Lesson 003 - Introduction to Accounting
Summary
TLDRThis introductory accounting lesson defines the field as a service activity providing financial information to aid economic decision-making. It highlights accounting's nature as an art, a process, and an information system, and its functions, including maintaining records, communicating financial results, meeting legal requirements, and assisting management. A brief history of accounting is also presented, tracing its roots to ancient civilizations and recognizing Luca Pacioli as the father of accounting for his work on the double-entry bookkeeping system.
Takeaways
- 📚 Accounting is defined as a service activity that provides quantitative, primarily financial information about economic entities to aid in economic decision-making.
- 🔢 The nature of accounting involves dealing with numbers, specifically financial data, which is essential for understanding a company's financial health.
- 📈 Accounting's function is not only to maintain systematic records but also to communicate financial results and serve as the language of business for stakeholders.
- 🏦 Accounting is applicable to various entities, including businesses and non-profit organizations, emphasizing its broad utility in record-keeping and financial management.
- 🤔 Accounting information helps business owners and managers make informed decisions and choose among alternative courses of action based on financial performance.
- 📉 The concept of revenues, expenses, and net income is fundamental in accounting, with the latter indicating profitability or loss.
- 👨🏫 Luca Pacioli is recognized as the father of accounting, having published a significant work detailing the double-entry bookkeeping system used widely to this day.
- 📖 The double-entry bookkeeping system is a method where every transaction affects two accounts, maintaining balance and accuracy in financial records.
- 🌐 Accounting has a rich history, dating back to ancient civilizations, showing its importance in trade and commerce over millennia.
- 🏛 Early examples of accounting practices can be found in civilizations such as Mesopotamia, Rome, and during the Goryeo dynasty in Korea, highlighting its universal need.
- 🛠️ Accounting serves multiple purposes, including meeting legal requirements, protecting business assets, and providing management with valuable operational insights.
Q & A
What is the definition of accounting according to the Accounting Standards Council?
-Accounting, as a service activity, its function is to provide quantitative information, primarily financial in nature about economic entities that is intended to be useful in making economic decisions and in making reasoned choices among alternative courses of action.
What are the two types of information mentioned in the script?
-The two types of information mentioned are qualitative and quantitative. Qualitative information does not involve numbers and describes or discusses something, while quantitative information involves numbers.
What is the role of revenues and expenses in accounting?
-Revenues are items that a company earns, indicating how much the company has made, while expenses are the amounts sacrificed by a company for business operations. In accounting, revenues are matched against expenses to determine net income or loss.
What is an income statement and what does it show?
-An income statement is a financial report showing revenues, expenses, and the net income of a company. It displays how much a company has earned and spent during a specific period, resulting in net income or loss.
How does accounting help in making economic decisions?
-Accounting provides quantitative financial information that allows business owners or managers to understand the financial health of the company. This information aids in making economic decisions, such as whether to expand, reduce costs, or change business strategies.
What is the significance of the double-entry bookkeeping system in accounting?
-The double-entry bookkeeping system is significant because it ensures that every business transaction affects two accounts, maintaining the balance of the general ledger. This system is foundational to accurate financial record-keeping and reporting.
Who is considered the father of accounting and what is his contribution?
-Luca Bartolomeo de Pacioli is considered the father of accounting. His contribution was the publication in 1494 of the book 'Summary of Arithmetic, Geometry, Proportions and Proportionality,' which included a chapter on the accounting methods used by Italian merchants, detailing the double-entry bookkeeping system.
Why is accounting referred to as an art?
-Accounting is referred to as an art because it is a designed process that involves following a set of rules and procedures to produce an output, such as financial reports. It requires skill, experience, and judgment, similar to other creative or artistic endeavors.
What are some of the functions of accounting beyond providing quantitative financial information?
-Beyond providing quantitative financial information, accounting functions include maintaining systematic records, communicating financial results, serving as the language of business for communication, meeting legal requirements, protecting business assets, and assisting management in decision-making.
How far back can the practice of accounting be traced, and where were some of the earliest records found?
-Accounting can be traced back to ancient civilizations, with evidence of record-keeping in Mesopotamia dating back more than 7,000 years. Early accounting records were also found in the ruins of Asian Babylon, Assyria, and Samaria.
Outlines
📚 Introduction to Accounting and its Definition
In this first lesson, the speaker introduces the world of accounting, emphasizing the foundational aspects that form the basis of becoming an accountant. The discussion begins with the definition of accounting, as outlined by the Accounting Standards Council. Accounting is presented as a service activity that provides quantitative, primarily financial, information about economic entities to assist in making informed decisions. The speaker further explains the service nature of accounting by comparing it to other professions like law and medicine, where services are rendered for a fee. The main function of accounting is emphasized as providing financial information that aids in making economic decisions.
💡 Understanding Financial and Quantitative Information in Accounting
The speaker delves into the difference between qualitative and quantitative information, with a focus on how accounting primarily deals with quantitative, financial data. This section highlights the significance of revenues and expenses in understanding a company's financial health, as represented by income statements. By comparing revenues with expenses, businesses can determine whether they have made a profit or incurred a loss. The speaker uses examples to illustrate how financial information in accounting helps business owners make informed decisions, emphasizing the importance of understanding financial data to gauge the performance of a business.
🔍 Functions of Accounting: Beyond Financial Record-Keeping
This section explores the various functions of accounting beyond simply providing quantitative information. It emphasizes the importance of maintaining systematic records and using accounting as a communication tool to convey financial results to business owners and managers. Accounting is also described as the 'language of business,' facilitating communication about a company's operations. Additionally, accounting plays a crucial role in meeting legal requirements, protecting assets, and assisting management with decision-making based on financial data. The speaker underscores the importance of accounting in ensuring accurate record-keeping and helping businesses meet statutory obligations.
📜 A Brief History of Accounting
In this part of the lesson, the speaker provides a concise overview of the history of accounting, tracing its origins back to ancient civilizations such as Mesopotamia and Egypt, where early forms of record-keeping were used. The discussion touches on how accounting evolved over time, with examples from the Roman Empire and ancient Korea. The focus then shifts to Luca Pacioli, the 'Father of Accounting,' who formalized the double-entry bookkeeping system in the 15th century. This system, which affects two accounts in every transaction, remains a cornerstone of modern accounting practices. The speaker concludes by mentioning that future lessons will delve deeper into different branches of accounting.
Mindmap
Keywords
💡Accounting
💡Quantitative Information
💡Economic Entities
💡Financial Statements
💡Revenues
💡Expenses
💡Net Income
💡Double Entry Bookkeeping
💡Luca Pacioli
💡Economic Decisions
💡Accounting Functions
Highlights
Introduction to the world of accountancy and the journey towards becoming an accountant.
Definition of accounting as a service activity providing quantitative financial information for decision-making.
Explanation of the nature and function of accounting, including its role in economic decision-making.
Accounting's history, tracing back to ancient civilizations, emphasizing its long-standing importance.
The role of accounting in providing financial information through tools like the income statement.
Differentiation between qualitative and quantitative information, with a focus on the latter in accounting.
The concept of revenues, expenses, and net income, and how they are represented in accounting.
The importance of matching revenues and expenses to determine a company's profitability.
Accounting's application beyond businesses to nonprofit entities like churches and foundations.
Accounting as a tool for communication, described as the language of business.
The function of accounting in maintaining systematic records and communicating financial results.
Meeting legal requirements through accounting, such as for taxation and regulatory authorities.
Protecting business assets through proper record-keeping methodologies provided by accounting.
Accounting's role in assisting management by providing information about entity operations.
The nature of accounting as an art, a process, and an information system due to its design and data handling.
Luca Pacioli, known as the father of accounting, and his contributions to the double-entry bookkeeping system.
The ongoing relevance of accounting methods in government and business, such as trial balance and balance sheets.
Upcoming lesson on the branches of accounting, including financial, management, and cost accounting.
Transcripts
[Music]
hello everybody so this is a lesson
three our introduction to accounting
okay so I will be introducing you to the
wonderful world of accountancy okay so
this is our very first lesson in this
starts your journey on becoming an
accountant
okay so today I will be introducing you
accounting so we will have the
definition of accounting and then we
will also be explaining here the nature
and function of accounting and just a
bit history of accounting just for you
to understand where it came from
okay so I hope that you will be able to
understand the lessons the topics that
we will be discussing today okay so
first of all allow me to discuss with
you the definition the very definition
of accounting okay so according to
accounting standards council accounting
as a service activity its function is to
provide quantitative information
primarily financial in nature about
economic entities that is intended to be
useful in making economic decisions any
making reason choices among alternative
courses of action the definition of
accounting for you might be too deep for
you to understand it in reading so allow
me to discuss it to you my wife
okay sorry nothing in definition on
housing first accounting is a service
activity and when we say service
activity as accountants diapole NIV big
I now service automatically and if a
lawyer or an attorney is giving legal
services and a doctor is available for
funds of the consultation for medical or
he gives medical services then an
accountant provides accounting services
but shall pray on a professional
perspective we are giving accounting
services for a fee
okay so accounting as regarded as a
service activity in a sense that Wickham
service we provide service and the kind
of service that we provide our clients
as accounting service okay so that's the
meaning that we regard accounting as a
service activity now talking about the
function of accounting the function of
accounting is to provide quantitative
information which is primarily financial
in nature now remember that we have two
kinds of information we have qualitative
and quantitative so when we say
qualitative it does not talk about
numbers right so it just describes
something it just discusses something
these are paragraphs of words however
when we are talking about quantitative
information we are talking about numbers
however in accounting we are not just
talking about numbers what we are
talking about in accounting is
information that is financial in nature
okay so the so the nature in the
function of accounting is being mixed in
this specific sentence remember that
what we do in accounting is about how
much okay we're talking about how much
and that how much is being represented
by the word quantitative in financial
take a look at the item or the picture
that this give this here beside me that
is what you call an income statement so
you can see their revenues and expenses
and the net income so let me give you
first a quick overview of that revenues
are items that the company earns how
much does the company are in mechanik
indicate an on company and then expenses
are the amounts that are being
sacrificed by a company in order for
them to do business operations in simple
Tagalog moppida caja Gaston sana na
and company like Renta rent or salaries
now empleado or sempre they also pay for
electric bills and for water and
Internet so those are utility bills so
they also pay for those expenses okay
now in accounting we match revenues
versus expenses in order for us to know
who commits Abbate or in the loogie now
and the Puma pass my own nusiness I've
been adding quantitative information at
financial information in accounting
protego things to begin now my Eric Nam
business now looky who last one day but
putting it on a deeper perspective
lagina dan McConnell let's say for
examples I've been ordering on business
who lugia who last month para maana 200
pesos lambda1 the impact might not be
too deep okay
but the impact might not be too deep
however if the owner of the company says
the hulu ginga who last month a 100,000
non-irrigated attention and numbers
non-nil and again the net income Macondo
the information became more
understandable because mean again
latinum how much and that quantifiable
information is financial in nature and
because of that we are able to
understand what happens inside the
company okay so due to a path of
incidents have been nothing quantitative
information do parts of incidents have
been adding financial information so
remember that equation that I've that
I've told you earlier revenue minus
expenses will give you net income but if
the expenses of a company is greater
than what they earn then what is what
you call net loss okay okay so let's
continue
accounting is about
Namie entities we're talking about
businesses however always remember that
accounting or the art of doing
accounting is not only limited to
businesses we are also dealing or
accounting can also be used in nonprofit
entities like churches or foundations
Casa Cayla and Vina Manila no
record-keeping and that method of
record-keeping can be provided by the
science by the art of accounting okay
and then accounting is intended to be
useful in making economic decisions
remember what I told you earlier in my
example is that the owner of the
business knew that last month the
business suffered a loss okay now
because accounting was able to give the
owner of the business that information
the owner of the business will now be
able to make decisions for the company
new guitar last month and they end up at
napping event this month OD kya quick
immediate anomaly last month onion a but
nothing go in parody read the Reg so
every month who Makita bio because of
the information that accounting provides
the owners or the managers of a company
is able to make economic decisions and
also not decisions they can also choose
from alternative courses of action back
at Ong Navajo and Emani Eric ok Tanguy
navajo and the money
and then the order of the business
through the use of those financial
information they will be able to make
proper decisions and choose from the
alternative courses of action that are
available so you need to memorize that
definition okay again accounting as a
service activity its function is to
provide quantitative information
primarily financial in nature about
economic entities that is intended to be
useful in making economic decisions and
in making reason choices am alternative
courses of action okay so that's the
very definition of accounting according
to Accounting Standards Council so I'm
leaving it to you we we also have other
definitions of accounting as provided by
the American accounting Association and
the American Institute of Certified
Public Accountants let's now move on to
the nature of accounting the nature of
accounting tells us that number one
accounting is an art because it is a
designed process that will give us an
output in the end because it is a design
process accounting is regarded as an art
by nature also what I told you earlier
is that it is financial in nature
because we are talking about how much
and remember number three that the
nature of accounting is it is a process
we do a step by step procedures until we
get to the end which is financial
reports or financial statements and
because of the vast amounts of data and
information that is available in
accounting because it is a
record-keeping methodology then
accounting is also regarded as an
information system now let's move on to
the function of accounting now I've told
you earlier in the discussion of the
definition of accounting that the main
function of accounting is to provide
quantitative information this financial
in nature and Sangha
meeting owners or managers and company
in order for them to make decisions now
here are other functions of accounting
number one the maintenance of systematic
records we need record-keeping
methodologies we need to keep those
records and accounting is a very helpful
tool okay and then financial results of
an entity can be communicated because of
accounting it can give the owners or the
managers of a company what happened in
the operations like my example canina
knock on Alam
because of accounting an alarm and no
owner in the Naha loogie palace on
asthma okay
and because Nogami not a new accounting
information nagar and panatela Tolna
communication the financial information
has been communicated well to the owner
of the company and because we use
accounting as a communication tool then
we can regard accounting as the language
of business
always remember that accounting is the
language of business because it serves
as a communication tool for the owners
or the managers of a company to
understand the operations of the entity
better in financial terms also we can
also use accounting and meeting legal
requirements so taxation authorities and
the Securities of Exchange Commission
also needs financial information so for
us to be able to meet those requirements
statutory requirements then we can also
use the art of accounting and then we
can also protect the assets or the
resources of a business the assets of
the reorder resources of a business can
be protected because we have a proper
record-keeping methodology
you can keep track of our resources and
lastly it can provide assistance to the
management because it gives information
about the operations of an entity okay
so those are the functions of accounting
now let's move on to the last part which
is a quick detail no quick overview of
the history of accounting we will not be
digging too deep into the historical
information of accounting but at least
let's have an appreciation of where it
came from
okay so accounting can be traced into
ancient civilization among Egyptian
tablet Somalia hieroglyphics yeah
record-keeping nothing in ancient
civilizations gives us evidences of the
greatly use of accounting okay so
accounting dates back to more than 7,000
years ago in Mesopotamia and also other
early accounting records were found in
the ruins of Asian Babylon Assyria and
Samaria what might be the reason when
there is a civilization there is a big
chance that there is trade there is
Commerce there are merchants and those
merchants need record-keeping and the
art of record-keeping in itself it's
accounting already ok so I have met on
May long a chance that Eragon made
detailed records no uncommon it's
because there's business no intimate
okay in the Roman Empire they had access
to detailed financial information as
evidenced by the deeds of the divine
Augustus so it's a big tablet as well
and as what you can see beside me okay
and then records of cash commodities and
transactions were kept by the military
personnel on there
now let's go to Asia
the merchants during the Goryeo dynasty
of Korea kept track of their businesses
and trades through record-keeping
methodologies okay
actually there are some more country
examples or some more civilizations or
dynasties that used record-keeping like
in China China's a very broad history of
their dynasty so I think there are also
record-keeping methodologies that they
used during that time now I want you to
meet
Luca Bartolomeo de Pacioli Luca Pacioli
he is the father of accounting now and a
bad one see the shine okay so these are
Italian mathematician any offenses can
friar who who published in 1494 the book
summary of arithmetic geometry
proportions and proportionality and that
is actually a mathematics book but Maron
dawn nah chapter nah on business and
sabi the chapter name in the phone
business or the details of calculation
and recording it describes the
accounting methods Nagina God made naman
order in the Italian merchants okay so I
know asama doing the double entry
bookkeeping system so just to give you
an idea we will be discussing this in
the succeeding lessons the double entry
bookkeeping system is I'm sorry doing in
every business transaction de la epic
that door to accounts are always
affected the left side on the right side
I don't want to call it debit and credit
Mona because English I owe that it's
like that no in every transaction there
are two accounts that are being affected
okay so param Babu Millican an office
supplies lil alamin office supplies
unaffected but the cash no company
affected Gaza the Quran can office
supplies pero
mail uma Bosna para garlics
company cassette vinieron DeLeon param
Maha billion on office supplies
that's how adult double-entry
bookkeeping works okay so the evidence
of the usage of a double entry
bookkeeping system has been in the book
of Luca Pacioli okay then gently pull
your momma methods nag in the government
until today like the preparation of
trial balance and balance okay
so yeah so just pour the movie sell a
hot guy Luca but surely okay so I hope
that you understand the our lesson today
our next lesson would be the branches of
accounting so I'll be talking about the
different branches of accounting and the
functions of those branches like
financial accounting management
accounting cost accounting in other
branches of accounting thank you for
listening very well and see you in the
next video I am Kevin throw it to what
is a search u.s. accounting lessons pH
see you in the next lesson bye bye
[Music]
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