income should be recognized at the time it is
    earned.
    3.) Accrual principle
    States that income should be recognized at the time it
    is earned.
    When goods are delivered or when services HAVE
    BEEN RENDERED.
    Expenses should be recognized at the time they are
    INCURRED.
    4.) Adequate disclosure
    ALL material facts that will significantly affect the
    financial statements must be indicated.
    5.) Materiality
    Financial reporting is only concerned with information
    significant enough to make decisions. This refers to the
    relative importance of an item or event.
    An item is considered important if knowledge of it
    would influence the users of the financial statements
    6.) Consistency –means that the approaches used in
    reporting must be UNIFORMLY EMPLOYED from
    PERIOD TO PERIOD to allow comparison of results
    between time periods. Any changes must be clearly
    explained.

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