Introduction to Accounting: Nature, History, and Branches

General overview of the accounting process, its historical origins, various specialized branches, and the diverse users of financial information.

What is the formal definition of accounting?

Accounting is a process of identifying, recording, and communicating economic information that is useful in making economic decisions.

What occurs during the 'Identifying' stage of accounting?

The accountant analyzes each business transaction to determine if it is an 'accountable event' (affects assets, liabilities, equity, income, or expenses) or a 'non-accountable event.'

What are the two specific processes involved in the 'Recording' stage?

Journalizing (recognizing the events) and Posting (classifying the effects on the account).

What is the 'Account' in terms of storage?

The 'Account' is the basic storage of information in accounting, such as 'cash' or 'sales.'

What types of information does accounting provide?

Quantitative information (numbers/units), Qualitative information (words/descriptive forms), and Financial information (expressed in money).

Why is accounting considered a 'social science' and a 'practical art'?

It is a social science because it is a body of knowledge systematically gathered and organized; it is a practical art because it requires creative skills and judgement.

What is the 'output' in the accounting information system?

The accounting report that is communicated to the users.

How does bookkeeping differ from accounting?

Bookkeeping is the process of recording transactions and ends with the trial balance, while accounting covers the whole process of identifying, recording, and communicating, including the interpretation of information.

When and where were the oldest archaeological tokens for accounting found?

In Mesopotamia as old as $8500\text{ B.C.}$

Who is known as the 'father of modern accounting' and what was his book called?

Fra Luca Pacioli; his book was titled 'Summa di Arithmetica Geometria Proportioni and Proportionista,' published on November $10$, $1494$.

What is 'Financial accounting' and what standards govern it in the Philippines?

Financial accounting focuses on general purpose financial statements for external users and is governed by Philippine Financial Reporting Standards (PFRs).

What is 'Management accounting'?

It involves the accumulation and communication of information for use by internal users, including management advisory services.

What is the focus of 'Government accounting'?

It focuses on the custody of public funds, the purposes they are committed to, and the responsibility and accountability of those entrusted with those funds.

Under what condition is a business required to have its financial statements audited by an independent CPA?

When gross annual sales or receipts exceed $\text{₱}3,000,000$.

What is the penalty for failure to file tax returns?

Penalty and imprisonment of not less than $6$ but not more than $10\text{ years}$.

What does 'Cost accounting' involve?

The systematic recording and analysis of the costs of materials, labor, and overhead incident to the production of goods or rendering of services.

Define 'Internal users' and provide examples.

Internal users are directly involved in managing the business, such as business owners (involved in management), the Board of directors, and managerial personnel.

Define 'External users' and provide examples.

External users do not have authority to demand tailored reports and aren't involved in management; examples include existing/potential investors, lenders (banks), creditors (suppliers), and government agencies (BIR, SEC).

What is the difference between General purpose and Special purpose accounting information?

General purpose information meets the common needs of most users (external), while Special purpose information meets specific needs of particular users (internal).