FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT
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-ASC)
Accounting is a process of identifying, recording and communicating economic information
that is useful in making economic decisions. (American Accounting Association-AAA)
Accounting is the art of recording, classifying an 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-
AICPA)
Phases of Accounting
Identifying/Analyzing
Recording
Classifying – Sorting (Process: Posting to ledger book)
Summarizing – Financial reports
Interpreting
Communicating
Financial Reports
Income statement
- revenues
- expenses
- net income
- net loss
Balance sheet
- liabilities
- assets
- capital
Statement of Cashflows
- inflow
- outflow
Statement of Changes in Owner’s Capital/ Equity
- net income
- net loss
Nature of Accounting
1. Accounting is a process. Accounting is composed of multiple steps that lead to a common end
goal. It performs the functions of identifying, recording, and communicating economic events with
the end goal of providing information to internal and external parties.
2. Accounting is an art. Art refers to a way of performing something. It entails creativity and skills to
help us attain some objectives. Accounting is the art of recording, classifying and summarizing and
finalizing financial data. Accounting is a combination of techniques and its application requires
applied skill and expertise.
3. Accounting deals with financial information and transactions. Accounting deals only with
quantifiable financial transactions. These are the only events identified by the accountant,
recorded in the books, and communicated to different parties. Non-financial transactions are not
the focus of the accounting process.
4. Accounting is a means and not an end. Accounting is a tool to achieve a specific objectives. It is
not the objective itself. (Imagine that your goal is you want to go to US someday) Accounting can
be thought of as the plane that will bring you to your destination. 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.
FUNCTIONS OF ACCOUNTING
From the different definitions of accounting, the main functions of accounting can be summarized
as follows:
1. Keeping systematic record of business transactions
2. Protecting properties of the business
3. Communicating results to various parties
4. Meeting legal requirements
HISTORY OF ACCOUNTING
Accounting can be traced as far back as the prehistoric times. Since the dawn of civilization
when mankind began to engage in trade, perhaps more than 10,000 years ago, methods of
record keeping have been invented.
As early as 8500 B.C. accounting has already existed. Archaeologists have found clay
tokens as old as 8500 B.C. in Mesopotamia which were usually cones, disks spheres and
pellets. These tokens correspond to commodities like sheep, clothing or bread. They were
used in the Middle West in keeping records. After sometime, the tokens were replaced by
wet clay tablets. During such time, experts concluded this to be the start of the art of writing.
Other ancient civilizations keeping account records are Babylonia (4500B.C.). Egypt
(2250B.C.), China and Greece.
In the middle ages (13"and 15* centuries), trade flourished in place such as Florence,
Venice and Genoa. This has brought advancement in account keeping methods. In 1211
A.D., one of the systems in accounting was kept by a Florentine banker. However, the
system was primitive as the concept of equality for entries was absent. Double entry
records first came out during 1340 A.D. in Genoa. In 1494, the first systematic record
keeping dealing with "double entry system" was formulated by Fra Luca Pacioli, a
Franciscan monk and mathematician. The "double entry recording system" was included
in Pacioli's book titled "Summa di Arithmetica Geometria Proportioni and
Proportionista", published on November 10, 1494 in Venice. The concept pf "double
entry recording," is being used to this day. Thus, Fra Luca Pacioli is considered as the
father of modern accounting.
