History of Accnt-1
Content
Primitive Accounting Middle Ages Industrial Revolution & Corporate Organization Information Age
Primitive Accounting
y Traced as far as 8500 BC in
a. Record for paid wages b. Record purposes, as general
Mesopotamia through the use of clay like:
y Pyramids in Egypt, for the costs of
structures y Other places like China, Babylon, and Greece
Middle Ages
y More formal account-keeping methods were developed by the merchants and banks. y Double-entry records first appeared in Genoa in 1340 AD. y Summa de Arithmetica, Geometria, Proportionis, et Proportionalita by Fr. Luca Pacioli about double-entry bookkeeping.
Industrial Revolution & Corporate Organization
y Problem of costing for a large volume of products y Special field of accounting emerged to meet this need
for the analysis of the various costs.
Information Age
y Clerical tasks that were done manually can be done
automatically with speed, consistency, precision, and reliability. y Emergence of accounting applications to suit the businesses various needs. (Quickbooks, Peachtree, MYOB, JDE, Navision, SAP, etc.)
y Limitation: professional judgment
What is Accounting?
Definitions:
y ...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 y ...process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of the information. - AAA
Phases of Accounting
y Recording- also journalizing . It involves systematic
and chronological recording of business transactions or events. y Classifying- similar items are grouped or sorted under the same names. y Summarizing- periodical reporting of the status of the business. y Interpreting- further explanation for the users
urrent Definition of Accounting
y Accounting is a service activity. Its function is to
provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.
Difference of Accounting and Bookkeeping
y Accounting is much broader than bookkeeping. It includes interpretation and analysis of the financial reports, requiring a higher degree of knowledge, reason and judgement. y Bookkeeping is the procedural element of accounting. It is the recording of business activities and is just one part of the accounting process.
Specialized Fields in Accounting
y Financial Accounting and Management Accounting (user-oriented) y Budgeting- setting sales and profit goals y Cost Accounting- measuring costs and controlling expenses. Price setting y Information Systems Design- identifying internal and external information needs. (flowcharts and manuals) y Internal Auditing- performed by company s own accountants. Operating efficiency and compliance. y Tax Accounting- tax laws compliance and minimizing the tax through legal means
Users of Accounting Information
y Broad sense: y Internal users: owners, managers, officers, employees
y External users: users of financial information to
facilitate decision making- investors, creditors, suppliers, customers, and government agencies
Users of Accounting Informationcont.
USERS INVESTOR/ OWNER DESCRIPTION AND INFORMATION NEEDS One who puts his money in a business in the hope of receiving a return on his investment. He considers the risks involved in the investment and he wants to determine the economic worth of the business. For these reasons, he wants to assess the financial reports of the business. Responsible for planning, directing, and controlling the operations of the business. He needs to make decisions when given alternative courses of actions. Stewardship function Concerned with the ability of the borrower to pay not only the principal debt but also the interest. The information helps him to decide whether to extend credit, how much credit to extend, when to collect, and how much interest to charge.
MANAGER
LENDER
Users of Accounting Informationcont
USERS SUPPLIER DESCRIPTION AND INFORMATION NEEDS One who offers his goods for cash or on credit terms. He needs information to determine the paying ability of the customer. Shortly speaking, the credit worth of the customer. They are interested in the activities of the enterprise to regulate the activities for tax purposes, compiled information, national statistics, and for the funding of government projects. Interested about the continuity of the enterprise. Some customers are businesses that rely upon the enterprise for their supply of goods or services.
GOVERNMENT AND ITS AGENCIES CUSTOMER
Users of Accounting Informationcont
USERS EMPLOYEE DESCRIPTION AND INFORMATION NEEDS They are employed by the enterprise. They demand high wages, better benefits, good working conditions. They are interested in the financial information to determine whether the enterprise has the ability to grant their demands Assesses the trends and recent developments in the prosperity of the enterprise and the range of its activities.
PUBLIC
Accounting and Business
y Business is a economic unit engaged in providing
goods and/or services with the intention of obtaining a profit y The need to keep records: What is my financial status? Have I already earned enough? y Accounting is the language of business because it is a system that measures business activities, processes these information into reports, and communicates the results to users.
Forms of Business Organizations
Forms
Sole Proprietorship
Definition
-most basic form -the owner is the manager -examples: retailers, sari-sari stores, individual businesses -formed by two persons, who agree to contribute money, property or industry to a common fund w/ the purpose of dividing the profits among themselves -owners are called partners -ADVANTAGES: a. Greater availability of capital b. Combined skills of partners, better management c. Treated as separate entity -most complex; created by law- separate from the stockholders -a business whose capital is divided into shares of stocks -ADVANTAGES: a. Limited liability of stockholders b. Greater source of liability c. Long period of existence
Partnership
Corporation
Types of Business Operations
TYPE Service DEFINITION -simplest form -renders services to clients or customers for a fee -examples: schools, clinics, agencies, salons, and professional services -one which buys goods from suppliers with the aim of selling these goods at a higher price -sari-sari stores, hardware stores, supermarkets -sells goods a higher price than cost -produces the goods that it sells to customers
Merchandising
Manufacturing
Components of AIS
y AIS involves an orderly way of accumulating and
reporting business transactions through a process of analyzing, measuring, recording, classifying, and summarizing, and from which reports are generated for proper communication to decision makers. y Steps:
1. 2. 3. 4. 5.
Data gathering- business documents e.i. OR, SI, vouchers Analysis, Measuring, and Recording- journals Classifying and Storing- ledgers Summarizing, Reporting, Interpreting- FS, FSA Decision making
Financial Reports
y Accounting information are prepared at least manually
and are directed toward the common needs of practically all of the users/stakeholders. y Four Basic Financial Statements
Balance Sheet 2. Income Statement 3. Statement of Changes in Owner s Equity 4. Cash Flow Statement
1.
y These are called General Purpose Financial Statements
Balance Sheet
y Gives information about the financial position of the
business by showing a list of its assets (cash and properties), liabilities (debts or obligations to pay) and from which the net worth of the business representing equity or share of the owner could be determined. Net worth represents the net assets belonging to the owner y Solvency- ability of the business to pay for its liabilities y Liquidity- ability of the enterprise to meet its currently maturing obligations
Income Statement
y Supports the balance sheet y It describes how the business operated over a period of
time. y Is the business profitable or not? y Net Income? Or Net Loss? Or Break-even?
Statement of Changes in Owner s Equity
y Explains the activities for a period of time that
changed the owner s share over the net assets of the business. y Major activities:
1. Investment 2. Withdrawal 3. Profit 4. Loss
Cash Flow Statement
y Presents information about cash flows y How well a company can generate cash? y Three Categories:
1. Operating-from/ within the operations of the business 2. Investing- acquisition or disposal of properties. 3. Financing- obtaining resources from owners/creditors
Qualitative Characteristics
y Understandability- use of terminologies that are simple and easily understood by the users. It also involves the way of presentation. y Relevance- quality of information that will make a difference and influence a statement user to make decisions. (Materiality- if its omission will adversely affect the decision then it is material) y Reliability- degree of confidence users have on financial statements. Neutrality- free from bias. y Comparability- financial information between two periods or between two business entities can be compared. Consistency- uniformity of accounting treatment of like items from one period to another.
Generally Accepted Accounting Principles
Business Entity Concept- business is separate and distinct from the owners. Only business properties are reported. 2. Exchange Price or Cost Principle- assets should be recorded based on cash which is the amount exchanged at the time of purchase or equal to cash basis (cash equivalent) if no amount was exchanged (paid) at the time of the acquisition. 3. Going Concern Concepts- assumes that business has indefinite existence
1.
Generally Accepted Accounting Principles
4. Objectivity- financial data must be verifiable and substantiated by documents. Record the asset for the amount equivalent to the amount paid. 5. Disclosure- information important enough to influence the decision-making of a user should be disclosed either in body or in a supplementary note. 6. Reporting Period- Business life is divided into specific time intervals 7. Monetary Principle- All business transactions are recorded and measured using only one unit of measurement (money)
END OF LESSON ONE
Primitive Accounting
y Traced as far as 8500 BC in
a. Record for paid wages b. Record purposes, as general
Mesopotamia through the use of clay like:
y Pyramids in Egypt, for the costs of
structures y Other places like China, Babylon, and Greece
Middle Ages
y More formal account-keeping methods were developed by the merchants and banks. y Double-entry records first appeared in Genoa in 1340 AD. y Summa de Arithmetica, Geometria, Proportionis, et Proportionalita by Fr. Luca Pacioli about double-entry bookkeeping.
Industrial Revolution & Corporate Organization
y Problem of costing for a large volume of products y Special field of accounting emerged to meet this need
for the analysis of the various costs.
Information Age
y Clerical tasks that were done manually can be done
automatically with speed, consistency, precision, and reliability. y Emergence of accounting applications to suit the businesses various needs. (Quickbooks, Peachtree, MYOB, JDE, Navision, SAP, etc.)
y Limitation: professional judgment
What is Accounting?
Definitions:
y ...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 y ...process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of the information. - AAA
Phases of Accounting
y Recording- also journalizing . It involves systematic
and chronological recording of business transactions or events. y Classifying- similar items are grouped or sorted under the same names. y Summarizing- periodical reporting of the status of the business. y Interpreting- further explanation for the users
urrent Definition of Accounting
y Accounting is a service activity. Its function is to
provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.
Difference of Accounting and Bookkeeping
y Accounting is much broader than bookkeeping. It includes interpretation and analysis of the financial reports, requiring a higher degree of knowledge, reason and judgement. y Bookkeeping is the procedural element of accounting. It is the recording of business activities and is just one part of the accounting process.
Specialized Fields in Accounting
y Financial Accounting and Management Accounting (user-oriented) y Budgeting- setting sales and profit goals y Cost Accounting- measuring costs and controlling expenses. Price setting y Information Systems Design- identifying internal and external information needs. (flowcharts and manuals) y Internal Auditing- performed by company s own accountants. Operating efficiency and compliance. y Tax Accounting- tax laws compliance and minimizing the tax through legal means
Users of Accounting Information
y Broad sense: y Internal users: owners, managers, officers, employees
y External users: users of financial information to
facilitate decision making- investors, creditors, suppliers, customers, and government agencies
Users of Accounting Informationcont.
USERS INVESTOR/ OWNER DESCRIPTION AND INFORMATION NEEDS One who puts his money in a business in the hope of receiving a return on his investment. He considers the risks involved in the investment and he wants to determine the economic worth of the business. For these reasons, he wants to assess the financial reports of the business. Responsible for planning, directing, and controlling the operations of the business. He needs to make decisions when given alternative courses of actions. Stewardship function Concerned with the ability of the borrower to pay not only the principal debt but also the interest. The information helps him to decide whether to extend credit, how much credit to extend, when to collect, and how much interest to charge.
MANAGER
LENDER
Users of Accounting Informationcont
USERS SUPPLIER DESCRIPTION AND INFORMATION NEEDS One who offers his goods for cash or on credit terms. He needs information to determine the paying ability of the customer. Shortly speaking, the credit worth of the customer. They are interested in the activities of the enterprise to regulate the activities for tax purposes, compiled information, national statistics, and for the funding of government projects. Interested about the continuity of the enterprise. Some customers are businesses that rely upon the enterprise for their supply of goods or services.
GOVERNMENT AND ITS AGENCIES CUSTOMER
Users of Accounting Informationcont
USERS EMPLOYEE DESCRIPTION AND INFORMATION NEEDS They are employed by the enterprise. They demand high wages, better benefits, good working conditions. They are interested in the financial information to determine whether the enterprise has the ability to grant their demands Assesses the trends and recent developments in the prosperity of the enterprise and the range of its activities.
PUBLIC
Accounting and Business
y Business is a economic unit engaged in providing
goods and/or services with the intention of obtaining a profit y The need to keep records: What is my financial status? Have I already earned enough? y Accounting is the language of business because it is a system that measures business activities, processes these information into reports, and communicates the results to users.
Forms of Business Organizations
Forms
Sole Proprietorship
Definition
-most basic form -the owner is the manager -examples: retailers, sari-sari stores, individual businesses -formed by two persons, who agree to contribute money, property or industry to a common fund w/ the purpose of dividing the profits among themselves -owners are called partners -ADVANTAGES: a. Greater availability of capital b. Combined skills of partners, better management c. Treated as separate entity -most complex; created by law- separate from the stockholders -a business whose capital is divided into shares of stocks -ADVANTAGES: a. Limited liability of stockholders b. Greater source of liability c. Long period of existence
Partnership
Corporation
Types of Business Operations
TYPE Service DEFINITION -simplest form -renders services to clients or customers for a fee -examples: schools, clinics, agencies, salons, and professional services -one which buys goods from suppliers with the aim of selling these goods at a higher price -sari-sari stores, hardware stores, supermarkets -sells goods a higher price than cost -produces the goods that it sells to customers
Merchandising
Manufacturing
Components of AIS
y AIS involves an orderly way of accumulating and
reporting business transactions through a process of analyzing, measuring, recording, classifying, and summarizing, and from which reports are generated for proper communication to decision makers. y Steps:
1. 2. 3. 4. 5.
Data gathering- business documents e.i. OR, SI, vouchers Analysis, Measuring, and Recording- journals Classifying and Storing- ledgers Summarizing, Reporting, Interpreting- FS, FSA Decision making
Financial Reports
y Accounting information are prepared at least manually
and are directed toward the common needs of practically all of the users/stakeholders. y Four Basic Financial Statements
Balance Sheet 2. Income Statement 3. Statement of Changes in Owner s Equity 4. Cash Flow Statement
1.
y These are called General Purpose Financial Statements
Balance Sheet
y Gives information about the financial position of the
business by showing a list of its assets (cash and properties), liabilities (debts or obligations to pay) and from which the net worth of the business representing equity or share of the owner could be determined. Net worth represents the net assets belonging to the owner y Solvency- ability of the business to pay for its liabilities y Liquidity- ability of the enterprise to meet its currently maturing obligations
Income Statement
y Supports the balance sheet y It describes how the business operated over a period of
time. y Is the business profitable or not? y Net Income? Or Net Loss? Or Break-even?
Statement of Changes in Owner s Equity
y Explains the activities for a period of time that
changed the owner s share over the net assets of the business. y Major activities:
1. Investment 2. Withdrawal 3. Profit 4. Loss
Cash Flow Statement
y Presents information about cash flows y How well a company can generate cash? y Three Categories:
1. Operating-from/ within the operations of the business 2. Investing- acquisition or disposal of properties. 3. Financing- obtaining resources from owners/creditors
Qualitative Characteristics
y Understandability- use of terminologies that are simple and easily understood by the users. It also involves the way of presentation. y Relevance- quality of information that will make a difference and influence a statement user to make decisions. (Materiality- if its omission will adversely affect the decision then it is material) y Reliability- degree of confidence users have on financial statements. Neutrality- free from bias. y Comparability- financial information between two periods or between two business entities can be compared. Consistency- uniformity of accounting treatment of like items from one period to another.
Generally Accepted Accounting Principles
Business Entity Concept- business is separate and distinct from the owners. Only business properties are reported. 2. Exchange Price or Cost Principle- assets should be recorded based on cash which is the amount exchanged at the time of purchase or equal to cash basis (cash equivalent) if no amount was exchanged (paid) at the time of the acquisition. 3. Going Concern Concepts- assumes that business has indefinite existence
1.
Generally Accepted Accounting Principles
4. Objectivity- financial data must be verifiable and substantiated by documents. Record the asset for the amount equivalent to the amount paid. 5. Disclosure- information important enough to influence the decision-making of a user should be disclosed either in body or in a supplementary note. 6. Reporting Period- Business life is divided into specific time intervals 7. Monetary Principle- All business transactions are recorded and measured using only one unit of measurement (money)
END OF LESSON ONE
