INTRODUCTION

TO ACCOUNTING
Preepared by: Elsa Glinda G. Altar CPA, CFA, MaEd
 AICPA Definition of Accounting

“ 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
financial character, and interpreting the results
thereof.”
American Institute of Certified Public Accountants (AICPA)
 Nature and Scope of Accounting
1. Accounting is considered an art
• Accounting is considered an art because it requires the
use of skills and creative judgment. One has to be trained
in this discipline to be able to perform accounting
functions well.
• Accounting is also considered a science because it is a
body of knowledge. However, accounting is not an exact
science since the rules and principles are constantly
changing (improved).
2. Accounting involves interconnected "phases"
• Recording pertains to writing down or keeping
records of business transactions. Classifying involves
grouping similar items that have been recorded.
Once they are classified, information
is summarized into reports which we call financial
statements.
3.

3. Concerned with transactions and

events having financial character
• For example, hiring an additional employee is qualitative
information with no financial character. Hence, it is not
recorded. However, the payment of salaries, acquisition of an
office building, sale of goods, etc. are recorded because they
involve financial value.
 4. Business transactions are expressed in terms of
money
They are assigned amounts when processed in an
accounting system. Using one of the examples, it is
not enough to record that the company paid salaries
for April. It must include monetary figures – say for
example, P20,000 salaries expense.
5. Interpreting the results
Interpreting results is part of the phases of accounting.
Information is useless if they cannot be interpreted and
understood. The amounts, figures, and other data in the
financial reports have meanings that are useful to the
users.
 Two types of Financial Information
1. Financial
financial information that primary
deals with recording transaction that has
something to do with monetary value.
 2. Non – Financial Accounting
• Non financial reporting is the disclosure of a
company's social, environmental and human rights
information. ... For investors and Stakeholders, non-
financial reporting is also a way to reinforce the
stability and predictability of the firm's performance
on financial markets.
 Different Bodies of Accountancy
Regulation of the accountancy profession
•Financial Reporting Council (FRC) ...
•Financial Conduct Authority (FCA) ...
•Department for Business, Innovation and Skills (BIS) ...
•European Commission. ...
•International Federation of Accountants (IFAC) ...
•International Accounting Standards Board (IASB)
•Board of Accountancy (BOA)
•American Institute of Certified Public Accountants
(AICPA)
 Scope and Limitations
A Scope Limitation is a restriction on the
applicability of an auditor's report that may arise
from the inability to obtain sufficient appropriate
evidence about a component in the financial
statements. ... Some scope limitations arise for
reasons that are beyond the control of the client,
such as fire and flood.
 Branches of Accounting Profession
1. Financial accounting,
2. Managerial accounting, 
3. Cost accounting, 
4. Auditing,
5. Taxation,
6. Accounting Information System,
7. Fiduciary, and
8. Forensic Accounting.
 Branches of Accounting Profession
1. Financial Accounting
• Financial accounting involves recording and classifying
business transactions, and preparing and presenting
financial statements to be used by internal and external
users.
• In the preparation of financial statements, strict
compliance with generally accepted accounting
principles or GAAP is observed. Financial accounting is
primarily concerned in processing historical data.
 Branches of Accounting Profession
2. Management Accounting
• Managerial or management accounting focuses on
providing information for use by internal users, the
management. This branch deals with the needs of the
management rather than strict compliance with
generally accepted accounting principles.
• Managerial accounting involves financial analysis,
budgeting and forecasting, cost analysis, evaluation of
business decisions, and similar areas.
 Branches of Accounting Profession
3. Cost Accounting
• Sometimes considered as a subset of management
accounting, cost accounting refers to the recording,
presentation, and analysis of manufacturing costs. Cost
accounting is very useful in manufacturing businesses
since they have the most complicated costing process.
• Cost accountants also analyze actual and standard
costs to help managers determine future courses of
action regarding the company's operations.
 Branches of Accounting Profession
4. Auditing Accounting
External auditing refers to the examination of financial
statements by an independent party with the purpose
of expressing an opinion as to fairness of presentation
and compliance with GAAP. Internal auditing focuses
on evaluating the adequacy of a company's internal
control structure by testing segregation of duties,
policies and procedures, degrees of authorization, and
other controls implemented by management.
 Branches of Accounting Profession
5. 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.
 Branches of Accounting Profession
6. AIS Accounting
Accounting information systems (AIS) involves the
development, installation, implementation, and
monitoring of accounting procedures and systems
used in the accounting process. It includes the
employment of business forms, accounting
personnel direction, and software management.
 Branches of Accounting Profession
7. Fiduciary Accounting
Fiduciary accounting involves handling of accounts
managed by a person entrusted with the custody
and management of property of or for the benefit of
another person. Examples of fiduciary accounting
include trust accounting, receivership, and estate
accounting.
 Branches of Accounting Profession
8. Forensic Accounting
Forensic accounting involves court and litigation
cases, fraud investigation, claims and dispute
resolution, and other areas that involve legal
matters. This is one of the popular trends in
accounting today.
 Focusing on a Specialization
Some of the most famous certifications include the:
1. Certified Public Accountant (CPA),
2. Certified Management Accountant (CMA),
3. Certified Internal Auditor (CIA),
4. Certified Financial Planner (CFP), and
5. Certified Information Systems Auditor (CISA).
6. Certified Financial Analyst (CFA)
 Forms or Types of Accounting
1. Financial Accounting
2. Public Accounting
3. Government Accounting
4. Forensic Accounting
5. Management Accounting
6. Tax Accounting
7. Internal Auditing
 Forms or Types of Accounting
1. Financial Accounting
This field is concerned with the aggregation of
financial information into external reports. Financial
accounting requires detailed knowledge of the 
accounting framework used by the reader of a
company's financial statements, such as Generally
Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS). Or,
if a company is publicly-held, it requires a knowledge
of the standards issued by the government entity
 Forms or Types of Accounting
2. Public Accounting
This field investigates the financial statements and
supporting accounting systems of client companies,
to provide assurance that the financial statements
assembled by clients fairly present their financial
results and position. This field requires excellent
knowledge of the relevant accounting framework, as
well as an inquiring personality that can delve into
client systems as needed. 
 Forms or Types of Accounting
3. Government Accounting
This field uses a unique accounting framework to
create and manage funds, from which cash is
disbursed to pay for a number of expenditures
related to the provision of services by a government
entity. Government accounting requires such a
different skill set that accountants tend to specialize
within this area for their entire careers.
 Forms or Types of Accounting
4. Forensic Accounting
 This field involves the reconstruction of financial
information when a complete set of financial records is not
available. This skill set can be used to reconstruct the records
of a destroyed business, to reconstruct fraudulent records,
to convert cash-basis accounting records to accrual basis,
and so forth. This career tends to attract auditors. It is
usually a consulting position, since few businesses require
the services of a full-time forensic accountant. Those in this
field are more likely to be involved in the insurance industry,
legal support, or within a specialty practice of an audit firm.
 Forms or Types of Accounting
5. Management Accounting
This field is concerned with the process of
accumulating accounting information for internal
operational reporting. It includes such areas as 
cost accounting and target costing. A career track in
this area can eventually lead to the controller
position, or can diverge into a number of specialty
positions, such as cost accountant, billing clerk, 
payables clerk, and payroll clerk.
 Forms or Types of Accounting
6. Tax Accounting
This field is concerned with the proper
compliance with tax regulations, tax filings,
and tax planning to reduce a company's tax
burden in the future. There are multiple tax
specialties, tracking toward the tax manager
position.
 Forms or Types of Accounting
7. Internal Auditing
This field is concerned with the examination of a
company's systems and transactions to spot control
weaknesses, fraud, waste, and mismanagement, and
the reporting of these findings to management. The
career track progresses from various internal auditor
positions to the manager of internal audit. There are
specialties available, such as the information systems
auditor and the environmental auditor.
 Activities of Accounting
Accounting consists of three basic activities
it:
• identifies,
• records , and
• communicates the economic events of an
organization to interested users.
 Accounting Process
The accounting process is a series of activities
that begins with a transaction and ends with
the closing of the books. Because
this process is repeated each reporting
period, it is referred to as the accounting cycle
and includes these major steps: Identify the
transaction or other recognizable event.
 Accounting Process
Accounting cycle refers to the specific tasks
involved in completing an accounting process.
The length of an accounting cycle can be
monthly, quarterly, half-yearly, or annually. It
may vary from organization to organization but
the process remains the same.
Accounting Process
 Accounting Process
The following table lists down the steps
followed in an accounting process -
1. Collecting and Analyzing Accounting Documents
It is a very important step in which you examine
the source documents and analyze them. For
example, cash, bank, sales, and purchase related
documents. This is a continuous process
throughout the accounting period.
 Accounting Process
The following table lists down the steps followed
in an accounting process –
2. Posting in Journal
On the basis of the gathered data, you pass
journal entries using double entry system in which
debit and credit balance remains equal. This
process is repeated throughout the accounting
period.
 Accounting Process
The following table lists down the steps followed
in an accounting process –
3. Posting in Ledger Accounts
Debit and credit balance of all the above accounts
affected through journal entries are posted in
ledger accounts. A ledger is simply a collection
of all accounts. Usually, this is also a continuous
process for the whole accounting period.
 Accounting Process
The following table lists down the steps followed in an
accounting process –
4. Preparation of Trial Balance
As the name suggests, trial balance is a summary of all
the balances of ledger accounts irrespective of whether
they carry debit balance or credit balance. Since we
follow double entry system of accounts, the total of all
the debit and credit balance as appeared in trial
balance remains equal. Usually, you need to prepare
trial balance at the end of the said accounting period.
 Accounting Process
The following table lists down the steps followed in an
accounting process –
5. Posting of Adjustment Entries
In this step, the adjustment entries are first passed
through the journal, followed by posting in ledger
accounts, and finally in the trial balance. Since in most of
the cases, we used accrual basis of accounting to find out
the correct value of revenue, expenses, assets and
liabilities accounts, we need to do these adjustment
entries. This process is performed at the end of each
accounting period.
 Accounting Process
The following table lists down the steps
followed in an accounting process –
6. Adjusted Trial Balance
Taking into account the above
adjustment entries, we create adjusted
trial balance. Adjusted trial balance is a
platform to prepare the financial
statements of a company.
 Accounting Process
The following table lists down the steps followed in an
accounting process –
7. Preparation of Financial Statements
Financial statements are the set of statements like Income
and Expenditure Account or Trading and Profit & Loss
Account, Cash Flow Statement, Fund Flow Statement,
Balance Sheet or Statement of Affairs Account. With the
help of trial balance, we put all the information into
financial statements. Financial statements clearly show
the financial health of a firm by depicting its profits or
losses.
 Accounting Process
The following table lists down the steps followed in an
accounting process –
8. Post-Closing Entries
All the different accounts of revenue and expenditure of
the firm are transferred to the Trading and Profit &
Loss account. With the result of these entries, the
balance of all the accounts of income and expenditure
accounts come to NIL. The net balance of these entries
represents the profit or loss of the company, which is
finally transferred to the owner’s equity or capital.
 Accounting Process
The following table lists down the steps
followed in an accounting process –
9. Post-Closing Trial Balance
Post-closing Trial Balance represents the
balances of Asset, Liabilities & Capital
account. These balances are transferred to
next financial year as an opening balance.
End