FUNDAMENTALS OF

ACCOUNTANCY, BUSINESS,
AND MANAGEMENT 1
FABM1

LESSON 1:
INTRODUCTION TO ACCOUNTING

Lecturer:
Joshua D. Gonzales
 TOPICS
Definition of Accounting
Four Phases of Accounting
Users of Accounting Information
History of Accounting
Nature of Accounting
Branches of Accounting
Forms of Business Organizations
TOPIC 1: DEFINITION OF ACCOUNTING

What is Accounting?
—According to AICPA (American Institute of Certified Public
Accountant) defined accounting as the art of recording, classifying,
summarizing in a significant manner and in terms of money,
transactions, and events, which are in part of financial character and
interpreting the results.
—Is the language of business.
—Accounting is also a science
TOPIC 2: FOUR PHASES OF ACCOUNTING

RECORDING
 Business transactions are recorded systematically and chronologically in the
proper accounting books.
CLASSIFYING
 Items are sorted and grouped.
SUMMARIZING
 Data recorded are summarized through financial statements.
INTERPRETING
 The final stage of accounting is interpreting which is where people look at the
data that has been recorded, classified and summarized and they interpret that
data.
TOPIC 3: USERS OF ACCOUNTING INFORMATION

Direct users are the following:

a. Owner
b. Management
c. Prospective Investors
d. Creditors
e. Employees
f. Government
TOPIC 4: HISTORY OF ACCOUNTING
The Cradle of Civilization
 Around 3600 B.C., record-keeping was already common from Mesopotamia, China and
India to Central and South America. The oldest evidence of this practice was the ―clay
tablet‖ of Mesopotamia which dealt with commercial transactions at the time such as
listing of accounts receivable and accounts payable.
14th Century - Double-Entry Bookkeeping
 The most important event in accounting history is generally considered to be the
dissemination of double entry bookkeeping by Luca Pacioli (‗The Father of Accounting‘) in
14th century Italy. Pacioli was much revered in his day and was a friend and contemporary
of Leonardo da Vinci. The Italians of the 14th to 16th centuries are widely acknowledged
as the fathers of modern accounting and were the first to commonly use Arabic numerals,
rather than Roman, for tracking business accounts. Luca Pacioli wrote Summa de
Arithmetica, the first book published that contained a detailed chapter on double-entry
bookkeeping.
TOPIC 4: HISTORY OF ACCOUNTING
French Revolution (1700s)
The thorough study of accounting and development of
accounting theory began during this period. Social upheavals
affecting government, finances, laws, customs and business had
greatly influenced the development of accounting.
The Industrial Revolution (1760-1830)
Mass production and the great importance of fixed assets
were given attention during this period.
TOPIC 4: HISTORY OF ACCOUNTING
19th Century – The Beginnings of Modern Accounting in Europe and America
 The modern, formal accounting profession emerged in Scotland in 1854 when Queen Victoria
granted a Royal Charter to the Institute of Accountants in Glasgow, creating the profession of the
Chartered Accountant (CA). In the late 1800s, chartered accountants from Scotland and Britain
came to the U.S. to audit British investments. Some of these accountants stayed in the U.S., setting
up accounting practices and becoming the origins of several U.S. accounting firms. The first national
U.S. accounting society was set up in 1887. The American Association of Public Accountants was
the forerunner to the current American Institute of Certified Public Accountants (AICPA). In this
period rapid changes in accounting practice and reports were made. Accounting standards to be
observed by accounting professionals were promulgated. Notable practices such as mergers,
acquisitions and growth of multinational corporations were developed. A merger is when one
company takes over all the operations of another business entity resulting in the dissolution of
another business. Businesses expanded by acquiring other companies. These types of transactions
have challenged accounting professionals to develop new standards that will address accounting
issues related to these business combinations.
TOPIC 4: HISTORY OF ACCOUNTING
The Present - The Development of Modern Accounting Standards and Commerce
 The accounting profession in the 20th century developed around state requirements
for financial statement audits. Beyond the industry's self-regulation, the government
also sets accounting standards, through laws and agencies such as the Securities and
Exchange Commission (SEC). As economies worldwide continued to globalize,
accounting regulatory bodies required accounting practitioners to observe
International Accounting Standards. This is to assure transparency and reliability, and to
obtain greater confidence on accounting information used by global investors.
Nowadays, investors seek investment opportunities all over the world. To remain
competitive, businesses everywhere feel the need to operate globally. The trend now
for accounting professionals is to observe one single set of global accounting standards
in order to have greater transparency and comparability of financial data across
borders.
TOPIC 5: NATURE OF ACCOUNTING

A. Accounting is a service activity.

B. Accounting is a process
C. Accounting is both an art and a discipline.
D. Accounting deals with financial information and transactions
E. Accounting is an information system
TOPIC 6: BRANCHES OF ACCOUNTING
FINANCIAL ACCOUNTING
 Financial accounting involves recording and clarifying business transactions along with preparation and
presentation of financial statements. Financial accounting follows GAAP principles and focuses on
historical data.
MANAGEMENT (OR MANAGERIAL) ACCOUNTING
 Managerial accounting provides information to a company's internal structure, namely management.
Unlike financial accounting, managerial accountants monitor the use of money, rather than amounts of
money. Managerial accounting places the focus on the needs of management and doesn't necessarily
follow GAAP accounting rules.
GOVERNMENT ACCOUNTING
 Government accounting oversees and records state and federal fund allocation and
disbursement. This can include aspects of social accounting and the measurement of cost to
humans as it relates to federal land use, climate change or the use of welfare funds.
Government accounting tracks the movement of money through various agencies and ensures
budget requirements are kept or met. Government accountants work in state and federal
programs such as healthcare, housing and education.
TOPIC 6: BRANCHES OF ACCOUNTING
AUDITING
 Auditing is a branch of accounting that is usually done internally and externally. Auditors examine and
monitor a business for accurate reporting, compliance with tax laws and regulations, and financial
integrity.
There are two specializations for auditors:
a. External auditor
 State or federal auditing takes place with an independent, outside auditor who examines a
company's financial statements for accuracy. Auditing complies with GAAP and evaluates the
adequacies of a company's internal controls. External auditors may test the company's
segregation of duties, policies, authorizations and other management controls for efficacy and
integrity.
b. Internal auditor
 Internal auditing identifies and prevents tax issues or prepares the business for an outside audit.
Auditors in this branch are typically chosen by shareholders so their role doesn't present a
conflict of interest and ensures their objectivity.
TOPIC 6: BRANCHES OF ACCOUNTING
TAX ACCOUNTING
 Tax accounting helps clients follow rules set by tax authorities. It includes tax planning
and preparation of tax returns. It also involves determination of income tax and other
taxes, tax advisory services such as ways to minimize taxes legally, evaluation of the
consequences of tax decisions, and other tax-related matters.
COST ACCOUNTING
 Cost accounting, considered a subset of management accounting, focuses on evaluating
costs. This branch considers all factors of manufacturing to accurately determine the
cost of a project or venture. Cost accounting analyzes manufacturing costs to prepare
and present reports that inform decision makers on how to reduce cost, or when to
spend more. It monitors projects for waste and cost control. Cost accounting regularly
analyzes actual costs over budget to determine future monetary actions.
TOPIC 6: BRANCHES OF ACCOUNTING
ACCOUNTING EDUCATION
 This branch of accounting deals with developing future accountants by creating relevant accounting
curriculum. Accounting professionals can become faculty members of educational institutions. Accounting
educators contribute to the development of the profession through their effective teaching, publications of
their research and influencing students to pursue careers in accounting. Accounting teachers share their
knowledge on accounting so that students are informed of the importance of accounting and its use in our
daily lives.
ACCOUNTING RESEARCH
 Accounting research focuses on the search for new knowledge on the effects of economic events on the
process of summarizing, analyzing, verifying, and reporting standardized financial information, and on the effects
of reported information on economic events. Researchers typically choose a subject area and a methodology
on which to focus their efforts. The subject matter of accounting research may include information systems,
auditing and assurance, corporate governance, financials, managerial, and tax. Accounting research plays an
essential part in creating new knowledge. Academic accounting research "addresses all aspects of the
accounting profession" using a scientific method. Practicing accountants also conduct accounting research that
focuses on solving problems for a client or group of clients. The Accounting research helps standard-setting
bodies around the world to develop new standards that will address recent issues or trend in global business.
TOPIC 7: FORMS OF BUSINESS ORGANIZATIONS

1. Single or Sole Proprietorship – this type of business is

owned by one person.
2. Partnership – this is a business organization with two or
more owners.
3. Corporation – this is a business organization of no less the
five persons. It is organized by operation law.
4. Cooperative – this kind of business is governed by the ― one-
member, one vote‖ principle.
 TRY THIS ACTIVITY

ASYNCHRONOUS ACTIVITY

1. Differentiate the types of business organizations according to

ownership.
2. List down the businesses in your community and classify
them according to nature of business.
 REFERENCES

 https://www.indeed.com/career-advice/career-
development/accounting-branches
 https://commerceiets.com/nature-of-accounting/
 Arganda, Amelia M. ―Fundamentals of Accounting: Bookkeeping
1‖, Published by Anvil Publishing , Inc.
 NEXT LESSON

We will be discussing the following:

 Classification of Business Organizations
 As to Size
 Types of Business According to Activities
 The Basic Accounting Reports
 Accounting Concepts and Principles