Senior High School

Fundamentals of
Accountancy, Business and
Management 1
Quarter 3 - Module 1:
Introduction to Accounting

Department of Education  Republic of the Philippines

Fundamentals of Accountancy, Business and Management 1 - Senior High School
Alternative Delivery Mode
Quarter 3 - Module 1: Introduction to Accounting
First Edition, 2020
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 Senior High School

Fundamentals of
Accountancy, Business
and Management 1
Quarter 3 - Module 1:
Introduction to Accounting

This instructional material was collaboratively developed and reviewed by

educators from public and private schools, colleges, and universities. We
encourage teachers and other education stakeholders to email their feedback,
comments, and recommendations to the Department of Education at
action@deped.gov.ph.

We value your feedback and recommendations.

Department of Education  Republic of the Philippines

 Table of Contents

Introduction ---------------------------------------------------------------------- i-v

What I need to know
Module Content
General Instructions
What I Know
Lesson 1 ---------------------------------------------------------------------- 1-16
What’s New
What Is It
What’s More
What I have learned
What I can Do
Additional Activity
Post-test ---------------------------------------------------------------------- 17
Assessment

Answer Key ---------------------------------------------------------------------- 18-22

References ---------------------------------------------------------------------- 23-24

i
 What I Need To Know

For the Learners

This is an introductory course in accounting, business and management

data analysis that will develop your appreciation of accounting as language
of business and an understanding of basic accounting concepts and
principles that will help you analyze business transactions.
“Is accounting important to you?” Accounting delivers financial information
to different users through financial statements. It gives business owners
the chance to analyze the overall efficiency and effectiveness of their
business operations.

Module Content
This module in Fundamentals of Accountancy, Business and Management 1
for the 21st century learners is designed to make learning more engaging and
meaningful to ABM Senior High School learners in the flexible and blended learning
environments. Further, the module provides specific examples on how accounting is
applied in making business decisions . One of the example is service businesses
wherein they provide intangible goods or services to customers. Services usually
generates profit by charging labor and other services rendered to customers.
Meaningful activities are given in the form of worksheets, assignments and
online or virtual activities which allow learners to work at their own pace. As you go
along, you will know the definition, nature and history or origin of accounting. This
module will let you know the external and internal users of financial information.
Here, you are going to solve exercises and problems on the identification of users of
information, type of decisions to be made, and type of information needed by the
users. In addition, you will also cite users of financial information, and identify
whether they are external or internal users.
Learning is fun! So enjoy your journey as you unfold the most interesting and
worthwhile activities in accounting.

ii
 General Instructions

To do well in this module, you need to remember the following:

1. Read texts carefully;

2. Answer questions with all honesty;

3. Review your answers;

4. Follow instructions given;

5. Do the tasks given and do not delay in submitting requirements;

6. Feel free to communicate with your teacher;

7. Remember to review every time you are done answering the activities; and

8. Have fun as you learn.

iii
 What I Know

Instructions: Choose carefully the letter that best describes your answer.
Write your answer on the space provided before the number.
1) The selecting of economic events that are relevant to a particular
business transaction is called .
a. Recording c. Identifying
b. Measuring d. Classifying
2) Keeping a chronological diary of events that are measured in pesos is
.
a. Verifying c. Interpreting
b. Recording d. Summarizing
3) It occurs through the preparation and distribution of financial and
other accounting reports is called _ .
a. Measuring c. Recording
b. Classifying d. Communicating
4) Accounting provides assistance to decision makers by providing them
financial reports that will guide them in coming up with sound decisions
is called .
a. A process c. An information system
b. A service activity d. An art and a discipline
5) Collects processes and communicates financial information of any entity
is .
a. A process c. An information system
b. A service activity d. An art and a discipline
6) The method of performing any specific job step by step according
to the objectives or targets is .
a. A process c. An information system
b. A service activity d. An art and a discipline
7) Dealt with commercial transactions at the time of Mesopotamia such as
listing of accounts receivable and accounts payable is during _.
a. The cradle of civilization c. The industrial revolution (1760-1830)
b. French revolution (1700’s) d. 14th century double-entry bookkeeping
8) Mass production and the great importance of fixed assets were given
attention during the period of _.
a.The cradle of civilization c. The industrial revolution (1760-1830)
b.French revolution (1700’s) d. 14th century double-entry bookkeeping

iv
 9) The most important event in accounting history is generally considered to
be the dissemination of double entry bookkeeping by Luca Pacioli
happened during _ _.
a.The cradle of civilization c. The industrial revolution (1760-1830)
b.French revolution (1700’s) d. 14th century double-entry bookkeeping
10) The thorough study of accounting and development of accounting
theory began during the period of _ _.
a.The cradle of civilization c. The industrial revolution (1760-1830)
b.French revolution (1700’s) d. 14th century double-entry bookkeeping

11) These are the users wherein accounting information is used for analyzing
viability and profitability of their investments; .
a. Management c. Creditors e. Employees
b. Owners d. Investors
12) These users' needs the information because they are concerned with the
risk inherent in investing and the returns or invested decisions are the _ .
a. Management c. Creditors e. Employees
b. Owners d. Investors
13) This user in which accounting is of great assistance to management
for planning, controlling, and decision making process is the .
a. Management c. Creditors e. Employees
b. Owners d. Investors
14) These users who is interested in accounting information because it
enables them to determine the credit worthiness of the business or
decide whether to extend credit or not are the .
a. Management c. Creditors e. Employees
b. Owners d. Investors
15) These users who wants to find out the financial health, amount of sales and
profitability of business to determine their job security are the _.
a. Management c. Creditors e. Employees
b. Owners d. Investors

v
 The Definition, Nature and History
of Accounting

These are the competencies included in this lesson:

 Define accounting (ABM_FABM11-IIIa- 1)

 Describe the nature of accounting (ABM_FABM11-IIIa-2)

 Narrate the history/origin of accounting (ABM_FAB M11- IIIa-4)

What's New

Activity 1
Directions: Explain the three highlighted words in the infographic.
Write your answer on the lines provided below.

1
 What Is It

Definition of Accounting

It is a systematic process of identifying, recording, measuring, classifying,

verifying, summarizing, interpreting and communicating financial information. It
reveals profit or loss for a given period, and the value and nature of a firm's assets,
liabilities and owners' equity.
In a practical sense, the main objective of financial accounting is to
accurately prepare an organization's financial accounts for a specific period,
otherwise known as financial statements.
Example, if the company's transactions are being tracked then Ms. Ken
(investor), will know if the money she invested is still there.

P100,000 (initial investment)

P70,000 (used to buy printers and pay the bills)
P30,000 (balance cash left)
P50,000 (collection from costumers (1month)
P30,000+ P50,000= 80,000 overall balance cash

Accounting is commonly called the “Language of Business” wherein it

delivers financial information to different users through financial statements.

Example:

Ms. Sweet started a business. She invested P100,000 (personal money).

After one month Ms. Sweet wanted to know how much the business made, and if the
money she invested is still there.

The American Institute of Certified Public Accountants (AICPA) defines

accounting as:
“An art of recording, classifying and summarizing in a significant manner and
in terms of money transaction and events which are in part at least of financial
character, and interpreting the result thereof.”

This definition will provide a better understanding of accounting in terms of

the following:

>Accounting is considered an art and a science;

>Accounting involves interconnected phases;

2
 >Accounting is concerned with transactions and events having financial
character;
>In accounting, business transactions are expressed in terms of money; and
>Accounting interprets the result of financial statement.

Accounting provides answers to the following questions:

-How much income does the company make?
-How much does the company owe to the creditors?
-Is this a good investment?

Accounting information gives business owners the chance to analyze the

overall efficiency and effectiveness of their business operations.

Nature of Accounting

According to Accounting Theory:

http://accountingtheory.weebly.com/nature-and-scope-of-
accounting.html): "Accounting is a systematic recording of
financial transactions and the presentation of the related
information to appropriate persons."

Based on this definition we can derive the following basic features of accounting:

Accounting is a service activity.

Accounting provides assistance to decision makers by providing them financial
reports that will guide them in coming up with sound decisions.

Accounting is a process.
A process refers to the method of performing any specific job step by step
according to the objectives or targets. Accounting is identified as a process, as it
performs the specific task of collecting, processing and communicating financial
information. In doing so, it follows some definite steps like the collection, recording,
classification, summarization, finalization, and reporting of financial data.

Accounting is both an art and a discipline.

Accounting is the art of recording, classifying, summarizing and finalizing
financial data. The word ‘art’ refers to the way something is performed. It is
behavioral knowledge involving a certain creativity and skill to help us attain some
specific objectives. Accounting is a systematic method consisting of definite
techniques and its proper application requires skill and expertise. So by nature,
accounting is an art. And because it follows certain standards and professional
ethics, it is also a discipline.

3
Accounting deals with financial information and transactions.
Accounting records financial transactions and data, classify these and finalize
their results given for a specified period of time, as needed by their users. At every
stage, from start to finish, accounting deals with financial information and financial
information only. It does not deal with non-monetary or non-financial aspects of such
information. Accounting is an information system.
Accounting is recognized and characterized as a storehouse of information. As a
service function, it collects processes and communicates financial information of any
entity. This discipline of knowledge has evolved to meet the need for financial
information as required by various interested groups.

History of Accounting

Accounting is as old as civilization itself. It has

evolved in response to various social and economic
needs of men. Accounting started as a simple recording
of repetitive exchanges. The history of accounting is
often seen as indistinguishable from the history of
finance and business. Following is the evolution of
accounting:

The Cradle of Civilization

Around 3600 B.C., record-keeping was already
common from Mesopotamia, China and India to Central
and South America. The oldest evidence of this practice was the “clay tablet” of
Mesopotamia which dealt with commercial transactions at the time such as listing of
accounts receivable and accounts payable.

14th Century - Double-Entry Bookkeeping

The most important event in accounting history is generally considered to be
the dissemination of double entry bookkeeping by Luca Pacioli (‘The Father of
Accounting’) in 14th century Italy. Pacioli was much revered in his day, and was a
friend and contemporary of Leonardo da Vinci. The Italians of the 14th to 16th
centuries are widely acknowledged as the fathers of modern accounting and were
the first to commonly use Arabic numerals, rather than Roman, for tracking business
accounts. Luca Pacioli wrote Summa de Arithmetica, the first book published that
contained a detailed chapter on double-entry bookkeeping.

French Revolution (1700s)

The thorough study of accounting and development of accounting theory
began during this period. Social upheavals affecting government, finances, laws,
customs and business had greatly influenced the development of accounting.

4
The Industrial Revolution (1760-1830)
Mass production and the great importance of fixed assets were given
attention during this period.

19th Century – The Beginnings of Modern Accounting in Europe and America

The modern, formal accounting profession emerged in Scotland in 1854
when Queen Victoria granted a Royal Charter to the Institute of Accountants in
Glasgow, creating the profession of the Chartered Accountant (CA). In the late
1800s, chartered accountants from Scotland and Britain came to the U.S. to audit
British investments. Some of these accountants stayed in the U.S., setting up
accounting practices and becoming the origins of several U.S. accounting firms. The
first national U.S. accounting society was set up in 1887. The American Association
of Public Accountants was the forerunner to the current American Institute of
Certified Public Accountants (AICPA).
In this period rapid changes in accounting practice and reports were made.
Accounting standards to be observed by accounting professionals were
promulgated. Notable practices such as mergers, acquisitions and growth of
multinational corporations were developed. A merger is when one company takes
over all the operations of another business entity resulting in the dissolution of
another business. Businesses expanded by acquiring other companies. These types
of transactions have challenged accounting professionals to develop new standards
that will address accounting issues related to these business combinations.

The Present - The Development of

Modern Accounting Standards and
Commerce
The accounting profession in the
20th century developed around state
requirements for financial statement audits.
Beyond the industry's self-regulation, the
government also sets accounting standards,
through laws and agencies such as the
Securities and Exchange Commission
(SEC).
As economies worldwide continued to globalize, accounting regulatory bodies
required accounting practitioners to observe International Accounting Standards.
This is to assure transparency and reliability, and to obtain greater confidence on
accounting information used by global investors.
Nowadays, investors seek investment opportunities all over the world. To
remain competitive, businesses everywhere feel the need to operate globally. The
trend now for accounting professionals is to observe one single set of global
accounting standards in order to have greater transparency and comparability of
financial data across borders.

5
 What's More

Activity 2

Directions: Go back to the unanswered question in the introduction of this topic.

Write your answer on the lines provided below.

Is accounting important to you? Does it affect your daily activities? How?

What I Have Learned

Activity 3

Instructions: Answer the questions according to your own understanding. Write your
answer on the lines provided below.

1. Define Accounting.

6
2. Give examples of decisions or questions that can be supported by accounting
information.

What I Can Do

Activity 4
Instructions:
1. You will create an infomercial on the nature and evolution/history of accounting.
2. Be Creative.
3. Submit your video presentation only in one file through cellphone, usb or any
of your convenience.
Guidelines:
Use any media platform at your convenience
Maximum of 2 minutes
You can use Mother Tongue, Tagalog or English as language
Wear casual attire

7
Self-Check!
Great job! You have completed Lesson 1 successfully! Before going to the
next lesson, check the icon that best shows your learning experience.

I have understood the lesson well, and I can even teach

what I learned to others.

I have understood the lesson, but there are still other

things that I need to review and relearn.

I need to do additional work to be able to master the

lesson.I need help in some tasks.
If you checked the first icon, you are ready for lesson 2.
If you have checked the first icon, you can proceed to the next lesson. If you
have checked the second icon, you need to review the things that you need to
relearn. If you have checked the third icon, it would be best if you read more and ask
help from your teacher, parents or peers in clarifying the lessons that you find it
difficult. Be honest so that you will truly improve.

Additional Activity

After doing the activities:

I noticed

A question I have is
I’m not sure
I realized

8
Assessment

Let us check how much you have learned from this module's coverage.

Fill in the blank: Write your answer in the blank provided before the number.
_1) Refers as the economic events of an organization.
_2) The art of recording, classifying, summarizing and
finalizing financial data.
_3) Refers to the method of performing any specific job step by
step according to the objectives or targets.
_4) This involves keeping a chronological diary of events that are
measured in pesos.

_5) Refers to the way something is performed.

_6) The oldest evidence practice of Mesopotamia which dealt
with commercial transactions.
_7) He was the father of accounting.

_8) The first book published that contained a detailed chapter

on double-entry bookkeeping.

_9) Mass production and the great importance of fixed assets

were given attention during this period.

_10) In this period, rapid changes in accounting practice and reports

were made.

9
 The External and Internal Users of
Financial Information

These are the competencies included in this lesson:

 Define external users and gives examples (ABM_FAB M11- IIIa-7)

 Define internal users and give examples (ABM_FA BM11- IIIa-8)

What's In

Activity 1. Review
Directions: Complete the statement. Write your answer on the lines provided
below.
In the previous lesson I learned that _ _
_
_

What's New

Activity 2
What business would you want to enter into?
Sample businesses:

10
Instructions: Choose one of any business. Write your answer on the lines provided.

Question 1- If you would like to own a business, what kind of business would you
endeavor, and what do you want to know about the business?

Question 2- What possible decisions can accounting support?

What Is It

Accounting
- is the language employed to communicate financial information of a concern to
such parties.

Slavin and Reynolds

Accounting is the discipline that provides information on which external and
internal users of the information may base decisions that result in the allocation of
economic resources in society.

Who uses accounting data or information?

There are two broad categories of users of financial information: internal and
external users.

INTERNAL USERS
Internal users of accounting information are those
individuals inside a company who plan, organize, and run the
business. These users are directly involved in managing and
operating the business. These include marketing managers,
production supervisors, finance directors, company officers and
owners.

What information will user need that can be answered by

accounting?

Internal users (Primary Users) of accounting information include

the following:

11
Management
Information need: income/earnings for the period, sales, available cash, production
cost
Decisions supported: analyze the organization's performance and position, and take
appropriate measures to improve the company results, sufficiency of cash to pay
dividends to stockholders; pricing decisions

Employees
Information need: profit for the period, salaries paid to employees
Decisions supported: job security, consider staying in the employ of the company or
look for other employment opportunities

Owners/Investors/Stockholders
Information need: profit or income for the period, resources or assets of
the business, liabilities of the business
Decisions supported: considerations regarding additional investment, expanding the
business, borrowing funds to support any expansion plans.
Accounting information is presented to internal users usually in the form of
management accounts, budgets, forecasts and financial statements. This information
will support whatever decision of the internal users.

EXTERNAL USERS
External users are individuals and organizations
outside a company who want financial information
about the company. These users are not directly
involved in managing and operating the business.
The two most common types of external users are
potential investors and creditors.
Potential Investors use accounting information to
make decisions to buy shares of a company.
Creditors (such as suppliers and bankers) use
accounting information to evaluate the risks of
granting credit or lending money. Also included as
external users are government regulatory agencies such as Securities and
Exchange Commission (SEC), Bureau of Internal Revenue (BIR), Department of
Labor and Employment (DOLE), Social Security System (SSS), and Local
Government Units (LGUs).

External users (Secondary Users) of accounting information include the following:

Creditors: for determining the credit worthiness of an organization. Terms of credit

are set by creditors according to the assessment of their customers'
financial health. Creditors include suppliers as well as lenders of finance
such as banks.

12
Tax Authorities (BIR): for determining the credibility of the tax returns filed on behalf
of a company.

Investors: for analyzing the feasibility of investing in a company. Investors want to

make sure they can earn a reasonable return on their investment
before they commit any financial resources to a company.

Customers: for assessing the financial position of its suppliers which is necessary for
them to maintain a stable source of supply in the long term.

Regulatory Authorities (SEC, DOLE): for ensuring that a company's disclosure of

accounting information is in accordance with the rules and regulations set
in order to protect the interests of the stakeholders who rely on such
information in forming their decisions.
Types of Information needed by each Group of Users

Accounting information includes both financial (quantitative) and non-financial

(qualitative) information used by the decision maker.
*Qualitative analysis-means looking at the intangibles
*Quantitative analysis- means looking at the actual
numbers.
*Comprehensive analysis- should include looking at
both qualitative and quantitative factors that would
impact decision maker.

SUMMARY OF THE DIFFERENCES BETWEEN

INTERNAL AND EXTERNAL USERS

Internal users of accounting information are those

who are involved in planning, organizing and running
the business. They need more detailed information on a timely basis in order to
support their decisions. Examples of these internal users are managers, employees
and owners.

The external users of accounting information are those individuals or

organizations outside a company who are interested in its financial information.
Examples of these external users are potential investors, suppliers and government
agencies.

13
 What's More

Activity 3
Instructions: Answer the questions below. Write your answer on the lines provided.

Give an example of External Users?

What kind of information do users need that can be answered by

Accounting?

What decisions of external users that are supported by accounting

information?

What I Have Learned

Activity 4
Directions: Answer the questions below. Write you answer on the lines
provided.
1. Is the Local Government Unit (LGU) interested in your accounting reports?

2. Are the officers of the Local Government Unit internal or external users? Why?

14
 What I Can Do

Activity 5
Instructions: Using the graphic below. Write at least four frequently asked
questions by Internal Users. Write your answer on the lines provided.

Self-Check!
Great job! You have completed Lesson 2 successfully! Before going to the
next lesson, check the icon that best shows your learning experience.

I have understood the lesson well and I can even teach what
I learned to others.

I have understood the lesson but there are still other

things that I need to review and relearn.

15
 I need to do additional work to be able to master the
lesIfsoyonu. chIencekeedd htheelpfirisnt
sicoomn,eytoauskasr.e ready for lesson 2.

If you have checked the first icon, you can proceed to the next module. If you
have checked the second icon, you need to review the things that you need to
relearn. If you have checked the third icon, it would be best if you read more and ask
help from your teacher, parents or peers in clarifying the lessons that you find
difficult. Be honest so that you will truly improve.

Additional Activity

After doing the activities:

I noticed A question I have is I’m not sure

I realized

16
Assessment

Essay

Instructions: Answer the questions according to your own understanding. Write

your answer on the lines provided below.

1. In your own opinion, which internal user needs the accounting information the
most? Why?

_
2. In your own opinion, which external user needs the accounting information the
most? Why?

3. Differentiate internal users from external users of accounting information.

17
 CONGRATULATIONS
FOR COMPLETING THIS MODULE!