What is Accounting?

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Learning Outcomes
At the end of this chapter you should be able to:
 Explain the meaning and purpose of accounting;
 Describe the role of accounting as an information system;
 Describe how ethics and governance relate to accounting; and
 Assess the impact of external environmental factors on accounting.
Lesson Outline
 What is accounting
 The accounting process
 Accounting as an information system
 Accounting as the language of business
 The users of accounting
 External environmental factors influencing accounting
 Accounting as a profession
 Role of ethics and governance in Accounting
What is Accounting?
Definitions on Accounting
 What accounting does.
 Accounting is 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. (AICPA,1941).
 Purpose and functions of accounting.
 Accounting is the process of identifying, measuring and
communicating economic information to permit informed
judgments and decisions by users of the information. (AAA,1961).
Definitions on Accounting (Contd.)
 Define with
information.
reference
to
the
concept
of
 Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature,
about economic activities that is intended to be useful in
making economic decisions. (AICPA, 1970).

The term ‘quantitative information’ is wider in scope than
financial or economic information of previous definitions.
Definitions on Accounting (Contd.)
 In general, accounting can be defined as a process
of identifying, measuring, recording and
communicating information to facilitate decision
making of users of information.
 Responsibility of the management of an entity to
prepare and present financial statements to meet
the information needs of users.
Accounting Process
First Stage
Second
Stage
Third
Stage
Fourth
stage
• The identification of transactions and events
(economic events of an organization)
• Expression of these transactions and events in a
common denominator- usually in money
• Recording, classifying and summarizing
transactions and events in the accounting records
• Presenting of the information generated through
the processing of transactions and events in the
financial reports.
Accounting as an Information System
Accounting Information System
Transactions
and Events
(Input)
Accounting
Process
Financial and
other reports
(Output)
Accounting as the language of
business
Symbols
Numerals and
words, debits
and credits
Unique to the
accounting
discipline
Rules
General set
of procedures
followed in
creating
financial
information
of an entity
Activity 1.1
A business entity applies to a bank to obtain a
loan to purchase a motor vehicle.
Identify the items of information that a loan
officer of the bank would consider in deciding
whether to approve the loan.
Users of Accounting Information
Management
Accounting
Internal Users
Parties that make decisions
directly affecting its internal
operations.
The
Management
Financial
Accounting
External Users
Parties other than management
that make decisions concerning
their relationship to the
organization.
Diverse
groups
Activity 1.2
State
the
differences
between
financial
accounting and management accounting in terms
of users of reports, types of reports, frequency of
reports and content and format of reports.
Accounting Environment
External Environmental Factors influencing
Accounting
 Political environment
 Economic environment
 Social environment
 Technological environment
 Legal environment
Activity 1.3
 Identify the environmental factors that would
influence a software development company.
Accounting as a Profession
Accounting Profession: Different Roles
Public
Accounting
(Accountant
in public
practice)
Offer their
professional
services to the
public for a fee
e.g.
Auditing and
assurance services
Taxation services
Advisory services
Business
Accounting
(Accountant
in business)
Employed in
business entities
e.g.
Financial
accounting,
Management
accounting
Development of
accounting
information systems
Activity 1.3
 Identify the fields or career paths in Accounting
Ethics and Governance in Accounting
What is ethics?
 How we act in order to make the ‘right’
choice and produce ‘good’ behavior.
The ethics and its importance
Principles of professional conduct
 Integrity
 Objectivity
 Professional Competence and Due care
 Confidentiality
 Professional Behavior
International Ethics Standards Board of International Federation
of Accountants (2013)
What is Corporate Governance?
The term ‘corporate governance’ is usually
defined as the system by which companies are
directed and controlled (Cadbury Report, 1992).
Corporate Governance
Transparency
&
Accountability
Controlling &
Directing the
Directors
Role of shareholders
and stake holders
Thank you
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