INTRODUCTION TO

ACCOUNTING
Week 1
Learning Competencies
At the end of the lesson, you will be able to:
• define accounting;
• describe the nature of accounting;
• explain the functions of accounting in business;
• narrate the history or origin of accounting; and
• cite specific examples in which accounting is used in
making business decisions
“Accounting is the process of IDENTIFYING, RECORDING, and
COMMUNICATING economic events of an organization to interested
users.” (Weygandt, J. et. al
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.
Examples of economic
events or transactions -
In a bakery business:
• sales of bread and other
bakery products
• purchases of flour that will
be used for baking
• purchases of trucks
needed to deliver the
products
RECORDING – this
involves keeping a
chronological diary of
events that are
measured in pesos. The
diary referred to in the
definition are 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 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 both an art and a
discipline.
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 IN
BUSINESS
Accounting is the
means by which
business information is
communicated to
business owners and
stakeholders.
The role of accounting
in business is to provide
information for
managers and owners
to use in operating the
business.
Accounting
information allows
business owners to
assess the efficiency
and effectiveness of
their business
operations.
 Mr. Juan is a retired government employee
who is good at baking. One day he decides to put up a
bakery shop in your barangay. He renovates a portion of
his house to serve as the area for the production of
bread. He purchases baking equipment and raw
materials to produce five different types of bread. Mr.
Juan also hires Jose to help him with the baking and, at
the same time, to be in-charge of sales. Mr. Juan pays
Jose on a weekly basis. Every day, Mr. Juan’s wife
deposits the daily cash sales in their bank account at XY
Savings Bank. With the help of accounting, what possible
decisions or questions of Mr. Juan can accounting
provide an answer to?
Possible decisions or questions
• Is my business earning? (profitability)
• How much daily or monthly sales do I need in order to
recover my fixed cost? (break-even)
• Do I need to hire additional workers to help me with my
production?
• Can I afford to set up a new store in another place?
Where do I get the funds?
• Can I afford to pay a bank loan?
 HISTORY 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.
14th Century - Double-
Entry Bookkeeping
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).
19th Century – The Beginnings of Modern Accounting
in Europe and America
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).
19th Century – The Beginnings of Modern Accounting
in Europe and America
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.
19th Century – The Beginnings of Modern Accounting
in Europe and America

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).
The Present - The Development of Modern Accounting
Standards and Commerce
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.
The Present - The Development of Modern Accounting
Standards and Commerce
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.
THANK YOU!