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FABM 1 Lesson 1-Introdcution To Accounting
FABM 1 Lesson 1-Introdcution To Accounting
(Lesson 1)
Fundamentals of Accountancy,
Business, and Management 1
(FABM 1)
CONTENTS:
Lesson 1:
- Definition, nature, function, and
history of accounting.
- The external and internal users of
financial information.
GRADING SYSTEM
REMINDERS:
• You will be given a topic/s every week.
• Every end of the topic/s, you are tasked to answer/perform the activities that serve as your Written
Work and/or Performance Task.
• Quarterly Assessments will be given separately.
Introduction to Accounting
Objectives:
At the end of the lesson, the learners can:
a.) Define accounting, internal users, and external users.
b.) Describe the nature and history of accounting.
c.) Determine the type of information needed by each group of users.
Accounting Definition
Nature of Accounting
“Accounting is a systematic recording of financial transactions and the presentation of
the related information to appropriate persons.”
(http://accountingtheory.weebly.com/nature-and-scope-of-accounting.html)
Based on this definition we can derive the following basic features of accounting:
• Accounting is a service activity. Accounting helps 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 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 disciplin e.
• Accounting deals with financial information and transactions: Accounting
records financial transactions and data, classifies these and finalizes their results
given for a specified period, 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.
Function of Accounting
Accounting is how business information is communicated to business owners and
stakeholders. The role of accounting in business is to provide information for managers
and owners to use in operating the business.
Also, accounting information allows business owners to assess the efficiency and
effectiveness of their business operations. Prepared accounting reports can be compared
with industry standards or to a leading competitor to determine how the business is doing.
Business owners may also use historical financial accounting statements to create trends
for analyzing and forecasting future sales.
Accounting helps the users of these financial reports to see the true picture of the
business in financial terms for a business to survive, a business owner or manager must
be well-informed.
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.
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
• 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.
Externa 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.
o Potential Investors use accounting information to make decisions to buy
shares of a company.
o 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:
o Creditors: for determining the credit worthiness of an organization. Terms of
credit are set by creditors according to the assessment of their customers'
General Instructions:
1. Use a separate sheet in answering the activity/ies.
2. Use a yellow pad paper or bond paper.
3. Write your complete name, grade, strand, section, and date.
4. Please affix your signature at the end of the paper.
Activity 1.1: Give what is asked. Write your answer in the space provided after the question.
1. What is accounting? Why it is important to you? Does it affect your daily activities?
How?
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3. Give at least five (5) examples of decisions or questions that can be supported by
accounting information.
1. ______________________________________________________________
2. ______________________________________________________________
3. ______________________________________________________________
4. ______________________________________________________________
5. ______________________________________________________________
4. Is the Local Government Unit (LGU) interested in your accounting reports? Are the
officers of the Local Government Unit internal or external users? Why?
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5. Based on the examples of internal and external users provided, identify if it is internal
or external and give what kind of information they need that can be answered by
accounting.