Accountancy - What is Accounting

Accounting (AAA Definition)

The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of information.

Accounting (AICPA Definition)

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.

Accounting (General Definition)

A system that identifies, records, and communicates relevant economic events to interested users.

Nature of Accounting: A Process

It is identified as a process as it performs the specific task of collecting, processing and communicating financial information.

Nature of Accounting: An Art

It is an art of recording, classifying, summarizing and finalizing the financial data; a systematic method consisting of definite techniques.

Nature of Accounting: Deals with Financial Information

It only deals with monetary information and financial aspect.

Nature of Accounting: A Means to an End

It helps attaining a specific objective; it is a means and not an end.

Nature of Accounting: An Information System

It is recognized as a storehouse of information; it collects processes and communicates financial information.

Function of Accounting: Keeping Systematic Records

Keeping systematic record of business transactions.

Function of Accounting: Protecting Properties

The accounting records serve as the evidence that properties of a business do exist.

Function of Accounting: Communicating Results

Communicating results to various parties in or connected with the business.

Function of Accounting: Meeting Legal Requirements

Required by the government to provide financial reports quarterly, semi-annually, and annually.

Bookkeeping

Deals with recording and classifying financial transactions of business.

Accounting (vs. Bookkeeping)

Refers to the process of summarizing, interpreting and communicating the financial data of an organization.

Financial Statement: Statement of Cash Flows

Reports the firm’s receipt and disbursement of cash according to company’s major activities.

Financial Statement: Income Statement

Shows the results of business operations whether net income or net loss for a given period of time.

Financial Statement: Statement of Changes in Equity

Presents a summary of the changes that occurred in the owner’s equity of the entity during a specific period of time.

Financial Statement: Statement of Financial Position

Informs the users of the financial condition of the business at a given date, usually at the end of an accounting period.

Single-step Income Statement

A format that lists all revenues in one section and all expenses in another section.

Multi-step Income Statement

A format that breaks out the Gross Profit and Operating Income.

Origin of Accounting (Mesopotamia)

The origin of keeping accounts has been traced as far back as 8500 B.C.; used clay tokens and tablets to record loans, herds, crops and system of trade.

Scribe

The Mesopotamian equivalent of today’s accountant.

Accounting in Ancient Egypt

The use of papyrus allowed more detailed records to be made more easily; extensive records were kept in royal storehouses.

Accounting in Ancient China

Accounting was used chiefly as a means of evaluating the efficiency of governmental programs and the civil servants; introduced double entry processes in the 19^{th} century.

Accounting in Ancient Greece

Used “public accountants” to maintain authority over government’s finances; introduced coined money about 600 B.C.

Accounting in Ancient Rome

Government and banking accounts evolved from records kept by heads of families; used an adversaria (daybook) and a codex accepti et expensi (cashbook).

Luca Pacioli

The Father of Accounting; published the first known double-entry bookkeeping system in 1494.

Chartered Accountant

Originated in the nineteenth century in Scotland.

PFRS

Philippine Financial Reporting Standard; accounting standards available to guide accountants.

PAS

Philippine Accounting Standards; accounting standards available to guide accountants.

Solvency

The ability of a company to meet its long-term debts and financial obligations.