Introduction to Accounting
Definition of Accounting
Accounting is a system of dealing with financial information that provides information for decision-
making
Accounting vs. Bookkeeping
ACCOUNTING – The process of recording, analyzing, and interpreting the economic activities of a business.
As a service activity, its function is to provide quantitative information, primarily financial in nature, about
economic entities that are intended to be useful in making economic decisions
BOOKKEEPING – A method of recording all transactions for a business in a specific format
Why is Accounting Important
Accountability - People who handle cash in the company are responsible for it
Budgeting -This allows businesses to estimate their future sales and expenses
Taxation - Records must be kept to pay taxes
Financial Statements - These are reports that summarize the financial performance of a business. These
reports indicate the business’s economic health
Annual Reports - Financial statements are presented to shareholders and potential investors in the form of
annual reports
Functions of Accounting
To fulfill the stewardship function of the management
To help interested parties come up with informed decisions
To support the daily operation of the business
Accounting as an Information System
What financial questions might you have about your business?
Is the business earning profit?
Are selling prices to high/low?
How much does ABC company owe me?
What is the value of my inventory?
How much did John Smith earn last year?
Do we have enough money to pay our bills?
Users of Accounting Information
User Interest
Keep track on the operation and evaluation of performance as shown in the
Management
financial reports
Owners Profitability and safety of the investment
Creditor Assurance of repaying obligations
Government/Regulatory
Planning, controlling l, and taxation purposes
Bodies
Investor Profitability and safety of the investment
Employees/Unions Employment security and benefits ( Labor unions and employees)
Customers Product Warranties
General Public Hiring and Employment
Suppliers Assurance of repaying obligations
Brief History of Accounting
Ancient Accounting
o 350BC Commerce record in Mesopotamian Valley – Assyrian, Chaldean-Babylonian and Sumerian
Civilization). They use gold and silver as standard measures and extended credits.
o 2265-2242 – Hammurabi Code – failure in record keeping is penalized. They used clay
o Ancient Egypt – papyrus was used to record, gold and silver was not used but goods or items instead
o Ancient Greece – introduced the coined money
o Ancient Rome – daily records of house expenses were kept by heads of the family. They introduce
the levy taxes based on the citizen’s ability to pay
o Ancient China – 1122-256BC – Chao Dynasty - Accounting was used to evaluate the efficiency of
the government program
Medieval Accounting
o Fall of Roman Empire (500AD – 1450AD) period of accounting stagnation due to lack of progress
o Roman Empire –Centralized legal codes governed accounting – feudal manors. Stewardship and
delegation of authority
o England – Great Roll of Exchequer (Pipe Roll) – contains a description of rents, fines, and taxes due
to the king
o Florence Italy 1211 – earliest proof of double-entry accounting
Renaissance Period
o Frater Luca Bartolomes Pacioli – Italian monk and mathematician – Father of Modern Accounting
o Summa de Aritmetica, Geometria,Proportioni et Proportionalita (Everything About Arithmetic,
Geometry and Proportion) (Venice 1494)
o It included 24-page treatise on bookkeeping – Particularis de Computis et Scripturiz(Details of
Calculation and Recording)
o He lived in Venice and became a tutor of the three sons of a rich merchant (Antonio de Rompasi)
o Pacioli popularized the use of
Memorandum books
Journal books
Ledger books
Industrial Revolution
o Accounting for fixed assets and depreciation
