1.1 - Introduction to Accounting

Business

Business

- An economic unit that brings together resource and efforts for the purpose of producing goods and services that will be useful to end-users and will bring about good returns or profits to investors, thus contributing to the economic development and well-being of the people

Accounting Standards Council

- Defined accounting as a service activity

- Its function is to provide quantitative information financial in nature about economic entities, that is intended to be useful in making economic decisions

Philippine Institute of Certified Public Accountants

- established the ASC

American Institute of Certified Public Accountants

- Defined accounting as an art of recording, classifying, and summarizing in a significant manner and in terms of money

American Accounting Association

- Defined accounting as the process of identifying, measuring, and communicating economic information to permit informed judgement and decision by users of the info

Service

- occupation/function of serving

Activity

- something done as work or for a particular purpose

Art

- skill acquired by experience, study, or observation

Process

- series of actions that produce something or that leads to a particular result

Recording

- writing down of business transactions chronologically in the books of accounts as they transpire

Classifying

- sorting/grouping of similar and interrelated business transactions into five categories: Assets, Liabilities, Owner’s Equity, Expenses, Income

Summarizing

- preparing the financial statements from the transactions recorded in the books of accounts that are designed to meet the information needs of its users

Interpreting

- representing the qualitative and quantitative financial information about the business transactions by preparing and distributing accounting reports to potential users of accounting information

Generation of relevant and timely financial information for interested parties

- the one basic function of accounting

Abacus

- functioned as a calculator in the ancient times, developed by the Sumerians in 5000 BCE

Sumerians

- developed the Abacus

5000 BCE

- when Sumerians developed the abacus

Papyrus

- developed by Ancient Egyptians in 4000 BCE

- records not only commercial transactions but also transcriptions of religious text, music, literature, and more

Ancient Egyptians

- developed the papyrus

4000 BCE

- when Ancient Egyptians developed the papyrus

Clay Tablets

- considered to be among the oldest written tax accounting records

- unearthed by Dr. Gunter Dreyer of the German Institute of Archaeology in Egypt

Dr. Gunter Dreyer

- unearthed clay tablets

Old Stone Labels

- were complete with marks representing accounts of oils and linens which were believed o be paid to the king in tasks

- discovered in the tomb of King Scorpion I in England around 5,300 BCE

Tomb of King Scorpion I in England

- where old stone labels were discovered

5300 BCE

- when old stone labels were discovered

Clay Tokens

- used to record loans, herbs, crops, and system of trade in Mesopotamia

Scribes

- modern-day accountants

- performed extensive duties in writing down commercial transactions and recording in the Mesopotamian civilization

Pipe Scroll or the Great Scroll of the Exchequer

- the most ancient surviving accounting record in the English Language

- contains yearly accounting rents, fines, and taxes due to the King of England (William the Conqueror, 1120-1830)

William the Conqueror

- the King of England (1120-1830) who took possession of all properties in the name of the king upon his invasion

Italian Merchants

- developed double-entry Bookkeeping, the basis for Modern Day Accounting

Double-Entry Bookkeeping

- basis for modern day accounting

Debtors and Creditors

- terms used by Italian Merchants form which the Debit and Credit were derived

Debito

- Italian word that came from the Latin word “debeo”

Debeo

- Latin word meaning owned by the proprietor or an asset of the proprietor

Credito

- Italian word that came from the Latin word “credo”

Credo

- Latin word meaning trust and belief in the proprietor or owed by the proprietor

Luca Pacioli

- mathematician and merchant, became a Franciscan friar

- regarded as the “Father of Accounting”

- wrote Summa de Arithmetica

Friar Luca dal Borgo

- Luca Pacioli’s other name

Summa de Arithmetica

- book Luca Pacioli wrote

- also has the accounting cycle

De Computiset et Scriptus

- a section of the book composed of 35 short chapters that describe bookkeeping

Venice, Italy

- a key commercial and Port City

- earliest Venetians records showed a highly developed accounting system

- perfected double-entry bookkeeping

Method of Venice

- true ancestor of modern accounting

Industrial Revolution Period

- the factory system

Great Britain

- led the production of coal, cotton, and textiles

- also the financial center of the civilized world. Business mergers and consolidations took place

Modern Accounting

- has developed to cope with changes in the legal structures of business organizations and demand for more accurate financial reports.

- increased taxation on business and individuals

Queen Victoria

- granted a royal charter to the Institute of Accountants in Glasgow on July 6, 1854 thereby creating the profession of Chartered Accountants thus accounting became a formal profession

July 6, 1854

- when Queen Victoria in Scotland granted the royal charter to the Institute of Accountants

American Association of Public Accountants

- provided a formal certification process for accountants

- predecessor of the present AICPA

AICPA

- first national professional association for CPAs

Securities and Exchange Commission

- was formed because of the economic depression

Financial Accounting Standards Board

- established in 1973 and was the result of the demand for more reliable and comparable financial reporting by the Congress and SEC

FASB and Government Accounting Standards Board

- significant authorities establishing the GAAP

Generally Accepted Accounting Principles

- full name of GAAP

International Accounting Standards Committee

- formed in 1973

2001

- when the IASC became recognized as the International Accounting Standards Board (IASB)

International Accounting Standards Board

- the objective is to raise the quality and consistency of financial reporting and to have a platform of high quality and improved standards

2002

- when the European Union adopted the International Financial Reporting Standards (IFRS)

2005

- when other non-European countries adopted IFRS

2006

- when the Philippines adopted the IFRS