ELECT5 L 001 Introduction To Accounting

INTRODUCTION TO
ACCOUNTING
ACCOUNTING DEFINED
• 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. (ASC)
• 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. (Committee
on Accounting Terminology of the American Institute of CPA)
ACCOUNTING DEFINED
• Accounting is the process of identifying, measuring, and communicating

economic information to permit informed judgment and decision by users
of the information (American Accounting Association)
Accounting is the language of
business
DEVELOPMENT OF ACCOUNTING
1. PRIMITIVE ACCOUNTING
Origin of Record keeping
3500 BC- Babylonia (clay tablets) to record payment of wages
8500 BC- Mesopotamia (Iraq)
a. Clay tokens-bills of lading (during delivery, clay is broken down)
b. Wet clay tablets- beginning of the art of writing account records date
to the ancient civilization of China, Babylonia, Greece, and Egypt
1. PRIMITIVE ACCOUNTING
Pharaoh of Egypt- used accounting to keep track of labor and materials used in
buildings and structures
2. MIDDLE AGES
Dev’t.of more formal account – keeping method is attributed to merchants &
bankers in Florence In the 13th and 15th century
1211- Florentine Bankers- accounts were not related, balancing of accounts is lacking
1340 – Genoa – double entry records
1494 – Venice – Franciscan monk, Fra. Luca Pacioli (Father of Double Entry accounting)
3. INDUSTRIAL REVOLUTION AND CORPORATE ORGANIZATION

Revolution in England in Mid-18th to 19th century
- change in handicraft method of producing commercial goods to factory
system
Cost accounting – special field of accounting; meet the need of analysis of various
costs
Expanded Business operation - dev’t. Of corporate form of organizations
3. INDUSTRIAL REVOLUTION AND CORPORATE ORGANIZATION

• Expanded Business operation - dev’t. Of corporate form of organizations
Owners - no longer the manager
Manager – create accounting system to report to owners the result of stewardship of the
business
4. INFORMATION AGE
-Accounting is enhanced further by the need for reliable business information
GAAP – underlying basis for accounting practice
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
• Encompasses the conventions, rules and procedures necessary

to define what is accepted accounting practice
• Principles have developed based on experience, reason, custom,
usage, and practical necessity
USERS OF ACCOUNTING INFORMATION
Decision makers
• Internal
1. Managers and owners
➢Aid in decision making
2. Employees
➢Interested in information about stability and profitability of their employers
➢Interested in information which enables them to assess the ability of the
enterprise to provide remuneration, retirement benefits, and employment
opportunities
USERS OF ACCOUNTING INFORMATION
• External
• Suppliers
• Creditors
• Customers
➢ Interested in information about the continuance of an enterprise
FORMS OF BUSINESS ORGANIZATION
❑Proprietorship
• Has a single owner and is generally called the manager
• For small type of business: Retailer, Physician, Lawyers, Accountants
• Absorb all types of profits and losses
• Solely responsible for all types of debts
• Accounting records of the business do not include the proprietor’s personal financial records
❑Partnership
• Business owned and operated by two or more persons who bind themselves to contribute
money, property or industry to a common fund
• Intention of dividing the profits (and losses) among themselves
• Each partner is liable for any debts incurred by the business
• Accounting considers the partnership as a separate organization, distinct from the personal
affairs of each partner
❑Corporation
• Business owned by stockholders
• Artificial being created by operation of law
• Rights of succession and the power, attributes and properties expressly authorized by law
• Corp is a separate legal entity
• Stockholders are not personally liable for corporation debts
3 IMPORTANT ACTIVITIES IN THE ACCOUNTING
PROCESS:
• Identifying
➢Only quantifiable economic activities are emphasized and recognized in
financial accounting
• Measuring
➢Determining monetary amounts to be recognized
• Communicating
➢Process of preparing and distributing accounting reports to users of
financial information
IDENTIFYING QUANTIFIABLE BUSINESS
TRANSACTIONS
• A hired Ms. C as the store manager, the latter signing the contract on
October 1, 2019.
• On Oct.31, 2019, A paid Ms. C’s salary for the month of October 2019
amounting to P15,000.00
UNDERLYING ASSUMPTIONS
1. ECONOMIC ENTITY ASSUMPTION
• The accountant keeps all the business transactions of a sole

proprietorship separate from the business
owner's personal transactions
2. STABLE MONETARY UNIT ASSUMPTION
• Only transactions that can be expressed in Philippine Peso (PhP) are

recorded
• It is assumed that the peso's purchasing power has not changed over time.
• Allows accountants to add and subtract peso amounts as though each
peso has the same purchasing power as any other peso at any time
• Basis for ignoring the effects of inflation in the accounting records
3.TIME PERIOD ASSUMPTION
• This accounting principle assumes that it is possible to report

the complex and ongoing activities of a business in relatively
short, distinct time intervals
• Allows users to obtain timely information to serve as a basis on
making decisions about future activities
4. GOING CONCERN PRINCIPLE
• Assumes that a company will continue to exist long enough to

carry out its objectives and commitments and will not liquidate
in the foreseeable future
• Allows the company to defer some of its prepaid expenses until
future accounting periods
BASIC PRINCIPLES OF ACCOUNTING
1. OBJECTIVITY PRINCIPLE
• Accounting records are based on the most reliable data available so that they will be as
accurate and as useful as possible
• Accounting records are based on information that flows from activities documented by
objective evidence (source documents)
2. HISTORICAL COST
• "cost" refers to the amount spent (cash or the cash equivalent)

when an item was originally obtained, whether that purchase
happened last year or thirty years ago.
• the amounts shown on financial statements are referred to
as historical cost amounts.
2015
P800,000
3. REVENUE RECOGNITION PRINCIPLE
• Revenues are recognized as soon as a product has been sold or

a service has been performed, regardless of when the money is
actually received
4. MATCHING/EXPENSE RECOGNITION
PRINCIPLE
• Expenses should be recognized in the accounting period in which
goods and services are used up to produce revenue and not when
the entity pays for those goods and services
• Accrual basis of accounting
Example:
Cost of goods sold is recognized in the period when such
goods have been sold, not when they are bought.
5. FULL DISCLOSURE PRINCIPLE
• Requires that all relevant information that would affect the

user’s understanding and assessment of the accounting entity
be disclosed in the financial statements
6. MATERIALITY
• Financial reporting is only concerned with information that is

significant enough to affect evaluations and decisions
• Depends on the size and nature of the item judged in the
particular circumstances of its omission
7. CONSISTENCY
• Firm should use the same accounting method from period to period to
achieve comparability over time within a single enterprise
8. PRUDENCE (FORMERLY CONSERVATISM)
• If a situation arises where there are two acceptable alternatives

for reporting an item, prudence directs the accountant to
choose the alternative that will result in less net income and/or
less asset amount
• Leads accountants to anticipate or disclose losses, but it does
not allow a similar action for gains
9.TIMELINESS
• Accounting information is communicated early enough to be used for the

economic decision which it might influence
THE ACCOUNTING PROFESSION:
CAREER OPPORTUNITIES
1. PRIVATE ACCOUNTING
• Employed in business entities or non-profit organization in various capacity as accounting

staff, chief accountant, internal auditor and controller
• Controller - Highest accounting officer
• Assist management in planning and controlling the entity’s operations
2. PUBLIC ACCOUNTING
• Composed of individual practitioners, small accounting firms and large multinational

organizations that render independent and expert financial services to the public
• Usually offers 3 kinds of services:
1. Auditing
2. Taxation
3. Management Advisory services
3. GOVERNMENT ACCOUNTING
• The process of analyzing, classifying, summarizing and communicating all transactions

involving the receipt and disposition of government funds and property and interpreting
the results thereof

ELECT5 L 001 Introduction To Accounting

Uploaded by

Copyright:

Available Formats

ELECT5 L 001 Introduction To Accounting

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ELECT5 L 001 Introduction To Accounting

Uploaded by

Copyright:

Available Formats

INTRODUCTION TO

• Accounting is a service activity. Its function is to provide quantitative

• Accounting is the process of identifying, measuring, and communicating

3. INDUSTRIAL REVOLUTION AND CORPORATE ORGANIZATION

3. INDUSTRIAL REVOLUTION AND CORPORATE ORGANIZATION

• Encompasses the conventions, rules and procedures necessary

• The accountant keeps all the business transactions of a sole

• Only transactions that can be expressed in Philippine Peso (PhP) are

• This accounting principle assumes that it is possible to report

• Assumes that a company will continue to exist long enough to

• "cost" refers to the amount spent (cash or the cash equivalent)

• Revenues are recognized as soon as a product has been sold or

• Requires that all relevant information that would affect the

• Financial reporting is only concerned with information that is

• If a situation arises where there are two acceptable alternatives

• Accounting information is communicated early enough to be used for the

• Employed in business entities or non-profit organization in various capacity as accounting

• Composed of individual practitioners, small accounting firms and large multinational

• The process of analyzing, classifying, summarizing and communicating all transactions

You might also like