Accounting Flashcards
What is Accounting
Is the process of **IDENTIFYING, RECORDING, and COMMUNICATING **economic events of an organization to interested user.
What is Identifying
this involves selecting economic events that are relevant to a particular business transaction
Examples of Identifying
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
What is 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.
What is Communicating
occurs through the** preparation and distribution of financial and other accounting reports.**
NATURE OF ACCOUNTING
Accounting is a service activity.
Accounting is both an art and a discipline
Accounting Information deals with financial transactions\information
Accounting is a process
FUNCTIONS OF ACCOUNTING
Formation and Control of financial policies
Preparation of budget
Cost Control
Analyzing, communicating, summarizing, and Classifying financial information
Recording of financial transactions
Accounting Helps
Accounting helps the users of these financial reports to see the true picture of the business in financial terms. In order for a business to survive, it is important that a business owner or manager be well-informed.
Mr. Juan is a retired government employee who is good at baking. One day he decides to put up a bakery shop in your barangay. He renovates a portion of his house to serve as the area for the production of bread. He purchases baking equipment and raw materials to produce five different types of bread. Mr. Juan also hires Jose to help him with the baking and, at the same time, to be in-charge of sales. Mr. Juan pays Jose on a weekly basis. Every day, Mr. Juan’s wife deposits the daily cash sales in their bank account at XY Savings Bank. With the help of accounting, what possible decisions or questions of Mr. Juan can accounting provide an answer to?
Is my business earning? (profitability)
How much daily or monthly sales do I need in order to recover my fixed cost? (break-even)
Do I need to hire additional workers to help me with my production?
Can I afford to set up a new store in another place?
Where do I get the funds Can I afford to pay a bank loan?
History Of Accounting
Accounting is as old as civilization itself. It has evolved in response to various social and economic needs of men. Accounting started as a simple recording of repetitive exchanges.
THE CRADLE OF CIVILAZATION
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.
14th CENTURY - DOUBLE ENTRY BOOK KEEPING
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.
FRENCH REVOLUTION (1700)
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.
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).
- 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)
