History of Accnt-1

8/9/2019 History of Accnt-1

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Primitive AccountingMiddle Ages

Industrial Revolution & Corporate OrganizationInformation Age


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Primitive Accountingy Traced as far as 8500 BC in

Mesopotamia through the use of clay like:a. Record for paid wagesb. Record purposes, as general

y Pyramids in Egypt, for the costs of structures

y Other places like China, Babylon, andGreece


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M iddle Agesy More formal account-keeping methods were

developed by the merchants and banks.y Double-entry records first appeared in Genoa

in 1340 AD.y Summa de Arithmetica, Geometria,

Proportionis, et Proportionalita by Fr. LucaPacioli about double-entry bookkeeping.


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Industrial Revolution & CorporateOrganization

y Problem of costing for a large volume of productsy Special field of accounting emerged to meet this need

for the analysis of the various costs.


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Information Agey Clerical tasks that were done manually can be done

automatically with speed, consistency, precision, and

reliability.y Emergence of accounting applications to suit the

businesses various needs. (Quickbooks, Peachtree,MYOB, JDE, Navision, SAP, etc.)

y Limitation : professional judgment


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What is Accounting?


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Def initions:y ...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 resultsthereof. - AICPA

y ...process of identifying, measuring, and

communicating economic information to permitinformed judgments and decisions by the users of theinformation. - AAA


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Phas e s o f Accountingy Rec ording - also journalizing . It involves systematic

and chronological recording of business transactions

or events.y Cl assifying- similar items are grouped or sorted under

the same names.y Su mmarizing- periodical reporting of the status of

the business.y Int e rpr e ting- further explanation for the users


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urr e nt Def inition o f Accountingy Accounting is a service activity. Its function is to

provide q u antitativ e information, primarily

financia

lin nature, about economic entities that isintended to be useful in making ec onomi c

d ec isions .


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Difference of Accounting and

Bookkeepingy A cc ou nting is much broader than

bookkeeping. It includes interpretation andanalysis of the financial reports, requiring ahigher degree of knowledge, reason and judgement.

y

Bookkee

ping is the procedural element of accounting. It is the recording of businessactivities and is just one part of the accountingprocess.


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Sp e cializ ed Fie ld s in Accountingy Finan c ia l A cc o u nting and M anag e m e nt A cc ou nting

(user-oriented)y Bu dg e ting - setting sales and profit goalsy C ost A cc ou nting- measuring costs and controlling

expenses. Price settingy Information S yst e ms D e sign- identifying internal and

external information needs. (flowcharts and manuals)y

Int e rna l A u diting- performed by company s ownaccountants. Operating efficiency and compliance.y Tax A cc ou nting- tax laws compliance and minimizing the

tax through legal means


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Users of Accounting Informationy Broad sense:

y Int e rna l u se rs : owners, managers, officers, employees

y Ext e rna l u se rs : users of financial information tofacilitate decision making- investors, creditors,suppliers, customers, and government agencies


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Users of Accounting Information-

cont.US ER S D ES C R IPTION AND INFO R M ATION NEE D S

INVEST OR/OWNER

One who puts his money in a business in the hope of receivinga return on his investment. He considers the risks involved inthe investment and he wants to determine the economic worthof the business. For these reasons, he wants to assess thefinancial reports of the business.

MANAGER Responsible for planning, directing, and controlling theoperations of the business. He needs to make decisions whengiven alternative courses of actions. Stewardship function

LENDER Concerned with the ability of the borrower to pay not only theprincipal debt but also the interest. T he information helps himto decide whether to extend credit, how much credit to extend, when to collect, and how much interest to charge.


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contUS ER S D ES C R IPTION AND INFO R M ATION NEE D S

SUPPLIER One who offers his goods for cash or on credit terms. He needsinformation to determine the paying ability of the customer.Shortly speaking, the credit worth of the customer.

GOVERNMENT AND IT S AGENCIES

T hey are interested in the activities of the enterprise to regulatethe activities for tax purposes, compiled information, nationalstatistics, and for the funding of government projects.

CUST OMER Interested about the continuity of the enterprise. Somecustomers are businesses that rely upon the enterprise for theirsupply of goods or services.


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cont

US ER S D ES C R IPTION AND INFO R M ATION NEE D S

EMPLOYEE T hey are employed by the enterprise. T hey demand high wages, better benefits, good working conditions. T hey are interested in the financial information to determine

whether the enterprise has the ability to grant theirdemands

PUBLIC Assesses the trends and recent developments in theprosperity of the enterprise and the range of its activities.


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Accounting and Businessy Business is a economic unit engaged in providing

goods and/or services with the intention of obtaining a

profity T he need to keep records: What is my financial

status? Have I already earned enough?y Accounting is the language of business because it is a

system that measures business activities, processesthese information into reports, and communicates theresults to users.


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Forms of Business OrganizationsForms

D efinition

Sole Proprietorship -most basic form-the owner is the manager-examples: retailers, sari-sari stores, individual businesses

Partnership -formed by two persons, who agree to contribute money,property or industry to a common fund w/ the purpose of dividing the profits among themselves-owners are called partners-ADVANT AGES:

a. Greater availability of capitalb. Combined skills of partners, better managementc. Treated as separate entity

Corporation -most complex; created by law- separate from the stockholders-a business whose capital is divided into shares of stocks-ADVANT AGES:

a. Limited liability of stockholdersb. Greater source of liability

c. Long period of existence


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Types of Business OperationsTYPE D EFINITION

Service -simplest form-renders services to clients or customers for a fee-examples: schools, clinics, agencies, salons, and professionalservices

Merchandising -one which buys goods from suppliers with the aim of sellingthese goods at a higher price-sari-sari stores, hardware stores, supermarkets

Manufacturing -sells goods a higher price than cost-produces the goods that it sells to customers


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Com p on e nts o f AISy AIS involves an orderly way of accumulating and

reporting business transactions through a process of analyzing, measuring, recording, classifying, andsummarizing, and from which reports are generated forproper communication to decision makers.

y Steps:1. Data gathering- business documents e.i. OR, SI, vouchers2. A na l ysis, M e as u ring, and Rec ording- jo u rna l s 3. Cl assifying and S toring- l e dg e rs4. Su mmarizing, Re porting, Int e rpr e ting- FS , FS A 5. Decision making


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Financial R e p ortsy Accounting information are prepared at least manually

and are directed toward the common needs of

practically all of the users/stakeholders.y Four Basic Financial Statements1. Balance Sheet2. Income Statement

3. Statement of Changes in Owner s Equity 4. Cash Flow Statement

y T hese are called General Purpose Financial Statements


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Incom e Stat e m e nty Supports the balance sheet

y It describes how the business operated over a period of time.

y Is the business profitable or not?y Net Income? Or Net Loss? Or Break-even?


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Q ualitativ e Charact e risticsy Und e rstandabi l ity- use of terminologies that are simple

and easily understood by the users. It also involves the way of presentation.

y Re l e van ce - quality of information that will make adifference and influence a statement user to makedecisions. (Materiality- if its omission will adversely affectthe decision then it is material)

y Re l iabi l ity- degree of confidence users have on financial

statements. Neutrality- free from bias.y C omparabi l ity- financial information between two

periods or between two business entities can becompared. Consistency- uniformity of accounting

treatment of like items from one period to another.


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G e ne rally Acc e p ted Accounting

Princi p le s1. Business Entity Concept- business is separate and

distinct from the owners. Only business properties

are reported.2. Exchange Price or Cost Principle- assets should berecorded based on cash which is the amountexchanged at the time of purchase or equal to cash

basis (cash equivalent) if no amount was exchanged(paid) at the time of the acquisition.3. Going Concern Concepts- assumes that business has

indefinite existence


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G e ne rally Acc e p ted Accounting

Princi p le s4. Objectivity- financial data must be verifiable and

substantiated by documents. Record the asset for theamount equivalent to the amount paid.

5. Disclosure- information important enough toinfluence the decision-making of a user should bedisclosed either in body or in a supplementary note.

6. Reporting Period- Business life is divided into specifictime intervals

7. Monetary Principle- All business transactions arerecorded and measured using only one unit of measurement (money)


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END OF

LESSON ONE

History of Accnt-1

Documents

Transcript of History of Accnt-1