Class notes
Financial Accounting 1
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These are class notes on financial accounting level 1. Basically introduction to Financial Accounting Topic 1.
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INTRODUCTION TO ACCOUNTING1. NATURE AND PURPOSE OF ACCOUNTING
Accounting is considered the language of business. It has evolved throughout the years as
information needs changed and became more complex. After finishing this article, the reader
should
be able to have a general understanding of accounting, be acquainted with the different
definitions, know the different types of Information found in accounting reports and know the
different uses of accounting information.
Some say that accounting is a science because it is a body of knowledge that has been
systematically gathered, classified, and organized. It could be influenced by many factors,
specifically, economic, social, and political events. Some say accounting is an art because it
requires creative skill and judgment. Furthermore, accounting is also considered an
information system because it is used to identify and measure economic activities, process the
Information into financial reports, and communicate these reports to the different users of
accounting information.
To understand accounting further, we must look at the different definitions.
Accounting as a Science
Accounting is the process of identifying, measuring, and communicating economics.
Information to permit informed judgment and decisions by users of Information.
Accounting as an Art
Accounting is the art of recording (journalizing), classifying (posting to the ledger), and
summarizing in a significant manner and terms of money, transactions, and events, which
are, in part, at least of a financial character and interpret the results thereof for interested
users.
, Accounting as an Information System
Accounting is a service activity that functions to provide quantitative Information, primarily
financial, about economic entities that are intended to be helpful in
making economic decisions.
The first definition emphasizes the following:
Identifying - in accounting, this is the process of recognition or non-recognition of business
activities as accountable events. Stated differently, this process determines if an
event has accounting relevance.
Measuring - accounting assigns monetary amounts to the
accountable events.
Communicating - As we could notice with the above definitions, one main similarity
between the three is the impact of communication. To be valid, accounting
information should be communicated to the different decision-makers. Communicating
accounting information is achieved by the presentation of different financial statements.
The second definition emphasizes the following:
Recording - The accounting term for recording is journalizing. All the accountable events
are
recorded in a journal.
Classifying - The accounting term for recording is posting. All accountable events
recorded in the journal are then classified or posted to a ledger.
Summarizing - the journalized and posted items are summarized in the five basics
financial statements.
The third definition emphasizes that accounting is a service activity and that
Information provided by accounting could be classified into three types:
Quantitative Information - This is Information that is expressed in numbers, quantities, or
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