fundamentals of accounting

1. FUNDAMENTALS OF
ACCOUNTANCY BUSINESS
AND MANAGEMENT

2. ACCOUNTING

3. A system that helps business track events
that affect them.
The “Language of Business”.
The medium communication between the
owner or other users and the business
entity.
The final product of accounting process is
called the financial statement.

4. WHAT IS ACCOUNTING?
• commonly define as the “art of recording, classifying and
summarizing in a significant manner and in terms of
money, transaction and events which are in part at least
financial in character and interpreting the result thereof”
American Institute of certified Public Accountants
(AICIPA)

5. • “ Accounting is the process of IDENTIFYING ,
• RECORDING ,and COMMUNICATING economic
events of an organization to interested users.”

6. 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.

7. Learning Accounting:
Data
Transaction
Events
Measured
Processed
Users for
Decision
Making
Communicated
Flow of
Accounting

8. NATURE OF ACCOUNTING
According to Accounting Theory “Accounting is a systematic recording of
financial transactions and the presentation of the related information to
appropriate persons.” Based on this definition we can derive the following
basic features 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.

9. 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
In doing so, it follows some definite steps like the collection,
recording, classification, summarization, finalization, and
reporting of financial data.

10. ACCOUNTING IS AN ART
• It refers to a way of performing something; it’s an art of recording
classifying, summarizing and finalizing data. A combination of
techniques and its application requires applied skill and expertise.
• It is behavioral knowledge involving a certain creativity and skill to help
us attain some specific objectives.
• 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.

11. ACCOUNTING AS AN ART
• defined as the art of analyzing financial transaction
and economic events, recording them, classifying
them as to accounts and summarizing them and
followed by reporting and interpreting the results.
• 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.

12. • Accounting deals with financial information
and transactions. It deals only with quantifiable
financial transaction. The only events identified
by the accountant, recorded in the books and
communicated to different parties.

13. 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.

14. • Accounting is a means and not an end. It
is a tool to achieve specific objectives. It is
not the objective itself.

15. ACCOUNTING IS AN
INFORMATION SYSTEM.
• It is recognized and characterized as storehouse
information. As a service function, it collects processes and
communicates financial information of any entity.
• 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.

16. ANALYZING
The first step of the accounting process.
The accountant or any person involve in
business finances must look the transactions
entered into, economic events that have
taken place, and determine their effects on
the business.
The transactions and events are generally
supported by documentary evidence or
proofs.

17. RECORDING
Is a routine and process of writing down
business transactions. Business transactions
and events that are quantifiable or
measurable are recorded in the books of
accounts.
The recording maybe done by manually or it
may be encoded with the use of computers
with accounting software like peach tree, tally
and etc., The recording books called
JOURNALS.

18. These journals are has a different type as
follows:
A. General Journal
B. Special Journal
a. Cash Receipt Books,
b. Cash Disbursement Books
c. Sales Books,
d. Purchase book

19. CLASSIFYING
It refers the process of title. The journalize
transaction and events are classified as in
ledgers. The Ledgers are General Ledgers and
Subsidiary Ledgers. The Subsidiary Ledgers
show the details of those transactions and
events.
The process of transferring the same
information from the journal to the ledger is
technically known as posting. Posting of
information is usually made at the end of the
month.

21. SUMMARIZING
A process that involves grouping together
the various accounts referred to the
classifying process. the phase in the
accounting process which involves
preparation of the financial statements.
Accounts are grouped into Assets,
Liabilities, Owners Equity, Revenue, Cost
and expenses.

22. REPORTING
The preparation of financial summaries called
financial statements.
These are written or documentary documents
where the
(1)results of the operation (Income Statements),
(2)financial position (balance sheet),
(3)and (cash flows (cash flow statement) are
communicated to the users of information.

23. INTERPRETING
Refers to the process of analyzing and
evaluating the information presented in the face
of the financial statements and the
accompanying notes.

24. The financial statements present the following
information:
1. Profitability of the business
2. Liquidity of the business
3. Stability of the business
4. Management efficiency

25. Profitability – is the ability of the business to realize more
revenues than expenses.
Liquidity – is the ability of the business to pay its current
maturing obligations or those obligations that are payable
within one year.
Stability – is the ability of the business to pay its long – term
financial obligations and remain stable. Long – term
obligations are those payables of the business that mature
beyond one year from the date of the financial statements.
Management efficiency – it reflects how effective and efficient
the management is in utilizing its resources, like cash,
products intended for sale, building land and other similar
resources entrusted to the management.

26. DIFFERENCE BETWEEN ACCOUNTING AND
BOOKKEEPING.
Both term Accounting and Bookkeeping, are quite
similar and sometimes interchangeably used. However
there are distinct difference between them and this are
as follows;
• In terms of coverage, bookkeeping has a limited
scope than accounting.
• Bookkeeping refers to the recording aspect of the
accounting process or cycle.

27. • Accounting has a wider scope and involves not
only the recording aspect but also the
preparation and interpretation of financial
statement.
• Bookkeeping is chronological recording of
business transactions and events in the books
of accounts and includes the preparation of
trial balance. Accounting connotes applications
of proper accounting procedure and principles
from the recording stage up to the
preparations of financial statements.

28. • Bookkeeping is usually performed by bookkeeper; he
is responsible for keeping the financial records of the
business, the nature of his work is more on clerical
and mechanical.
• While in accounting is undertake by the accountant,
he review the work of the bookkeeper and in some
instances, his works involves some level of
bookkeeping.
• Accountant should have a higher degree of
knowledge and analytic skills, in big business
accountants are usually Certified Public Accountant.

31. THE ORIGIN / HISTORY OF
ACCOUNTING
• The Accounting or record keeping of business
transaction can be traced back to the book Summa
de Arithmetica Geometrica Proportione e
Proportionalita (Everything about Arithmetic,
Geometry and Proportion) by the Franciscan monk,
Luca Pacioli. He is considered as the father of
accounting.

32. It is believed that the history of accounting is thousands of
years old and can even be traced to ancient civilizations.
A history books suggest that the early development of
accounting can be dated back to ancient Mesopotamia.
During those times, people followed a system of writing and
counting money.
Development of accounting may relate to the taxation and
trading activities of temples.
Emperor Augustus (63BC – 14 AD) provided more
evidence about the development of accounting. The Roman
government kept detailed financial information of the deeds,
of Emperor Augustus regarding the stewardship of Roman
resources.

33. The evidenced by the Res Gestae Divi (The Deeds of
the Devine Augutus). The Roman historians Suestonius
and Cassius Dio recorded that 23BC, Augustus
prepared a rationarium (account) which listed public
revenues, the amounts of cash in the aerarium
(treasury), in the provincial fisci (tax officials), and in the
hands of the hands of the publican (public contractors).
But it was Pacioli who was the first to describe the
system of debits and credits in journals and ledgers that
is still the basis of today’s accounting system.
In 1854 Scotland, Queen Victoria granted a royal
charter to the institute of Accountants in Glasgow,
creating the profession of Charter Accountant (CA), this
was the start of the modern accounting profession.

34. The evidenced by the Res Gestae Divi (The Deeds of
the Devine Augutus). The Roman historians Suestonius
and Cassius Dio recorded that 23BC, Augustus
prepared a rationarium (account) which listed public
revenues, the amounts of cash in the aerarium
(treasury), in the provincial fisci (tax officials), and in the
hands of the hands of the publican (public contractors).
But it was Pacioli who was the first to describe the
system of debits and credits in journals and ledgers that
is still the basis of today’s accounting system.
In 1854 Scotland, Queen Victoria granted a royal
charter to the institute of Accountants in Glasgow,
creating the profession of Charter Accountant (CA), this
was the start of the modern accounting profession.

35. THE EVOLUTION 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.

36. 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.
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.

37. “A person should not go to sleep at night until the debits equal the credits”
- Luca Pacioli

38. • 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.

39. 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

40. 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).

41. 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.
Securities and Exchange Commission (SEC)
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.

42. ACTIVITY
Answer the following questions.
1. Is accounting important to you? Does it affect your daily activities? How?
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_ 2. Define accounting
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_ 3. Give examples of decisions or questions that can be supported by
accounting information.
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43. BRANCHES OF ACCOUNTING
• “Accounting is divided into several
branches to better serve the needs of
different users with varying information
needs. These branches sometimes overlap
and they are often closely intertwined”.

44. FINANCIAL ACCOUNTING
• the broadest branch and is focused on the needs
of external users.
• Financial accounting conforms with accounting
standards developed by standard-setting bodies.

45. • Examples of these financial reports include:
• the balance sheet (statement of financial
• income statement (the profit and loss statement, or
P&L)
• statement of cash flows
Financial accounting is primarily concerned with
processing historical data.

46. MANAGEMENT (OR MANAGERIAL)
ACCOUNTING
• Management accounting emphasizes the
preparation and analysis of accounting
information within the organization.

47. GOVERNMENT ACCOUNTING
• the process of recording, analyzing,
classifying, summarizing, communicating
and interpreting financial information
about the government.

48. AUDITING
THERE ARE TWO TYPES OF AUDITING:
• External And Internal Auditing.
• External auditing refers to the examination of financial
statements by an independent CPA (Certified Public
Accountant) with the purpose of expressing an opinion as to
fairness of presentation and compliance with the generally
accepted accounting principles

49. • Internal auditing
• deals with determining the operational
efficiency of the company regarding the
protection of the company’s assets, accuracy
and reliability of the accounting data, and
adherence to certain management policies.

50. •Tax Accounting.
• Preparation of tax returns
•Cost Accounting.
•Analyses of costs of products and
services

51. • Accounting Education.
• Teaching of accounting related subjects.
• Accounting Research. Focuses on the search for
new knowledge on the effects of economic
events, and on the effects of reported
information on economic events.

53. BUSINESS
•is an activity where goods and
services are exchanged for money

54. ENTREPRENEUR OF BUSINESSMAN
•A person who is engaged in
business

55. FORMS OF BUSINESS ORGANIZATIONS
• Sole or single proprietorship
• Partnership
• Corporation
• Cooperative

56. SOLE PROPRIETORSHIP
• Owned by one individual ( sole
proprietor)
• The most common and simplest form
of business organizations
• Registered with the DTI

57. PARTNERSHIP
• Owned by two or ore individuals(
partners)
• formed by contractual agreement.
• Registered with SEC

58. CORPORATION
• Owned by more than one ( stockholders)
• Formed by operation of law rather than
contract.
• Ownership is represented by share of
stocks
• Registered under SEC

59. COOPERATIVE
• Owned by more than one (members)
• Formed in accordance with the Cooperative Code
• Association of individuals who joined together to
contribute and cooperate to achieve certain goals.
• Registered with CDA

60. TYPES OF BUSINESS ACCORDING
TO ACTIVITIES
•Service business
•Merchandising ( Trading )
•Manufacturing

61. SERVICE BUSINESS
•One that offers services
as its main product

62. MERCHANDISING BUSINESS
•Buys and sells goods without
changing their physical form

63. MANUFACTURING BUSINESS
•One that buys raw materials and
processes them into final
products.

64. HYBRID BUSINESS
• engaged in more than one type
of activity
• Classified into one major type based
activity that is most in line with the
business.

65. SUMMARY
• Accounting process of identifying , recording, and
communicating economic information that is
useful in economic decisions.
• Considered as the language of business
• Accounting is used in making economic decisions

66. Branches of accounting
• Financial accounting – focuses on information needs of
externals users
• Management accounting- focuses on information
needs of internal users
• Government accounting
• Auditing
• Tax accounting
• Cost accounting
• Accounting education
• Accounting research

67. DIFFERENT FORMS OF BUSINESS
ORGANIZATIONS
• Sole proprietorship
• Partnership
• Corporation
• Cooperative

68. THE STATEMENT OF
FINANCIAL
POSITION

69. • Previously referred to as balanced sheet
• Divided into 2 parts
• The assets and the claims.( claims of creditor
and claims of owners)

71. ASSETS
• are the economic
resources you
control that have
resulted from past
events and can
provide you with
economic benefits.
Cash
Accounts receivables
Allowance for bad
debts
Notes receivables
Inventory
Prepaid supplies
Prepaid rent
Prepaid insurance
Land
Building
Equipment

72. LIABILITIES
• Your present
obligations that
have resulted from
past events and
can require you
give up economic
resources when
settling them
Accounts/ Notes Payables
Interest payable
Salaries payable
Utilities payable
Unearned income

73. EQUITY ( CAPITAL, NET ASSETS OR
NET WORTH)
• The residual amount after deducting liabilities
from assets
Increased by Decreased by
Investments or
contribution of owners
Income or profit earned
by the business
Withdrawals or
distributions of the
owners
Expenses or loss incurred
by the business