FABM1 Week 1 Grade 11 Definition, Nature, History and Users of Accounting information
Summary
TLDRThis script offers an insightful overview of accounting, defining it as a service activity and information system integral to economic decision-making. It delves into the nature of accounting, tracing its historical evolution from ancient civilizations to modern practices, highlighting the significance of double-entry bookkeeping and the establishment of accounting standards. The script also distinguishes between internal and external users of financial statements, emphasizing the importance of both qualitative and quantitative information in aiding various stakeholders, including managers, employees, owners, investors, creditors, and regulatory authorities, in making informed decisions.
Takeaways
- đ Accounting is defined as a service activity that provides primarily financial information about an economic entity to aid in economic decisions.
- đą It is an information system that measures, processes, and communicates financial information, often referred to as the 'language of business'.
- đš Accounting is both an art and a discipline, involving creativity and skill in recording, classifying, and summarizing financial data.
- đ The history of accounting is as old as civilization, evolving with social and economic needs and significantly influenced by the development of double-entry bookkeeping in the 14th century.
- đšâđ« Luca Pacioli is recognized as the father of accounting, with his work on double-entry bookkeeping being a pivotal moment in the field.
- đ The Industrial Revolution brought a focus on the importance of assets and the need for more sophisticated accounting practices.
- đ The formal accounting profession emerged in the 19th century, with the granting of a royal charter to The Institute of Accountants in Glasgow, Scotland.
- đ The 20th century saw the development of modern accounting standards and the globalization of the accounting profession, with a push towards observing International Accounting Standards.
- đą Internal users of accounting information are those within a company who use financial reports for planning, organizing, and running the business.
- đ„ External users are individuals and organizations outside the company who require financial information for various purposes, such as potential investors and creditors.
- đ Accounting information encompasses both financial (quantitative) and non-financial (qualitative) data, which is crucial for comprehensive decision-making.
Q & A
What is the primary purpose of accounting according to the American Accounting Association (AAA)?
-The primary purpose of accounting, as defined by the AAA, is to provide quantitative, primarily financial, information about an economic entity that is intended to be useful in making economic decisions.
How is accounting defined by the American Institute of Certified Public Accountants (AICPA)?
-According to the AICPA, accounting is an art of recording, classifying, and summarizing in a significant manner, and in terms of money, transactions and events which are of financial character, and interpreting the results thereof.
What are the basic features of accounting as a service activity?
-As a service activity, accounting provides assistance to decision makers by providing financial reports that guide them in making sound decisions.
What does the term 'process' imply in the context of accounting?
-In accounting, 'process' refers to a method of performing specific tasks step by step according to objectives or targets, which includes collecting, processing, and communicating financial information.
Why is accounting considered both an art and a discipline?
-Accounting is considered both an art and a discipline because it involves the creative and skillful recording, classifying, and summarizing of financial data, while also adhering to certain standards and professional ethics.
How old is the practice of accounting according to the script?
-The practice of accounting is as old as civilization itself, having evolved in response to various social and economic needs.
Who is often considered the father of modern accounting and why?
-Luca Pacioli is often considered the father of modern accounting because he is credited with the development of double-entry bookkeeping, which is a fundamental concept still in use today.
What significant event in the 14th century greatly influenced the development of accounting?
-The significant event in the 14th century that greatly influenced the development of accounting was the invention of double-entry bookkeeping by Luca Pacioli.
What is the role of internal users of accounting information within a company?
-Internal users of accounting information are individuals within a company who use financial data to manage and operate the business, including making informed decisions about company performance, resource allocation, and financial planning.
What are the two main categories of external users of accounting information?
-The two main categories of external users of accounting information are potential investors and creditors, who use this information to evaluate the financial health and creditworthiness of a company.
How does accounting information support the decisions of management, employees, and owners?
-Accounting information supports the decisions of management by providing insights into company performance and cash flow, employees by offering data on job security and compensation, and owners by supplying information on profitability and business assets for investment and expansion decisions.
What types of information do external users need from a company's financial statements?
-External users need both financial (quantitative) and non-financial (qualitative) information from a company's financial statements to assess the company's financial health, make investment decisions, and evaluate the risk of granting credit.
Why is it important for accounting professionals to observe International Accounting Standards?
-Observing International Accounting Standards is important for accounting professionals to ensure transparency, reliability, and to gain greater confidence in the financial information used by global investors, thus facilitating cross-border financial data comparability.
Outlines
đ Introduction to Accounting: Definitions and Nature
This paragraph introduces the fundamental concepts of accounting, emphasizing its role as a service activity that provides financial information to support economic decisions. It outlines various definitions from authoritative bodies like the American Accounting Association and the American Institute of Certified Public Accountants, highlighting accounting as an art and a discipline involving the recording, classifying, and summarizing of financial transactions. The paragraph also touches on the basic features of accounting, such as being a systematic process with defined steps, and its dual nature as both an art form and a discipline governed by standards and ethics.
đ Historical Evolution of Accounting
This section delves into the history of accounting, tracing its roots back to the dawn of civilization. It discusses the early forms of record-keeping in ancient civilizations, the advent of double-entry bookkeeping in the 14th century by Luca Pacioli, and the significant contributions of Italian mathematicians during the Renaissance. The paragraph also covers the impact of the French Revolution and the Industrial Revolution on the development of accounting practices, leading to the establishment of the modern accounting profession in the 19th century and the emergence of national and international accounting standards in the 20th century.
đ„ Users of Accounting Information
This paragraph identifies the two broad categories of users of accounting information: internal and external users. Internal users include managers, employees, and owners who use financial data for operational and strategic decision-making within the company. External users, such as potential investors, creditors, and government regulatory authorities, rely on financial statements for investment decisions, credit assessments, and regulatory compliance. The paragraph also explains the types of information needed by each group and the importance of qualitative and quantitative analysis in making informed decisions.
đ Conclusion: The Significance of Accounting Information
The final paragraph concludes the discussion by emphasizing the importance of accounting information for decision-making. It reiterates the need for both financial and non-financial information and the value of comprehensive analysis that includes both qualitative and quantitative factors. The paragraph serves as a recap of the key points discussed in the video script, reminding viewers of the essential competencies to be acquired for understanding the role of accounting in business and finance.
Mindmap
Keywords
đĄAccounting
đĄEconomic Entity
đĄFinancial Statements
đĄDouble Entry Bookkeeping
đĄInternal Users
đĄExternal Users
đĄManagement Accounts
đĄQualitative Analysis
đĄQuantitative Analysis
đĄComprehensive Analysis
đĄGlobal Investors
Highlights
Accounting is defined as a service activity that provides financial information about an economic entity.
Accounting is an information system that measures and communicates financial information.
The American Accounting Association defines accounting as the language of business.
Accounting involves the process of identifying, measuring, and communicating economic information.
Accounting is both an art and a discipline, requiring creativity and skill.
Accounting's history dates back to the beginning of civilization, evolving with social and economic needs.
Double-entry bookkeeping was a significant development in the 14th century, pioneered by Luca Pacioli.
The Industrial Revolution brought attention to the importance of accounting in managing assets and resources.
Modern accounting emerged in the 19th century, with the establishment of professional accounting bodies.
The American Institute of Certified Public Accountants (AICPA) was a key development in the standardization of accounting practices.
Accounting has been influenced by global economic changes, such as mergers and acquisitions.
International Accounting Standards are crucial for transparency and reliability in a global economy.
Internal users of accounting information include management, employees, and owners.
External users of accounting information are individuals and organizations outside the company seeking financial data.
Accounting information is essential for decision-making by both internal and external users.
Qualitative and quantitative information are both important for comprehensive analysis in accounting.
Accounting information needs to be presented in a way that supports various user decisions, such as management accounts, budgets, forecasts, and financial statements.
Transcripts
this is in management one so this is
your module one or week one chapter
end of this lesson you will be able to
Define accounting describe the nature of
accounting narrate the history or the
origin of accounting Define external
users and gives examples and also to
Define internal users and give examples
also
the different definitions of accounting
first
accounting is a service activity so it's
actually to provide quantitative
information
primarily Financial in nature about
economic entity that is intended to be
useful in making economic resections
also it is an information system that
measures processes and communicate
financial information about an economic
Institute it is also defined as a
process of identifying measuring and
communicating economic information to
permit
informed judgments and Decisions by
users of these information that is based
on these
AAA or the American accounting
Association
something is commonly called the
language of business
so we're in it delivers financial
information to different users of
financial statements so
along this slides you will know who are
the users of the financial statement
next it is also defined
based on the American Institute of
certified public accountants so this is
aicpa it is an art of recording
classifying and summarizing in a
significant Manner and in terms of
managed transactions and events which
are important of at least a financial
character and interpreting the resources
also
this definition all of this definition
will provide a better understanding of
accounting in terms of following so you
have
um considered an art exercise
involved in interconnected phases
concerned with transactions and events
Financial having Financial indirectly so
in accounting business
transactions are expressed in terms of
money in accounting interprets and
results of the financial statement
So based on the definition of accounting
we can derive the following basic
features of a company or the nature of
accounting first it is a service
activity so
accounting provides assistance to
decision makers by providing them
Financial reports that will guide them
in coming up with sound decisions
accounting is also a process why because
process refers to the method of
performing any specific job step by step
according to the objectives or Target so
accounting is identified as a process as
it performs
the specific test of collecting
processing and communicating financial
information so in doing so
follow some definite steps like the
collection recording classification
summarization finalization and reporting
of financial data also
accounting is both an art and discipline
so it is the art of recording
classifying summarizing and financial
data
right so the word art here
the word art refers to the way something
is performed so it is behavioral
knowledge involving a certain activity
or creativity and skill to help us
attain some specific objective
accounting is a systematic method
consisting of definite techniques in its
proper application requires skills and
expertise Now by Nature accounting is an
arts and because it follows certain
standards and professional ethics
to also a
discipline
so for the history of accounting so
accounting is as old as civilization
itself so it has evolved in response to
various social and economic needs of
money accounting started a simple
recording or repetitive exchanges so the
history of accounting is often seen as
indistinguishable from the history of
finance and businesses following
is the evolution of accounting so first
we have here the cradle of civilization
so around
3600 BC record keeping was already
common from Mesopotamia China and India
to Central and South America so the
oldest evidence of this practice was the
um what we call this the clay tablet
okay so the clay tablet of Mesopotamia
which deals with commercial transactions
at that time as listing or listing of
accounts receivable and accounts payable
Then followed by the 14th century the
double entry bookkeeping which we are
following right now so 14 at the Double
Entry bookkeeping so the most important
events in accounting history is
generally considered the building
discrimination of Double Entry
bookkeeping by look up actually so look
up actually is considered as the father
of accounting important century where in
Italy so
fashioni was
um revered in this day and was a friend
and contemporary of Leonardo da Vinci
Leonardo da Vinci is very famous the
Italians of the 14th to 16th centuries
are widely acknowledged as the fathers
of modern accounting and where the first
to commonly used Arabic numerals rather
than humans so for tracking business
accounts
wrote
from the arithmetica
okay so that that was the first book
published that contained a detailed
chapter on the double entry the sweeping
so this is very important the double
entry book we see
next is the French Revolution
um around 1700 so
the thorough study of accounting and
development of accounting Theory began
during this period so social upheavals
affecting government
finances lost customs and business had
greatly influenced the development of
accounting then you have viewed the
Industrial Revolution so this is from
1762
1830 so mass production and the great
importance of six assets
so we're giving attention during this
period Then the 19th century so the
beginnings of modern Accounting in
Europe and America so the modern the
formal accounting profession emerged in
Scotland in 1854 so when Queen Victoria
granted a royal Charter to The Institute
of accountants in Glasgow so creating
the profession of the charted accountant
or the city
so in the late 1800s
um Chartered Accountants from Scotland
and became
came to the U.S to all that British
investment so some of these accountants
stayed in the U.S setting up accounting
practices and becoming the origins of
several U.S accounting firms so the
first national U.S accounting Society
was set up in
1887 so the American station of public
accountants was the Forerunner to the
current the eicpa or the what is called
the American Institute of certified
public
content so in this period rapid changes
in accounting practice and reports were
made in Accounting Standards to be
observed the economic professionals
where promoting sets a notable process
such as mergers Acquisitions and drugs
of multinational corporations were
developed in amateur is when one company
takes over all of the operations or
another business entity resulting in the
distribution of another
business so business expanded by
acquiring another company so these types
of transactions have challenged
accounting professionals to develop
newspounders that will address
accounting issues related to this
business combination so and of course
the president we have the development of
modern accounting standards and commerce
or the accounting profession in their
20th century developed around state
requirements for financial business
audits so beyond the industry's
self-regulation the government also sets
Accounting Standards so through what
through loss and agencies such as the
Securities in Exchange Commission or
what we call the sex every economics
worldwide continued to globalize
accounting regulatory bodies required
accounting practitioners to observe
International Accounting Standards so
this is still assure transparency and
reliability and to obtain greater
confidence on account information used
by the Global Investors so nowadays
investors seek investment opportunities
all over the world to remain competitive
businesses everywhere feel the need to
operate globally so the trend now for
accounting professionals is to observe
one one single set of global economic
funders in order to have greater
transparency and comparability of
financial data across borders so around
Global okay
who are the users of account information
so who uses accounting data
so there are two broad categies of user
Senator information you have here
internal users and external history so
internal users have account information
and those individuals inside a company
of plan organize and run the business so
this user is are directly involved in
managing and operating the business so
this includes our marketing managers
production supervisors Finance directors
company officers and of course the
owners so what information will user
needs that can be answered to the
accounting so these internal users are
what we call the primary users of
account information include the
following management
employees and owners so for management
the information needed
are those income or earnings for the
period those sales available cash
production costs and the decisions will
be supported is to analyze the
organization's performance and position
and take appropriate measures to improve
the company resource efficiency of cash
to pay dividends to stockholders and
pricing decisions for employees so the
information needed is a profit for the
period salary spacing plugins and the
decisions to be supported is the job
security
um the consider staying in the employee
of the company or look for other
employment opportunities so that's what
the employees need why they need the
account information also for the owner
um the owner needs information for a
profit or income for the presidential
resources or assets of the business
liabilities as a business so for the
decisions will be supported so this is
the consideration for the owners
regarding additional investment
expanding the business borrowing funds
to support any expansion plan so
accounting information is presented to
the internal users so to the management
employees owners usually in the form of
management accounts budgets forecast and
financial statements so this information
will support whatever decision of these
internal research and for the external
users so these are individuals and
organizations outside the company who
want financial information about the
company need help these users are not
directly involved in managing and
operating services
unlike the internal users so the two
most common sites as a single users are
potential
investor
and
Credit Service so potential investors
use account information to make
decisions to buy shares of a company and
creditors here the creditors
such as suppliers and bunkers use
accounting information
two evaluate the risk of granting credit
or lending the money so also included as
internal users are government
regulatory authorities such as sex or
the Security and Exchange Commission
the bir are the Bureau of internal
revenue the department of labor and
employment or the dollar the SSS a
social security system and the ldus or
the local governments in it so external
users clear Eternal users
of account information include the
following year the creditors so
creditors for again for determining the
credit worthiness of an organization so
terms of credit are set by creditors
according to the assessment of their
customers financial help so creditors
include suppliers as well as lenders of
Finance such as Banks also for the tax
Authority so we have there we are so for
determining the credibility of the tax
returns filed on behalf of the company
again also the investor so investors is
one of the three most common types of
finale for yourself
this is for analyzing the feasibility of
investing in a company so investors want
to make sure they can earn a reasonable
return on their investment before they
commit any Financial resource to the
company also customers is for assessing
the financial profession of its
suppliers which is necessary for them to
maintain a stable source of Supply in
the long term so or about business and
also the regulatory authentication what
I have said you have their set not only
so it is for ensuring that the company's
disclosure of the company information is
in accordance with the rules and
regulation set in order to protect the
interest of the stakeholders who
um rely on such information informing
their business decisions
so our last slide is the types of
information needed by each group of
users so accountant information includes
both Financial or quantity settings and
non-financial or qualitative information
used by the decision makers so first for
the qualitative analysis so it means
listening as the intangible
and for quantitative in the word
quantitative so it means looking at the
actual numbers and for comprehensive
analysis it should include both the
qualitative and quantitative analysis or
factors that would impact the decision
later so that's all for your week one
topic so you wait for Earth
topic for yours which says
for the last topic for this
week is a part of information needed by
each group of users accounting
information
includes both Financial
or quantitative and non-financial or
qualitative information used by the
decision maker so qualitative analysis
means listening is intangible
quantitative from the word quantity
means Looting of the actual numbers and
of course comprehensive analysis it
should include meeting at the both
qualitative and quantity satisfacturers
that would impact decisions later so
from these are all topics
or the company competencies you need to
cover it or acquire for your week one
topic for sub and one so you wait for
our next video for the weekly topic
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