M1

L1
 TARGET
Define accounting
Describe the nature of accounting
Lesson 1: Explain the functions of accounting in businesses
What is Understand the four sectors of the accounting
Accounting? profession
Understand an overview of the Accountancy Act of
2004
Describe the five fundamental principles of
professional accountants
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Definitions of Accounting
Accounting is the process of identifying,
measuring, and communicating economic
information to permit informed judgment
and decisions (American Accounting
Association)
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Definitions of Accounting
Accounting is a service activity. Its function
is to provide quantitative information,
primarily financial in nature about
economic entities, that is intended to be
useful in making economic decisions
(Accounting Standards Council)
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Definitions of Accounting
Accounting is the art of recording,
classifying and summarizing in a significant
manner and in terms of money,
transactions, and events which are in part
at least of a financial character and
interpreting the results thereof (American
Institute of Certified Public Accountants)
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Nature of Accounting
• Accounting is considered as an art since it
requires applied skills and expertise to
perform accounting tasks well
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Nature of Accounting
• Accounting is considered as a process
since it follows steps such as recording,
classifying, and summarizing financial
information
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Nature of Accounting
• Accounting is financial since it deals with
monetary transactions. Nonmonetary
transactions are also usually transformed
into monetary terms
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Nature of Accounting
• Accounting is an information system
since it is a pool of transactions and data
that is interpreted and communicated to
the various users of the financial
information
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

History of Accounting
Fra Luca Bartolomeo de Pacioli or
commonly known as Luca Pacioli, was an
Italian mathematician and is considered as
the father of Accounting and Bookkeeping.
He also introduced the double-entry
bookkeeping through his book titled
Everything about Arithmetic, Geometry, and
Proportions.

Fra Luca Bartolomeo de Pacioli

 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

History of Accounting
However, even before Luca Pacioli,
accounting already existed in various parts
of the world. Some of the earliest known
writings of ancient tax records were on clay
tablets from Egypt and Mesopotamia,
dating back to as early as 3300 to 2000 BC.

Fra Luca Bartolomeo de Pacioli

 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

History of Accounting
In the Philippines, the accounting practice
originated in the 1700s. However, it was
only until March 17, 1923, that the
government recognized the accounting
profession. It was formalized through Act
No. 3105, which organized the Board of
Accountancy (BOA).

Fra Luca Bartolomeo de Pacioli

 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Functions of Accounting in Business

The role of accounting in business is
providing useful financial information to
the stakeholders in a timely manner so that
they can make informed decisions. Thus,
accounting is often called the language of
business.
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Functions of Accounting in Business

Language is defined as the method of
human communication, either spoken or
written while business is defined as a
person’s regular occupation, profession, or
trade. Hence, in order to communicate on
our regular business activities, we need to
have a common language. That is where
accounting enters the picture.
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Functions of Accounting in Business

The owner, manager, and rank-and-file
employee of a business need to
communicate with accountants and learn
the language of business. Financial
information will be useless and
meaningless if one does not understand
accounting.
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Sectors of Accounting
 Public Practice. Public accountants offer
professional services such as external
audits, taxation, and consultancies to
multiple clients simultaneously. For
accountants to be able to engage in
public practice, they should earn the
license as a Certified Public Accountant
(CPA).
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Sectors of Accounting
 Commerce and Industry. Businesses and
private companies employ accountants.
The tasks of accountants in this sector
include recording transactions, preparing
financial reports and tax returns,
analyzing accountants, and managing
cash.
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Sectors of Accounting
 Academe. Accountants in this sector are
the educators who impart their
knowledge of the profession by teaching
aspiring future accountants.
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Sectors of Accounting
 Government. Government accountants
are those employed by various agencies
such as the Commission on Audit (COA),
Bureau of Internal Revenue (BIR), Local
Government Units (LGUs), Bangko
Sentral ng Pilipinas (BSP), and Securities
and Exchange Commission (SEC).
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Here is an example: Marian is a CPA teaching accountancy to college students. Her top 3 students were
Sof, Joyce, and Chin. Her students graduated and became CPAs as well. Sof worked as an external
auditor at IMA CPA Firm, a local accounting firm. Joyce worked as the accountant of ASI Hardware, Inc.,
a private company. Chin worked as an Examiner at the Bureau of Internal Revenue.
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Accountancy Act of 2004

Republic Act No. 9298, also known as the Philippine Accountancy Act of 2004, was signed into law by
President Gloria Macapagal-Arroyo on May 13, 2004. The following are among the articles of this act:
1. Title, Declaration of Policy, Objective and Scope of Practice
2. Professional Regulatory Board of Accountancy
3. Examination, Registration, and Licensure
4. Practice of Accountancy
5. Penal and Final Provisions
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Accountancy Act of 2004

Overall, the objective of RA9298 is explained in Sec. 3.
The act shall provide for and govern:
 The standardization and regulation of accounting education;
 The examination for registration and certified public accountants; and
 The supervision, control, and regulation of the practice of accountancy in the Philippines.
 Lesson 1:
FUNDAMENTALS OF ABM 1 What is Accounting?

Fundamental Principles of
Professional Accountancy
According to the code of ethics,
professional accountants must possess the
following principles:
 Integrity
 Objectivity
 Professional Competence and Due Care
 Confidentiality
 Professional Behavior