Lesson 003 - Introduction to Accounting

Summary

This 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

00:00

📚 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.

05:01

💡 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.

10:02

🔍 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.

15:05

📜 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.

Keywords

💡Accounting

Accounting is a service activity that provides quantitative, primarily financial, information about economic entities to assist in making economic decisions. In the video, it is the central theme, with the instructor introducing the concept and its importance in understanding a business's financial health, as seen in the discussion of revenues, expenses, and net income.

💡Quantitative Information

Quantitative information refers to data that is expressed in numbers and can be measured or counted. In the context of the video, accounting focuses on providing this type of financial information, such as the amounts of revenues and expenses, which is essential for evaluating a company's performance.

💡Economic Entities

Economic entities encompass any organization or institution involved in economic activities, such as businesses or non-profit organizations. The script explains that accounting is not limited to businesses but can also be applied to these entities, emphasizing its broad applicability.

💡Financial Statements

Financial statements are formal records of a company's financial activities, including the balance sheet, income statement, and cash flow statement. The video mentions an income statement as an example of a financial statement that displays revenues, expenses, and net income, illustrating the role of accounting in communicating financial performance.

💡Revenues

Revenues are the amounts earned by a company from its normal business operations. In the script, revenues are highlighted as a key component of financial statements and are essential in calculating a company's net income, showing how much the company has earned.

💡Expenses

Expenses are the costs incurred by a company in the process of generating revenues. The video script uses examples like rent, salaries, and utility bills to explain how expenses are subtracted from revenues to determine the net income or loss of a company.

💡Net Income

Net income is the profit realized by a company after all expenses have been deducted from revenues. The instructor in the video uses net income to demonstrate the result of a company's operations and the importance of accounting in measuring it.

💡Double Entry Bookkeeping

Double entry bookkeeping is a system of recording financial transactions in which every entry to an account is offset by a corresponding entry of equal value in another account. The video mentions Luca Pacioli's contribution to this system, emphasizing its historical significance and its role in accurately reflecting the financial state of a business.

💡Luca Pacioli

Luca Pacioli is often referred to as the father of accounting due to his work in popularizing the double-entry bookkeeping system. The video script credits him with providing a foundation for modern accounting practices through his book, 'Summary of Arithmetic, Geometry, Proportions and Proportionality'.

💡Economic Decisions

Economic decisions involve choices made by individuals or businesses regarding the allocation of resources. The video emphasizes that accounting provides the necessary financial information for these decisions, such as understanding a company's profitability or areas for cost reduction.

💡Accounting Functions

The functions of accounting include maintaining systematic records, communicating financial results, meeting legal requirements, protecting assets, and assisting management. The video script outlines these functions to illustrate the multifaceted role of accounting in an organization's operations.

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

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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]