FINANCIAL ACCOUNTING & REPORTING (Fundamentals) Chapter 1: Introduction to Accounting (FAR by: Millan) Chapter 1 Introduction to Accounting Learning Objectives 1. Define accounting. 2. Describe the nature and purpose of accounting. 3. Give examples of branches of accounting. 4. State the function of accounting in a business. 5. Differentiate between external and internal users of accounting information. 6. Narrate the history/origin of accounting. 7. State the forms of business organization. 8. State the types of business according to their activities. Chapter 1: Introduction to Accounting Definition of accounting • Accounting is a process of identifying, recording and communicating economic information that is useful in making economic decisions. Chapter 1: Introduction to Accounting Essential elements of the definition of accounting 1. 2. 3. Identifying – The accountant analyzes each business transaction and identifies whether the transaction is an “accountable event” or “non-accountable event.” This is because only “accountable events” are recorded in the books of accounts. “Non-accountable events” are not recorded in the books of accounts. Recording – The accountant recognizes (i.e., records) the “accountable events” he has identified. This process is called “journalizing.” After journalizing, the accountant then classifies the effects of the event on the “accounts.” This process is called “posting.” Communicating – At the end of each accounting period, the accountant summarizes the information processed in the accounting system in order to produce meaningful reports. Accounting information is communicated to interested users through accounting reports, the most common form of which is the financial statements. Chapter 1: Introduction to Accounting Nature of accounting • Accounting is a process with the basic purpose of providing information about economic activities intended to be useful in making economic decisions. Chapter 1: Introduction to Accounting Types of information provided by accounting 1. Quantitative information 2. Qualitative information 3. Financial information Chapter 1: Introduction to Accounting Functions of Accounting in Business 1. To provide external users with information that is useful in making investment and credit decisions; and 2. To provide internal users with information that is useful in managing the business. Chapter 1: Introduction to Accounting Brief history of accounting • Accounting can be traced as far back as the prehistoric times, perhaps more than 10,000 years ago. • 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 some time, the tokens were replaced by wet clay tablets. During such time, experts concluded this to be the start of the art of writing. (Source: http://EzineArticles.com/456988) • Double entry records first came out during 1340 A.D. in Genoa. • In 1494, the first systematic record keeping dealing with the “double entry recording 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 of “double entry recording” is being used to this day. Thus, Fra Luca Pacioli is considered as the father of modern accounting. Chapter 1: Introduction to Accounting Common Branches of Accounting Chapter 1: Introduction to Accounting Common Branches of Accounting Chapter 1: Introduction to Accounting Common Branches of Accounting Chapter 1: Introduction to Accounting Common Branches of Accounting Chapter 1: Introduction to Accounting Users of Accounting Information 1. Internal users – those who are directly involved in managing the business. Examples: • Business owners who are directly involved in managing the business • Board of directors • Managerial personnel 2. External users – those who are not directly involved in managing the business. Examples: • Existing and potential investors (e.g., stockholders who are not directly involved in managing the business) • Lenders (e.g., banks) and Creditors (e.g., suppliers) • Non-managerial employees • Public Chapter 1: Introduction to Accounting Forms of Business Organizations Chapter 1: Introduction to Accounting Advantages and Disadvantages Chapter 1: Introduction to Accounting Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan) Advantages and Disadvantages Chapter 1: Introduction to Accounting Advantages and Disadvantages Chapter 1: Introduction to Accounting Advantages and Disadvantages Chapter 1: Introduction to Accounting Advantages and Disadvantages Chapter 1: Introduction to Accounting Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan) Types of Business According to Activities 1. Service business 2. Merchandising (Trading) 3. Manufacturing Chapter 1: Introduction to Accounting Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan) Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan) Advantages and Disadvantages Chapter 1: Introduction to Accounting QUESTIONS???? REACTIONS!!!!! Chapter 1: Introduction to Accounting END Chapter 1: Introduction to Accounting
