FUNDAMENTALS OF

ACCOUNTANCY BUSINESS AND

MANAGEMENT 1
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” – according to the committee
of Accounting Terminology of the American
Institute of certified Public Accountants
(AICIPA)
Accounting can be defined also as a system
that helps business track events that affect
them.

Accounting also can be defined in easiest way

as 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.
Learning Accounting:

Measured

Data

Communicated Users for

Decision
Making
Transaction

Processed

Events

Flow of Accounting
Information
Nature of Accounting
• Accounting is a process. It is composed of multiple steps that lead to a
common goal, it performs the functions of identifying, recording and
communicating economic events with the end goal of providing
information to internal and external parties.
• 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.
• 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.
• Accounting is a means and not an end. It is a tool to achieve specific
objectives. It is not the objective itself.
• 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 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.
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.
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.
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
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.
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.

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), and (3)
cash flows (cash flow statement) are communicated to the
users of information.
Interpreting – refers to the process of analyzing and
evaluating the information presented in the face of
the financial statements and the accompanying
notes.

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