LESSON 1: INTRODUCTION TO ACCOUNTING

At the end of this lesson, the learners will be able to define accounting and describe its nature; explain the functions of accounting
in business; give examples of business transactions and decisions requiring the need for accounting; and narrate the history of accounting

Define Accounting:
 “Accounting is the process of IDENTIFYING, RECORDING, and COMMUNICATING economic events of an organization to
interested users.” (Weygandt, J. et. al)
 “ The art of recording, classifying, and summarizing, in a significant manner and in terms of money, transactions and events which are in
part or at least of financial character and interpreting the result thereof(American Institute of Certified Public Accountant )
 “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 Standard Council )
 “The process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users
of the information”(American Accounting Association )
 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.
 RECORDING – this involves keeping a chronological diary of events that are measured in pesos. The diary referred to in the
definition is the journals and ledgers which will be discussed in future chapters.
 COMMUNICATING – occurs through the preparation and distribution of financial and other accounting reports.

Nature of Accounting
“Accounting is a systematic recording of financial transactions and the presentation of the related information to appropriate persons.”
Based on this definition we can derive the following basic features 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 identified as a process, as it performs the specific task of collecting, processing and communicating financial
information. In doing so, it follows some definite steps like the collection, recording, classification, summarization, finalization, and
reporting of financial data.
 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 is a systematic method consisting of definite techniques and its proper application 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.
 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.
Function of Accounting
“The primary function of accounting is to provide financial reports to various end-users for economic decision-making” (Philippine
Accounting Standard)
Purpose of Accounting
Accounting helps the users of these financial reports to see the true picture of the business in financial terms. In order for a business to survive, it
is important that a business owner or manager be well-informed.
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.
Following is the evolution of accounting:
 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. 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.
 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). 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). 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.
 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.

Teaching and Learning Activities

Essay:
1. Is accounting important to you?
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 2. Does it affect your daily activities? How?

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Recommended learning materials and resources for supplementary reading

Introduction to accounting https://www.youtube.com/watch?v=bG963a00ZvM

Definition of Accounting: https://www.investopedia.com/terms/a/accounting.asp

Definition of Accounting; Basic Accounting https://www.youtube.com/watch?v=v0rev0tTCRI

History of accounting https://www.youtube.com/watch?v=V4CePVplI2w

Flexible Teaching Learning Modality (FTLM) adopted

Online (synchronous)

Edmodo, google classroom, moodle, schoology, FB Messenger

Remote (asynchronous)

Module
Assessment Task

Multiple Choice

1. Which statement is false?

a. Accountants are the scorekeepers of the business
b. Accounting is indispensable in the world of business
c. Accounting is the language of business
d. None of the above
2. Which is not an attribute of accounting?
a. A service activity
b. An art of recording, classifying, summarizing and interpreting
c. Provides qualitative information
d. None of the above
3. Pacioli’s double entry bookkeeping has been adapted to suit modern times. It still is an effective recording system because information
extracted tells the owner/manager
a. What profit the business has made
b. How much the business owes
c. How much is owed to the business
d. All of the above
4. 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 financial character and interpreting the result thereof.
a. Accounting
b. Taxation
c. Financial Accounting
d. Management Accounting
5. All of the following describe accounting, except
a. A universal language of business
b. An information system
c. An exact science rather than art
d. A service activity