Accounting Basics

What is Accounting?

• Accounting is a service activity that provides quantitative information, primarily financial in nature, about economic entities.
• Its purpose is to aid in making economic decisions and reasoned choices among alternative courses of action.

Nature of Accounting

• Accounting is an art.
• Accounting is financial in nature.
• Accounting is a process.
• Accounting is an information system.

Functions of Accounting

• Maintaining systematic records.
• Communicating financial results of an entity.
• Meeting legal requirements.
• Protecting assets of a business.
• Assisting management.

History of Accounting

• Accounting records date back over 7,000 years to ancient civilizations in Mesopotamia.
• Other early accounting records were found in ancient Babylon, Assyria, and Sumeria.
• The Roman Empire had access to detailed financial information.
• Merchants during the Goryeo Dynasty of Korea kept track of business and trades through record-keeping methodologies.

Father of Accounting

• Luca Bartolomeo de Pacioli, an Italian mathematician and Franciscan friar.
• Published "Summa de arithmetica, geometrica, proportioni, et proportionalita" in 1494, which described accounting methods, including double-entry bookkeeping.

Types of Accounting

• Financial Accounting: deals with recording business transactions to produce financial statements.
• Management Accounting: collects information for management use.
• Cost Accounting: focuses on the costs a company incurs.
• Government Accounting: deals with public finance and funding.
• Auditing: involves checking and verifying financial information.
• Tax Accounting: computes and reports taxes.
• Accounting Education: teaches accounting and financial literacy.
• Accounting Research: creates new knowledge in accounting.

Accounting Information

• Provides information on resources and obligations (financial position).
• Provides information on profitability (financial performance).
• Provides information on capital (equity).
• Provides information on cash flow.

Users of Accounting Information

• Internal Users: management and owners who need financial information for decision-making.
  • Owners: assess if the business needs funding.
  • Managers: use financial information for planning and organization.
• External Users: outside parties who require financial information.
  • Investors: decide whether to invest in the company.
  • Creditors: assess whether the company can pay its obligations.
  • Customers: dependent on the firm's financial performance.

Test your knowledge of the fundamental concepts of accounting, including its nature and functions. Learn about the roles of accounting in providing financial information and making economic decisions.