FUNDAMENTALS

OF ACCOUNTANCY,
BUSINESS AND
MANAGEMENT 1
Pauline Louise Barcelona
Arucan - Bagorio
INTRODUCTION
TO
ACCOUNTING
What is 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, in
making reasoned choices among
 - 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
financial character, and interpreting the
results thereof (AICPA).
- LANGUAGE OF
BUSINESS
“Accounting is the process of
IDENTIFYING,
RECORDING, and
COMMUNICATING
economic events of an
organization to interested
 NATURE 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.
• • Accounting is a process: A process
refers to the method of performing
any specific job step by step
• Accounting is both an art and a discipline.
Accounting is the art of recording, classifying,
summarizing and finalizing financial data. 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,
• 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.
• Accounting is an information
system: Accounting is
recognized and characterized as
a storehouse of information. As
a service function, it collects
processes and communicates
financial information of any
HISTORY 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
 CLAY
TABLET
• 14th Century - Double-Entry
Bookkeeping
The most important event in
accounting history is generally
considered to be the dissemination
of double entry bookkeeping by
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
• 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.
• 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
In this period rapid changes in accounting
practice and reports were made.
Accounting standards to be observed by
accounting professionals were
promulgated. Businesses expanded by
acquiring other companies, challenged
accounting professionals to develop new
• 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. Beyond the industry's self-
regulation, the government also sets
accounting standards, through laws and
BRANCHES OF
ACCOUNTING
Financial Accounting
Financial accounting is the broadest
branch and is focused on the needs of
external users. Financial accounting is
primarily concerned with the recognition,
measurement and communication of
economic activities. This information is
communicated in a complete set of
Examples of these financial reports include:
• the balance sheet (statement of Financial
Position)
• Income Statement (the profit and loss
statement, or P&L)
• Statement of Cash Flows
• Statement of Changes in Equity
Management (or Managerial) Accounting
Management accounting emphasizes the
preparation and analysis of accounting
information within the organization. The
objective of managerial accounting is to
provide timely and relevant information for
those internal users of accounting
information, such as the managers and
Oftentimes, this are sensitive information
and are not distributed to those outside the
business - for example, prices, plans to
open up branches, customer list, etc.
Managerial accounting involves financial
analysis, budgeting and forecasting, cost
analysis, evaluation of business decisions,
Government Accounting
Government accounting is the process of
recording, analyzing, classifying, summarizing,
communicating and interpreting financial
information about the government in aggregate
and in detail reflecting transactions and other
economic events involving the receipt,
spending, transfer, usability and disposition of
assets and liabilities. This branch of accounting
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 (GAAP).
The audit does not cover 100% of the accounting
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. It
focuses on evaluating the adequacy of a
company's internal control structure by testing
segregation of duties, policies and procedures,
degrees of authorization, and other controls
Tax Accounting
Tax accounting helps clients follow rules
set by tax authorities. It includes tax
planning and preparation of tax returns. It
also involves determination of income tax
and other taxes, tax advisory services such
as ways to minimize taxes legally,
evaluation of the consequences of tax
Cost Accounting
Sometimes considered as a subset of
management accounting, cost
accounting refers to the recording,
presentation, and analysis of
manufacturing costs. Cost accounting is
very useful in manufacturing businesses
since they have the most complicated
Cost accountants also analyze actual
and standard costs to help managers
determine future courses of action
regarding the company's operations.

Cost accounting will also help the

owner set the selling price of his
Accounting Education
This branch of accounting deals with
developing future accountants by creating
relevant accounting curriculum. Accounting
professionals can become faculty members
of educational institutions. Accounting
educators contribute to the development of
the profession through their effective
Accounting Research
Accounting research focuses on the search
for new knowledge on the effects of
economic events on the process of
summarizing, analyzing, verifying, and
reporting standardized financial information,
and on the effects of reported information on
economic events. Researchers typically
 PRACTICE: Identify what branch of
accounting renders this service:
1.Preparation of general-purpose financial
statements Answer: Financial
2. Evaluation of the performance of a sales
department Answer : Managerial
3. Develop standards to address a new
4. Review tax compliance of the business.
Answer: Tax Accounting.

5. Evaluate whether a branch of the business

complies with the collection and deposit
policy of the company Answer: Auditing (Internal)
6. Review whether the financial statements
are presented fairly and in compliance with
7. Report on the spending of government
funds. Answer: Government Accounting
8. Report on the total cost of materials and
labor used in the production. Answer: Cost
Accounting

9. Conducting lectures on accounting topics.

 USERS OF
ACCOUNTING
INFORMATION
“Who uses accounting dat
or information?”
INTERNAL USERS
Internal users of accounting information
are those individuals inside a company
who plan, organize, and run the business.
These users are directly involved in
managing and operating the business.
These include marketing managers,
production supervisors, finance directors,
Internal users (Primary Users) of accounting
information include the following:
Management - Information need:
income/earnings for the period, sales,
available cash, production cost. Decisions
supported: analyze the organization's
performance and position and take
appropriate measures to improve the
Employees
Information need: profit for the period,
salaries paid to employees

Decisions supported: job security, consider

staying in the employ of the company or
look for other employment opportunities
Owners
Information need: profit or income for the
period, resources or assets of the business,
liabilities of the business.

Decisions supported: considerations

regarding additional investment, expanding
the business, borrowing funds to support any
Accounting information is
presented to internal users usually
in the form of management
accounts, budgets, forecasts and
financial statements. This
information will support whatever
decision of the internal users.
EXTERNAL USERS
External users are individuals and
organizations outside a company who
want financial information about the
company. These users are not directly
involved in managing and operating the
business. The two most common types of
external users are potential investors and
Creditors: for determining the credit
worthiness of an organization. Terms of
credit are set by creditors according to
the assessment of their customers'
financial health. Creditors include
suppliers as well as lenders of finance
such as banks.
Tax Authorities (BIR): for determining the
credibility of the tax returns filed on behalf
of a company.

Investors: for analyzing the feasibility of

investing in a company. Investors want to
make sure they can earn a reasonable
return on their investment before they
Customers: for assessing the financial
position of its suppliers which is necessary for
them to maintain a stable source of supply in
the long term.
Regulatory Authorities (SEC, DOLE): for
ensuring that a company's disclosure of
accounting information is in accordance with
the rules and regulations set in order to
• Potential Investors – Is it profitable for me to
invest in this business?
• Banks – If extend a loan to this company, will it
be able to pay this loan? Does this company
have sufficient resources to pay its loan?
• Suppliers – Do I extend credit to this company?
For how long?
• BIR – Is the owner paying the correct taxes?
• DOLE – Are the employees paid according to