INTRODUCTION TO

ACCOUNTING
MR. KONDO D. A
DAC 11
2020/2021
Definition of Accounting
“The art of recording, classifying and summarising, 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”
WHAT IS ACCOUNTING?
DEFINITION AND NATURE
ACCOUNTING AS A SERVICE ACTIVITY
Service is the occupation or function of serving;
Its function is to provide QUANTITATIVE
INFORMATION, PRIMARILY FINANCIAL IN
NATURE, about ECONOMIC ENTITIES, that is
intended to be useful in making ECONOMIC
DECISION.
FROM ASC: ACCOUNTING STANDARDS COUNCIL
WHAT IS ACCOUNTING?
DEFINITION AND NATURE
ACCOUNTING AS AN ART
ART is a skill acquired by EXPERIENCE.
It is an art of RECORDING, CLASSIFYING and
SUMMARIZING in a significant manner in terms of
money, transactions and events which are in part at least
of a financial character and INTERPRETING the results
thereof
From AICPA: AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS
WHAT IS ACCOUNTING?
DEFINITION AND NATURE
ACCOUNTING AS A SYSTEMATIC PROCESS
PROCESS is a series of actions that produce
something or that lead to a particular result.
It is the process of IDENTIFYING, MEASURING and
COMMUNICATING economic information to permit
informed judgment and decision by users of the
information.
FROM AAA: AMERICAN ACCOUNTING
ASSOCIATION
FEATURES OF ACCOUNTING
THE ACCOUNTING PROCESS
Recording
Classifying
Summarizing
Reporting
Analysis and
Interpretation
HISTORY OF ACCOUNTING
5000 BC
ABACUS functioned as a calculator in the ancient times
Was developed by the SUMERIANS ( FROM
MESOPOTAMIA) ( MODERN DAY IRAQ )
HISTORY OF ACCOUNTING
14TH CENTRY – THE BIRTH OF DOUBLE ENTRY
BOOK KEEPING
FOUNDER: LUCA PACIOLI OF ITALY
“FATHER OF ACCOUNTING”
Wrote “EVERYTHING ABOUT ARITHMETIC,
GEOMETRY, PROPORTION”
Similar tomodern day accounting cycle
Explains extensively the use of BALANCE

SHEET, METHOD OF RECORDING

MEMORANDUMS
JOURNALS AND LEDGERS, THE USE OF
ACCOUNTS SUCH AS ASSETS,
LIABILITIES AND OWNER’S EQUITY,
REVENUE AND EXPENSES YEAR END
CLOSING ENTRIES AND THE USE OF
TRIAL BALANCE TO PROVE A
BALANCED LEDGER
LUCA PACIOLI
HISTORY OF ACCOUNTING
19TH CENTURY – THE DAWN OF MODERN
ACCOUNTING IN EUROPE AND AMERICA
Industrial revolution which replaced hand tools with
MACHINE or POWER TOOLS.
TRANSFORMED ACCOUNTING INTO AN ACTUAL
PROFESSION
HISTORY OF ACCOUNTING
20TH CENTURY – THE EVOLUTION OF MODERN
ACCOUNTING STANDARDS
AICPA= AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS, the first national professional
association for CPAs in the United States
AICPA was tasked to establish FASB to set
ACCOUNTING AND AUDITING standards
FASB: FINANCIAL ACCOUNTING STANDARDS
BOARD, is the result of the demand for more reliable
and comparable FINANCIAL REPORTING.
THE FASB AND GASB ( GOVERNMENT
ACCOUNTING STANDARDS BOARD) are currently the
TWO of the significant authorities establishing GAAP
( GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES)
BRANCHES OF ACCOUNTING
FINANCIAL ACCOUNTING
MANAGEMENT ACCOUNTING
GOVERNMENT ACCOUNTING
AUDITING
TAX ACCOUNTING
COST ACCOUNTING
FINANCIAL ACCOUNTING
is the reporting of the financial position and
performance of a firm through financial statements
issued to external users.
Deals with the framework covering accounting
principles and concepts relative to MEASUREMENT
and VALUATION applied to the preparation and
presentation of FINANCIAL STATEMENTS.
MANAGEMENT ACCOUNTING
process of identifying, measuring, analyzing,
interpreting and communicating information for the
pursuit of an organization's goals. 
 aimed at helping managers within the organization
make decisions. (INTERNAL USERS)
GOVERNMENT ACCOUNTING
 refers to the field of  that specifically finds application
in the public sector.
AUDITING
OBJECTIVE, INDEPENDENT examination and
EVALUATION of the FINANCIAL STATEMENTS of an
organization to make sure that the records are a fair
and accurate representation of the transactions
they claim to represent.
TAXATION
Tax accounting consists of accounting methods that
focus on taxes rather than the appearance of public
financial statements. Tax accounting is governed by
the Internal Revenue Code (BIR) which dictates the
specific rules that companies and individuals must
follow when preparing their tax returns.
COST ACCOUNTING
aims to capture a company's costs of production by
assessing the input costs of each step of production.
USERS OF ACCOUNTING INFORMATION
( according to the CONCEPTUAL FRAMEWORK )
PRIMARY USERS
EXISTING AND POTENTIAL INVESTORS
SUPPLIERS, LENDERS AND OTHER CREDITORS

SECONDARY USERS
 EMPLOYEES
 CUSTOMERS
 GOVERNMENT AND THEIR AGENCIES
 PUBLIC
PRIMARY USERS OF
ACCOUNTING INFORMATION
EXISTING AND POTENTIAL INVESTORS,
STOCKHOLDERS OWNERS
These parties provide the financial resources
to keep the business going.
They decide whether to invest or not
depending on the estimated amount of
income on the investment.
PRIMARY USERS OF
ACCOUNTING INFORMATION
SUPPLIERS, LENDERS AND OTHER CREDITORS
INCLUDING FINANCIAL INSTITUTIONS
Use financial information to determine the
capacity of the business organization to pay
its OBLIGATIONS/DEBTS and their
INTERESTS at the appropriate time.
SECONDARY USERS
EMPLOYEES
They are not directly involved in the decision making of
the company.
They are interested in the financial information of the
FUTURE PROFITABILITY of the company.
SECONDARY USERS
CUSTOMERS
Have an interest about the continuance of an entity
when they have a long term involvement with or are
dependent on the entity.
SECONDARY USERS
GOVERNMENT AND THEIR AGENCIES
Financial information is important for TAX PURPOSES
and in checking of compliance with SECURITIES AND
EXCHANGE COMMISSION (SEC)
They are interested in the allocation of resources and
therefore the activities of the entity.
SECONDARY USERS
PUBLIC
They are provided with the information about the
LATEST TRENDS and the range of activities.
ACCOUNTING CONCEPTS AND
PRINCIPLES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
( GAAP)
These are broad general statements or rules and
procedures that serves as guides in the practice of
accounting.
These are standards, assumptions and concepts with
general acceptability
ACCOUTNING SYSTEM
Comprises methods used by a business to keep records
of its financial activities and to summarize these
accounts in the accounting report.
T R A N S AC T I O N
I s a c o m p l e t e d a c t i o n w h i c h c a n b e
expressed in monetary terms.
Definition of Accounting
Concepts
Accounting concepts are defined as the assumptions
upon which accounting is based
1) Money Measurement Concept:
Only monetary transactions which can be expressed
in terms of money are recorded.
Non monetary aspects will not be recorded
Diverse items like assets, liabilities, etc. can be
expressed in a common denominator of money
The major limitation is that since non monetary
transactions are not recorded, accounting records do
not give full picture
2.) Business Entity concept – regards the business
enterprise as separate and distinct from its owners and
from other business enterprises.
3.) Accounting Period Concept:
For measuring the financial results of the business,
the working of the business is split in to convenient
periods of time known as accounting periods
ACCOUNTING PERIOD:
CALENDAR YEAR – 12 month period that starts on
January and ends on December 31
FISCAL YEAR – 12 month period that starts on ANY
MONTH of the year other than JANUARY and ends 12
months after the starting period.
.
Periodicity – is the concept behind providing financial
accounting information about the economic activities of an
enterprise for specified time period.
4.) GOING CONCERN
ASSUMES THAT THE BUSINESS will CONTINUE TO
OPERATE INDEFINITELY.

5.) Dual Aspect Concept:

Every business transaction always results in receiving
some benefits of value and giving of some other benefits
of equal value
Transactions have two fold effect on both the assets and
liabilities
6.) Objectivity principle
States that all business transactions that will be entered
in the accounting records must be duly supported by
verifiable evidence.
7.) Historical cost
Means that all properties and services acquired by the
business must be recorded at their ORIGINAL
ACQUISITION COST.
An asset acquired by the business is recorded in the
books at cost and not at the market price
The asset is recorded at the true value which is paid and
not some arbitrary value
8.) Accrual principle
States that income should be recognized at the time it is
earned
When goods are delivered or when services HAVE BEEN
RENDERED.
Expenses should be recognized at the time they are
INCURRED.

Accrual concept recognizes both revenue and expenses

All transactions must be brought to record whether they
are settled or not
9.) Revenue Recognition Concept:
Revenue is recognized as being earned on the date on
which it is realized, not when the goods are
manufactured, contract signed or order received
The date is when the goods are transferred to customers
and he becomes liable to pay

10.) Matching Concept:

For measurement of profit or loss, revenues and
expenses are matched and compared
The net profit or loss is determined by matching the
expenses and losses with revenues
Accounting Conventions
1.) Adequate disclosure
ALL material facts that will significantly affect the
financial statements must be indicated.
2.) Materiality
Financial reporting is only concerned with information
significant enough to make decisions. This refers to the
relative importance of an item or event.
An item is considered important if knowledge of it
would influence the users of the financial statements
3.) Consistency –means that the approaches used in
reporting must be UNIFORMLY EMPLOYED from
PERIOD TO PERIOD to allow comparison of results
between time periods. Any changes must be clearly
explained.
4.)Convention of Conservatism:
Caution, prudence and playing safe
Provide for all possible losses but anticipate no profits

5.)Legal Aspect Convention:

Accounting records and books should reflect the legal
position of the business
CHARACTERISTICS OF
ACCOUTING INFORMATION
Understandability
Relevance
Consistency
Comparability
Reliability
Objectivity
THE ELEMENTS OF ACCOUNTING
ASSETS
Assets are items with money value that are owned by
a business. Some examples are: cash, accounts
receivable (selling goods or services on credit),
equipment (office, store, delivery, etc.), and supplies
(office, store, delivery, etc.).
LIABILITIES
Liabilities are debts owed by the business.
Paying cash is often not possible or convenient,
so businesses purchase goods and services on
credit. The name of the account used is
Accounts Payable. Another type of liability is
Notes Payable. This is a formal written promise
to pay a specific amount of money at a definite
future date.

OWNER’S EQUITY The difference between Assets

and Liabilities is Owner’s Equity. The can also
be called capital, proprietorship, or net worth.
ACCOUNT
An account is an individual record or form to
record and summarize information for each asset,
liability, or owner’s equity transaction

Each account will have a title and number.

Debit means left side.

Credit means right side.

Personal Accounts
Accounts of natural or physical persons(kelly’s
account, Linda’s account)
Accounts of artificial or legal persons(accounts of
firms, companies, clubs, associations, banks, schools,
colleges)
Representative personal accounts(outstanding
expenses account, accrued expenses account, prepaid
account)
Rule for Personal Accounts
Debit the receiver
Credit the giver
Received from Ravi 2,000
Paid Ganesh 500
Real Accounts
Accounts of tangible assets
Accounts of Intangible assets
Rule for Real Accounts
Debit what comes in
Credit what goes out
Paid Mr. A 200
Sold Machinery to Raj for 5000
Nominal Accounts
Revenue accounts
Expenses account
Rule for Nominal Accounts
Debit all expenses and Losses
Credit all incomes and gains
Paid rent 500
Received commission 2000
Three Golden Rules of Accounting
Personal Account

 Debit the receiver and Credit the giver.

Real Account

Debit what comes-in and Credit what goes-out.

Nominal Account

Debit all expenses and losses and Credit all incomes

and gains
Classify the following into personal, real and nominal accounts.
A single entry can have one or more classifications.

Transaction . A/Cs involved. Nature of

A/Cs.
A)Rent Paid. a)Rent a/c. 1)Nominal a/c.
b)Cash a/c. 2)Real a/c.
B)Salaries Paid. a)Salaries a/c. 1)Nominal a/c.
b)Cash a/c. 2)Real a/c.
C)Interest recvd. a)Cash a/c. 1)Real a/c.
b)Interest a/c. 2)Nominal a/c.
D)Dividend recvd. a)Cash a/c. 1)Real a/c.
b)Dividend a/c. 2)Nominal a/c.
E)Machinery Sold . a)Cash a/c. 1)Real a/c.
b)Machinery a/c. 2)Real a/c.
F)O/S for Salaries. a)Salary a/c. 1)Nominal a/c.
b)O/S a/c. 2)Personal a/c.
G)Lighting. a)Lighting a/c. 1)Nominal a/c.
b)Cash a/c. 2)Real a/c.
H)Paid to Suresh. a)Suresh a/c. 1)Personal a/c.
b)Cash a/c. 2)Real a/c.
I)Telephone Charge a)Telephone a/c. 1)Nominal a/c.
Paid. b)Cash a/c. 2)Real a/c.