Definition of Accounting

Prepare
Select Record, financial
reports and
economic classify and
interpret for
transactions summarize users

Accounting is a system designed to identify, collect, process, measure and communicate

economic information about the business entity to those users having interest in the financial
affairs of the entity. Information produced by accounting serves as a service activity which
inform users as to its financial status, condition and other quantifiable measures of a business.
The need for effective and efficient information as
the end product of accounting cycle becomes more in- demand today.

Three known organizations defined accounting in three different thing. According to the
Accounting Standards Council (ASC), accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about finances, about economic entities,
that is intended to be useful in making economic decision.

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On the other hand, Committee on Accounting Terminology of the American Institute of
Certified Public Accountants defines accounting as 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.

Last, American Accounting Association (AAA) in its Statement Basic Accounting

Theory describes accounting as the method of recognizing, appraising and
communicating economic details to permit informed judgment and decision by users of
the information.

From the definitions of accounting given above, three important points should be given
focused for discussion. First, accounting provides quantitative information. The main orientation
of accounting are economic events quantifiable and measurable in terms of money. Second,
accounting information is financial in nature. Most businesses’ reports may be financial or
nonfinancial in nature but financial accounting reports are financial in nature. Last, the
information affects the decision making of the particular users. Decision making plays a vital
role in the development and growth of one entity. Also, accounting plays an important role with
decision making in which it provides the necessary information to be used.

Nature of Accounting
1. Standards of Discipline. Just like any other person (lawyer, engineer, architect, etc.)
engaged in professional services, accountants follow certain standards in
performing their professional services.

1. Art and Science. Accounting as an art follows certain style to make its reporting more
meaningful, relevant and useful to the users of financial statements. Example, journal
entries should maintain a slant format to give distinction of the item to be debited and to
be credited.
Accounting as a science on the other hand follows a systematic process before the
financial statements will be produced. Step by step procedure to attain the
reliable and relevant information for the users of financial information. This 5 coherent
system is condensed into the accounting cycle process.
3. Service Activity. Accountants are merely concerned with giving professional
services to the client rather than engage in the actual business of the company.

3. Language of Business. Through the end- product of accounting, financial statements,

different users of financial information can be able to ask for its assistance for their
individual needs. By means of accounting, users may be able
to assess the following:procedure leads to the preparation of the
following statements:

(1)Trial Balance
(2)Income statement
(3)Statement of Financial Position.

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Analysis and Interprets
This is the final and end- function of accounting. The recorded, classified and summarized
financial data is analyzed and interpreted in a manner that the end- users can make a meaningful
judgment about the conditions, stability, and profitability of the business operations. The data is
also used for preparing the future plan and developing of policies and procedures in executing
financial and nonfinancial plans.

Communicate
The accounting information after being meaningfully analyzed and interpreted has
to be communicated in a proper form and manner to the proper person. This is done through
preparation and distribution of accounting reports, which include the usual income statement and
the balance sheet, additional information in the form of
accounting ratios, graphs, diagrams, funds flow statements etc.
BRIEF HISTORY OF ACCOUNTING
The origins and work of accounting is generally attributed to Fra Luca Pacioli, an Itallian
mathematician. But studies found that accounting existed as early as the birth of civilization. Facts
have shown that early people have already practice the art of
bookkeeping.

The origin of keeping accounts has been traced as far back as 8,500 BC., the date
archaeologists have established for certain clay tokens- cones, disks, spheres, and pellets – found in
Mesopotamia (modern Iraq). Around 3,600 BC, record- keeping was already common also from
Mesopotamia, China and India to central and South America. The oldest evidence of this practice
was the “clay tablet” of Mesopotamia, 90% of which dealt with commercial transactions, accounts
payable and receivables. Tithes to ruling theocratic class were faithfully recorded in many
occasions as to both quantity and value. Researchers have found then that these clay tablet contains
ancient writings which were
translated and found to be early tax assessments and payments.

People in the ancient civilizations of China, Babylonia, Greece and Egypt maintained
various types of record of business activities. Account records date back to the 1st dynasty of
Babylonia (2286- 2242 B.C.), its law which was based on the Code of
Hammurabi, requires merchants trading goods to give buyers a sealed memorandum 7 containing
the agreed price before it can be considered enforceable. The agreed- upon transaction was
recorded by the Scribe (the predecessor of the modern accountant)
on a small mound of clay with the parties affixing “their signatures” on it. This clay was allowed
to dry and served as the record of the transaction. For the more important
transactions, the record can be klindried.

Development of more formal account- keeping methods is attributed to the merchants and
bankers of Florence, Venice and Genoa during the 13 th to 15th centuries. The earliest of these
methods consisted of accounts kept by a Florentine banker in 1,211 A.D. The system was
primitive, accounts were not related in any special way, and balancing of the accounts was
lacking. Systematic bookkeeping evolved from these
methods, however, and double- entry records first appeared in Genoa in 1,340 A.D.
The first treatise on the art of systematic bookkeeping appeared in 1494, in Venice.
“Everything about Arithmetic, Geometry, Proportions and Proportionality” (Summa de
Arithmetica, Geometira, Proportioni et Proportionalita) was written by the Franciscan monk, Fra
Luca Pacioli, one of the most celebrated mathematicians of his day. The work was intended to
summarize the existing knowledge of mathematics. Included in the arithmetical part the work
was a section that explained in detail the double- entry system of bookkeeping. Although Pacioli
made no claim to developing the
art of bookkeeping, he has been regarded as the father of double- entry accounting.

In the 17th century, Nicolas Petri was the first person to group similar transactions in a
separate record and enter the monthly totals in the journal, rather
than recording all transactions seriatim, that is, in series.

The need for accounting services emerged slowly, but by the early decades of the 19 th
century a flurry of textbooks and handbooks on accounting had appeared, reflecting the impact of
the Industrial Revolution. This revolution, which occurred in England from the mid- 18th to the
mid- 19th century, changed the method of producing commercial goods from the handcraft
method to the factory system. With this change came the problem of costing for a large volume
of products. The specialized field of
cost accounting emerged to meet this need for the analysis of costs behaviour.

Accountancy was still an indeterminate calling in Britain as late as the 1830s. Men then
engaged in accounting not only made simple accounts but also found8it

financially necessary to act as auctioneers, appraisers, agents and debt collectors. The profession
was shaped by the legislation.
Accountancy reached the shores of the United States of America as a natural result of
the investments being made by British businessmen into the land of opportunities.

As of today, accounting plays a vital role and have already reached the age of
technology. There is an abundance of accounting applications and modules to suit the
businesses’ various needs. The continuous development of technology will surely affect the
innovative development of accounting.

MODERN AGES:
Development of E--
‐commerce
Accounting Soiwares

INDUSTRIAL REVOLUTION AND AGES

OF OPPORTUNITY:
mid 18th century -‐ birth
of cost accounting
1830 s -‐ investment in the land of
opportunity, United States of
America

MIDDLE AGES:
1340 A.D -‐ Systematic bookkeeping and double --
‐entry records in Genoa
1494 A.D. -‐ Fra Luca Pacioli was regarded as the father
of double -‐entry system
17 th century -‐ Nicolo Petrithe first person to group
similar transactions in a separate record and enter the
monthly totals in the journal, rather than recording all
transactions seriatim, that is, in series.

PRIMITIVE AGES:
8500 B.C. -‐ The use of clay tokens (e.g. spheres, cones, disks) to
represent commodities 3600 B.C. -‐ The use of clay tokens for wages
payments
1st Dynasty of Babylonia (2286 -‐2242 B.C.) -‐ requires sealed
memorandum before a transaction be enforceable.
DEFINITION OF TERMS

1. Accounting – is the language of business

2. Recording – journalizing

3. Summarizing – posting to the ledger

4. Classifying - preparing the trial balance and the financial statements

5. Interpreting – presenting the result of operation to the users of accounting information