INTRODUCTION TO

ACCOUNTING

CHAPTER 1
 LEARNING OBJECTIVES:
Determine the
Define what is
01 03 functions of
accounting
accounting in
business
Describe the
02 nature of 04 Narrate the
accounting history/origin
of accounting
 Preliminary
Questions:
a. Do your parents ask how you spend your allowance
every day?

b. When deciding between buying a bottle of soft

drinks or fruit juice, what is the basis of your
decision? Do you compare the prices of both and
then decide?

c. When going home, do you sometimes choose to

walk from school rather than riding a jeepney
because you want to save?
Is
accounting
important to
you?
 What is
Accounting?
GROUP ACTIVITY

Mind-mapping Activity:
- The class is divided into 5
groups.
- Each group will list down 8
terms or concepts that are
associated with
ACCOUNTING.
- Define accounting using all
the words/concepts gathered.
“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
• purchases of flour that will be used for baking
• purchases of trucks needed to deliver the products
 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 which will be discussed in future chapters
COMMUNICATING

– occurs through the preparation and

distribution of financial and other
accounting reports.
On the other hand,
American Accounting
Association defined
accounting as identifying,
measuring and
communicating economic
information to permit
informed judgment and
decision by the users of
the information.
 MEASURING
This accounting process is the assigning of monetary
values to the economic events. Rendering of service is
measured as to how much must be recorded for the
services rendered. Selling or buying of merchandise must
be measured in terms of monetary values before it is
recorded.
 Bases of Measurement:

1. Historical cost is the amount of cash or cash

equivalent paid or the fair value of the
consideration given to acquire an asset at the time
of acquisition. It is the most common measure of
financial transactions.
 Bases of Measurement:

2. Current cost is the amount of cash or cash

equivalent that would have to be paid if the same
or equivalent asset was acquired currently.
 Bases of Measurement:

3. Realizable Value is the amount of cash or cash

equivalent that could currently be obtained by
selling the asset in an orderly disposal.
 Bases of Measurement:

4. Present value is the discounted value of the

future net cash inflows that the asset is expected to
generate in the normal course of business.
 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 a process.

A process refers to the method of performing

any specific job step by step according to the
objectives or targets.
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.
Accounting deals with financial
information and transactions.

Accounting 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
stage, from start to finish, accounting deals with financial
information and financial information only. It does not deal
with non-monetary or non-financial aspects of such
information.
Accounting is an information system.

Accounting is recognized and characterized as a storehouse

of information. As a service function, it collects processes
and communicates financial information of any entity. This
discipline of knowledge has evolved to meet the need for
financial information as required by various interested
groups.
Functions of
Accounting in
Business
 Business is the process of producing goods or
services and distributes them to the consumers
who need the goods or services.
Non-profit
Profit-oriented
organization
business
The revenues generated are reverted
The main purpose of putting-up a back to the members or to the
business is to generate profits to the company itself for its self-
owner or owners preservation.
Examples: an Miguel Corporation, Examples: schools, credit unions and
Ayala Land, Incorporated, PLDT, foundation companies.
etc.
Accounting is the language of
business.
It is a language because it becomes a mean of
communication among the users of financial
information such as owners, management
employees, consumers and the government
agencies.
1. Recording keeping function.

Accounting is to maintain a systematic, organize, and

chronological record of financial transactions. This include data
gathering, measuring, classifying, and summarizing. The end
product of which is to ultimately prepare the financial statements
of the company.
2. Protecting of properties.

Accounting should help protect the properties of the

company. It should also help the company to design an
appropriate system to protect the resources of the
company from unauthorized and unwarranted use of
personnel Thus, proper internal control must be
observed at all times.
3. Communicating results.

The financial position and financial performance must

be reported without any bias to the ultimate users. This
financial information should serve as a basis in making
a sound economic decision to the owners, investors,
consumers, employees, creditors and government
agencies.
 4. Meeting legal requirements.

The entity is required to keep and maintain the accounting

records for as long as needed in order to comply with the
government requirements. Accounting records are kept for the
purpose of submission to Bureau of Internal Revenue (BIR),
Securities and Exchange Commission (SEC), Bangko Sentral ng
Pilipinas (BSP), Philippine Stock Exchange, Inc. (PSE) and other
government agencies.
History of
Accounting
 1. 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.
 2. 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. 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.
 3. 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
 4. The Industrial Revolution (1760-1830)

Mass production and the great importance of fixed

assets were given attention during this period.
 5. 19th Century – The Beginnings of Modern
Accounting in Europe and America
The modern, formal accounting profession emerged in Scotland in 1854 when Queen
Victoria granted a Royal Charter to the Institute of Accountants in Glasgow, creating
the profession of the Chartered Accountant (CA). 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 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 1887. The American Association of Public
Accountants was the forerunner to the current American Institute of Certified Public
Accountants (AICPA).
5. 19th Century – The Beginnings of Modern
Accounting in Europe and America
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. A merger is when one company takes
over all the operations of another business entity resulting in the dissolution of
another business. Businesses expanded by acquiring other companies. These types
of transactions have challenged accounting professionals to develop new standards
that will address accounting issues related to these business combinations.
6. 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. This
is to assure transparency and reliability, and to obtain greater confidence on accounting
information used by global investors. Nowadays, investors seek investment opportunities all
over the world. To remain competitive, businesses everywhere feel the need to operate
globally. The trend now for accounting professionals is to observe one single set of global
accounting standards in order to have greater transparency and comparability of financial data
across borders.