Fundamentals of

Accountancy,
Business and
Management 1
 Lord, we praise and glorify Your Holy
name. Forgive us from our sins that
separate us from your love. Thank You for
the gift of life, family, health and security.
Please guide us as we start this new
subject. Grant us the enthusiasm to learn
and acquire knowledge throughout this
semester. Bless our families and our
homes. All this we pray in the name of
Jesus Christ our Savior. Amen.
Learning Objectives:
 justify statements about the definition, nature and
concepts of accounting
 describe the history of accounting
 explain how internal and external users utilize
accounting information
 analyze and identify the accounting concepts and
principles applied
 solve simple cases with the use of accounting
equation
 What is
ACCOUNTING?
Definition and
Nature of
Accounting
 Definition of Accounting
• Accounting is the art of recording, classifying
and summarizing in a significant manner and in
terms of money, transactions and events which
are, in part at least, of financial character and
interpreting the results thereof.
• Accounting is a process of identifying, recording
and communicating economic information that is
useful in making economic decisions.
 Nature of Accounting
• Accounting is a service activity.
• Accounting is a process.
• Accounting is both an art and a discipline.
• Accounting deals with financial information and
transactions.
• Accounting is an information system.
Brief History of
Accounting
 Cradle of Civilization
• 3600 BC
• Record-keeping
(Mesopotamia, China and
India to Central and South
America)
• “clay tablet” dealt with
commercial transactions
such as listing of loans and
debts
 Double-Entry Keeping
• 14th Century
• introduced by Frater Luca
Pacioli (The Father of
Accounting)
• Summa di Arithmetica
Geometria Proportioni et
Proportionalita contained a
detailed chapter on double-
entry bookkeeping
 French Revolution
• 1700s
• comprehensive study of
accounting and
development of accounting
theory began
• social disorders affecting
government, finances,
laws, customs and
business
 Industrial Revolution
• 1760 to 1830
• mass production
• importance of
fixed assets
Development of Modern Accounting

• Present
• accounting profession
• government set accounting
standards
• accounting regulatory
bodies required accounting
practitioners to observe
International Accounting
Standards
 Users of
Accounting
Information
 Internal Users
• involved in planning, organizing and
running the business
• come up with decisions
• directly involved in managing and
operating the business
• managers, supervisors, directors, officers,
employees and owners
 Management
• information on income/earnings for the
period, sales, available cash and
production cost
• analyze the organization's performance
and position and make decisions to
improve the company’s results
 Employees
• information on profit for the period and
salaries paid to them
• decide to consider staying in the company
if their jobs are secure
 Owners
• information on profit or income for the
period, resources or assets and liabilities
of the business
• decide to consider additional investment,
expand the business and borrow funds to
support any expansion plans
 External Users
• individuals or organizations outside the
company who are interested in the
company’s financial information
• not directly involved in managing and
operating the business
• potential investors, creditors and
government agencies
 Investors/Shareholders
• interested in information about the
stability and profitability of the company
• decide whether to hold or sell investments
in stocks
 Creditors
• suppliers and bankers
• evaluate the risks of granting credit or
lending money
 Government
• 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)
• ensure that a company's disclosure of
accounting information is in accordance with
the rules and regulations set to protect the
interests of the stakeholders who form their
decisions
 Accounting
Concepts and
Principles
 Separate Entity Concept
• business as a separate person and distinct from its
owner/s
• transactions of the business are recorded
• personal transactions of the owner/s are not
recorded
• Your personal money is separate from your
business’s money. You pay for the goods and
services you have received from your business
using your personal money.
 Historical Cost Concept
• cost principle
• assets initially recorded at their acquisition
• You purchased a building through installment.
You will record the transaction once you
purchased the building, not when you paid for the
building.
 Going Concern Assumption
• The business is assumed to continue to exist for
an indefinite period of time. The opposite of
going concern is liquidating concern. This is the
case if the business intends to end its operations.
• You, as an accountant, do not expect the business
to close in the future.
 Matching
• association of cause and effect
• costs are initially recognized as assets and
charged as expenses only when the related
revenue is recognized
• Your business purchased inventory and recorded
them as an asset. Once you sold these items, you
will record this transaction as expense.
 Accrual Basis of Accounting
• Economic events are recorded in the period when
they occur rather than at the point in time when
they affect cash.
• Revenue or income – earned
• Expense – incurred
• You rendered service for a customer but she
insisted to pay on credit (utang). You will already
record this transaction as income even though it
is not yet paid.
 Prudence (conservatism)
• observes degree of caution when exercising
judgments
• choose the unfavorable outcome instead of the
favorable one to avoid overstatement and
understatement
• You recognized your client’s debt as a doubtful
account because you assumed that he/she cannot
pay.
 Time Period
• periodicity, accounting period or reporting period
concept
• refers to the time span when the accountant has to
prepare the financial statements
• calendar year - January 1 to December 31
• fiscal year - last day of any month other than
December
• natural business year - lowest annual point of a
business activity.
• You prepare financial statements every December 31
of the year.
 Stable Monetary Unit
• expressed in peso
• All of your transactions and financial reports are
expressed in peso.
 Materiality concept
• accounting principles applicable to material items
• In a big company, an account balance of
₱323,487,673,098.28 may be reported as
₱323,488 (in ‘000,000s) because 673,098.28 may
be considered immaterial.
 Cost-benefit (cost constraint)
• The cost of processing and communicating
information should not exceed the benefits to be
derived from it.
• The expenses of a business expenses were only
₱15,000 but the owner reported ₱30,000 on the tax
return. The accountant estimates that it will cost
₱10,000 in research to find the receipts and
documentation for these expenses. If the tax returns
are restated with only ₱15,000 of expenses, the
additional taxes will only be ₱1,000.
 Full-disclosure principle
• Information communicated to users reflect a
series of judgmental trade-offs that strive for
sufficient detail to disclose matters that make a
difference to users.
• The accountant reported a loss in the company.
Owners, investors and stockholders deserve to
know the truth.
 Consistency concept
• requires a business to apply accounting policies
and present information from one period to
another consistently
• A company uses a straight-line basis depreciation
policy throughout the existence of the business.
Activity!!! 
Preparing financial statements at
least annually
a. Accrual basis
b. Historical cost
c. Stable monetary unit
d. Time period
The entity acquired stapler. Instead of
recognizing the cost of the stapler as an asset to
be subsequently depreciated, the entity
immediately charges it as expense

a. Cost-benefit
b. Materiality
c. Prudence
d. A and B
You think that the business will not be sold or
liquidated in the near future

a. Conservastism assumption
b. Economic entity assumption
c. Going concern assumption
d. Monetray unit assumption
You use a common unit of measure and
inflation is ignored.

a. Ignoring concept
b. Materiality
c. Prudence
d. Stable monetary unit
You own a coffee shop. Every time you drink
coffee from your shop, you pay for it even
though you are the owner.

a. Accrual basis
b. Coffee-drinking concept
c. Prudence
d. Separate entity
You acquired inventory. You recorded the cost
as asset rather than expense.

a. Stable monetary unit

b. Materiality
c. Matching
d. Proprietary
On day 1, the customer purchased your goods
and promised to pay on day 30. You
immediately recorded sales revenue on day 1.

a. Prudence
b. Accrual basis
c. Consistency
d. Materiality
Your neighbor borrowed money from you. A
long time passed and still, he did not pay you.
You recorded his “utang” as doubtful account.

a. Prudence
b. Accrual basis
c. Consistency
d. Materiality
Accounting
Equation
Assets = Liabilities + Equity
 Assets
• are the economic resources you control that have
resulted from past events and can provide you
with economic benefits
• resources owned by the enterprise as a result of
past events and from future economic benefits
expected to flow to the enterprise
• properties and rights owned by the firm
 Assets
Control
• you have the exclusive right to enjoy those
benefits and the ability to prevent others from
enjoying those benefits
• You acquired a cellphone on an installment plan.
Upon taking possession, the cellphone becomes
your asset already. You do not fully own the
cellphone (installment) but you already have the
exclusive right to use it.
 Assets
Past Event
• control over an economic resource has resulted
from a past event or transaction
• You have the intention to buy a cellphone next
month. Right now, the cellphone is not yet your
asset. It becomes your asset only after you have
purchased it and have taken possession over it.
 Assets
Economic Benefit
• economic resource must have the potential to
provide economic benefit in at least one
circumstance
• An economic resource can be sold, leased and
exchanged for other assets, used to settle a
liability, enhance the value of other assets or used
to promote efficiency.
 Liabilities
• present obligations of an enterprise arising from
past transactions or events and can give up
economic resources during settlement
 Liabilities
Present Obligation and Past Transaction
• exists as a result of past transactions if you have
already obtained economic benefits and you are
required to transfer economic resource as a
consequence
• You have an intention to buy a cellphone next
month through installment. Right now, you do
not have an obligation. Upon possession over the
cellphone on installment, you already have an
obligation to pay.
 Liabilities
Give Up
• settling the obligation would require you to give
up, pay, transfer or render economic resources
• To settle your debt on the installment plan, you
must pay cash.
 Case 1
The business has ₱10,000 of assets and ₱3,000 of
liabilities. How much is the business’s equity?

₱10,000 (Asset) = ₱3,000 (Liabilities) + Equity

₱10,000 - ₱3,000 = Equity
₱7,000 = Equity
 Case 2
The business has ₱756,000 of assets and ₱509,762
equity. How much is the business’s liabilities?

₱756,000 (Asset) = Liabilities + ₱509,762 (Equity)

₱756,000 - ₱509,762 = Liabilities
₱246,238 = Liabilities
 Case 3
The business has ₱20,000 liabilities and ₱50,000
equity. How much is the business’s assets?

Asset = ₱20,000 (Liabilities) + ₱50,000 (Equity)

Asset = ₱20,000 + ₱50,000
Asset = ₱70,000
Assets = Liabilities + Equity + Income - Expenses
 Income
• an increase in economic benefits during the
accounting period
• inflow or enhancement of assets or a decrease in
liabilities that results to increase in equity other
than those relating to contributions from equity
participants
• result of selling goods, rendering services or
performing business activities
 Expenses
• decreases in economic benefits during the
accounting period
• outflows or depletion of assets or incidences of
liabilities that result to decreases in equity other
than those relating to distributions from equity
participants
• decreases in owner’s equity resulting from the
costs of goods and services used up in the course
of earning revenues
 Case 4
Your business has an ending total assets of ₱15,000,
ending total liabilities of ₱10,500 and beginning
equity of ₱2,000. If your total expenses amount to
₱1,000, how much is your total income?
₱15,000 (Asset) = ₱10,500 (Liabilities) + ₱2,000 (Equity) + Income - ₱1,000 (Expenses)
₱15,000 - ₱10,500 - ₱2,000 + ₱1,000 = Income
₱3,500 = Income
 Case 5
Your business has an ending total assets of ₱15,000,
ending total liabilities of ₱10,500 and beginning
equity of ₱2,000. If your total income amount to
₱1,000, how much is your total expenses?
₱15,000 (Asset) = ₱10,500 (Liabilities) + ₱2,000 (Equity) + ₱1,000 (Income) - Expenses
₱15,000 - ₱10,500 - ₱2,000 - ₱1,000 = Expenses
₱1,500 = Expenses
Mary Mother of the Good Shepherd
Pray for us.

Jesus, You are my Lord

My happiness lies in You alone.