FABM1 Week 1 Grade 11 Definition, Nature, History and Users of Accounting information

Summary

This 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

• 📊 Accounting is defined as a service activity that provides primarily financial information about an economic entity to aid in economic decisions.
• 🔢 It is an information system that measures, processes, and communicates financial information, often referred to as the 'language of business'.
• 🎨 Accounting is both an art and a discipline, involving creativity and skill in recording, classifying, and summarizing financial data.
• 🏛 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.
• 👨‍🏫 Luca Pacioli is recognized as the father of accounting, with his work on double-entry bookkeeping being a pivotal moment in the field.
• 🌐 The Industrial Revolution brought a focus on the importance of assets and the need for more sophisticated accounting practices.
• 📜 The formal accounting profession emerged in the 19th century, with the granting of a royal charter to The Institute of Accountants in Glasgow, Scotland.
• 🌍 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.
• 🏢 Internal users of accounting information are those within a company who use financial reports for planning, organizing, and running the business.
• 👥 External users are individuals and organizations outside the company who require financial information for various purposes, such as potential investors and creditors.
• 📈 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

00:00

📊 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.

05:41

🏛 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.

10:41

👥 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.

15:42

📈 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.

Keywords

💡Accounting

Accounting is defined as a service activity that provides quantitative, primarily financial, information about an economic entity to aid in economic decision-making. It is central to the video's theme as it outlines the nature, history, and various definitions of accounting. The script mentions it as an information system, a process, and both an art and discipline, highlighting its multifaceted role in business and finance.

💡Economic Entity

An economic entity refers to a business or organization that has financial transactions and for which accounting information is provided. In the context of the video, accounting serves to measure and communicate the financial activities of such entities, making it a vital component for both internal and external users to make informed decisions.

💡Financial Statements

Financial statements are formal records of an entity's financial activities, including balance sheets, income statements, and cash flow statements. The video emphasizes that accounting delivers financial information to different users through these statements, which are essential for evaluating the financial health and performance of a company.

💡Double Entry Bookkeeping

Double entry bookkeeping is a method of recording financial transactions in which every entry has a corresponding opposite entry, maintaining the balance of accounts. The script identifies Luca Pacioli as the father of accounting for his work on double entry, which is a fundamental concept in the evolution of accounting practices.

💡Internal Users

Internal users are individuals within a company who use accounting information for operational and strategic decision-making. The video describes management, employees, and owners as internal users who rely on accounting data for insights into the company's performance, cash flow, and other financial metrics.

💡External Users

External users are individuals or organizations outside the company that require financial information about the company for their own purposes. The script mentions potential investors and creditors as examples of external users who use accounting data to assess the creditworthiness and investment potential of a company.

💡Management Accounts

Management accounts are financial reports prepared for internal management use, providing insights into the company's operations and financial status. The video script explains that these accounts, along with budgets and forecasts, are forms in which accounting information is presented to internal users to support decision-making.

💡Qualitative Analysis

Qualitative analysis in the context of accounting refers to the assessment of non-financial or intangible factors that may impact decision-making. The video mentions that accounting information includes both qualitative and quantitative data, with qualitative analysis focusing on aspects like customer satisfaction or brand reputation.

💡Quantitative Analysis

Quantitative analysis involves the examination of numerical data to make decisions. In the video, it is contrasted with qualitative analysis, emphasizing the importance of looking at actual numbers such as profits, cash flow, and production costs to inform business decisions.

💡Comprehensive Analysis

Comprehensive analysis is the process of considering both qualitative and quantitative factors when making decisions. The video script suggests that a well-rounded analysis should include all relevant factors that could affect decision outcomes, combining the insights from both types of data.

💡Global Investors

Global investors are individuals or entities that seek investment opportunities worldwide. The video discusses the importance of global investors having access to transparent and reliable accounting information, which is facilitated by the adoption of International Accounting Standards.

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