FABM 1 - C1 - NatureOfAccounting

NATURE OF ACCOUNTING
AND ITS BUSINESS

ENVIRONMENT
MR. JOMARI F. DIANA

ABM STRAND COORDINATOR
Subject Teacher, Fundamentals of Accountancy, Business and Management 1
WHAT IS ACCOUNTING?
• ACCOUNTING is the systematic
process of measuring and reporting
relevant financial information about
the activities of an economic
organization or unit.
• Its underlying purpose is to provide
financial information and capable of
being expressed in monetary terms.
WHAT IS ACCOUNTING?
• According to the American Institute of
Certified Public Accountants (AICPA),
ACCOUNTING is the art of
recording, classifying, and
summarizing in a significant manner
and in terms of money, transaction,
and events, which are in part at least
of a financial character, and
interpreting the result thereof.
WHAT IS ACCOUNTING?
• According to the Philippine Institute
of Certified Public Accountants
(PICPA), ACCOUNTING is a service
activity and it’s function is to provide
quantitative information, primarily
financial in nature, about economic
entities, that is intended to be useful in
making economic decisions.
NATURE OF ACCOUNTING
1. Accounting is a systematic process.
2. Accounting is both an art and
discipline.
3. Accounting is a service activity.
4. Accounting deals with financial
information and transactions.
5. Accounting is an information system.
FOUR ASPECTS OF
ACCOUNTING
1. Recording
- writing down of business transactions
chronologically in the books of account as
they transpire.
2. Classifying
- sorting similar and related business
transactions into the three categories of assets,
liabilities and owner’s equity.
FOUR ASPECTS OF
ACCOUNTING
3. Summarizing
- Preparing the financial statements that are designed
to meet the information needs of its users.
4. Interpreting
- Representing the qualitative and quantitative
financial information about the business transactions
in a language comprehensible to the users of financial
statements making accounting as the language of
business.
BASIC ACCOUNTING FUNCTION
IN BUSINESS
• Generation of relevant and timely
financial information for interested
parties.
• The financial information provided
about the activities of the economic
organization makes it easily
comprehensible for users to assess it
financial position as of a given time and
the result of operation for a given period.
HISTORY OF ACCOUNTING
- Accounting is as old as civilization itself. It
has evolved in response to various social
and economic needs of men.
- Accounting started as a simple recording of
repetitive exchanges.
- The history of accounting is often seen as
indistinguishable from the history of finance
and business.
 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
 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 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).
America
 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.
America
 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).
America
 In this period rapid changes in
accounting practice and reports were
made.
 Accounting standards to be observed by
accounting professionals were
promulgated.
America
 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.
America
 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.
 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).
Commerce.
 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.
Commerce.
 Nowadays, investors seek investment
opportunities all over the world.
 To remain competitive, businesses
everywhere feel the need to operate
globally.
Commerce.
 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.

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NATURE OF ACCOUNTING

AND ITS BUSINESS

MR. JOMARI F. DIANA

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