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SENIOR HIGH SCHOOL

Fundamentals of Accountancy, Business and Management 1
1st Semester-Prelim
LEARNING MODULE 1

Unit Topic: Introduction to Accounting

Prepared by: Ms. Florence A. Limasac

I. Gaining in your end!

I will be able to:
 Define communication,
 define accounting,
 describe the nature of accounting,
 explain the functions of accounting in business,
 narrate the history/origin of accounting.

II. As you Move

Watch the video presentation of TIPS FOR INCOMING ABM STUDENTS

(Kakayanin mo ba ang Accounting?). https://www.youtube.com/watch?v=iVwimNEMdAo

II. Matter in Hand

DEFINE ACCOUNTING
“Accounting is the process of IDENTIFYING, RECORDING, and COMMUNICATING
economic events of an organization to interested users.” (Weygandt, J. et. al)

1. IDENTIFYING – this involves selecting economic events that are relevant to a particular
business transaction The economic events of an organization are referred to as transactions.
Examples of economic events or transactions - In a bakery business:
• sales of bread and other bakery products
• purchases of flour that will be used for baking
• purchases of trucks needed to deliver the products

2. RECORDING – this involves keeping a chronological diary of events that are measured in
pesos. The diary referred to in the definition are the journals and ledgers which will be
discussed in future chapters.
3. COMMUNICATING – occurs through the preparation and distribution of financial and other
accounting reports.

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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.
• Accounting deals with financial information and transactions: Accounting records financial
transactions and data, classifies these and finalizes 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.

FUNCTION OF ACCOUNTING IN BUSINESS

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QUESTIONS: Why accounting is considered as the language of business?

Accounting is the means by which 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. In addition, 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. In order for a business to survive, it is important
that a business owner or manager be well-informed. Let us now discuss the function of accounting in
business. Mr. Juan is a retired government employee who is good at baking. One day he decides to
put up a bakery shop in your barangay. He renovates a portion of his house to serve as the area for
the production of bread. He purchases baking equipment and raw materials to produce five different
types of bread. Mr. Juan also hires Jose to help him with the baking and, at the same time, to be in-
charge of sales. Mr. Juan pays Jose on a weekly basis. Every day, Mr. Juan’s wife deposits the daily
cash sales in their bank account at XY Savings Bank. With the help of accounting, what possible
decisions or questions of Mr. Juan can accounting provide an answer to?
Possible Answers:
• Is my business earning? (profitability)
• How much daily or monthly sales do I need in order to recover my fixed cost? (break-even)
• Do I need to hire additional workers to help me with my production?
• Can I afford to set up a new store in another place? Where do I get the funds?
• Can I afford to pay a bank loan?
•
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

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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.
• 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.

IV. Key points to remember

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“Accounting is the process of IDENTIFYING, RECORDING, and COMMUNICATING

economic events of an organization to interested users.” (Weygandt, J. et. al)

 IDENTIFYING – this involves selecting economic events that are relevant to a particular
business transaction The economic events of an organization are referred to as transactions.
 RECORDING – this involves keeping a chronological diary of events that are measured in
pesos.
 COMMUNICATING – occurs through the preparation and distribution of financial and other
accounting reports.
Nature of Accounting
“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 is both an art and a discipline.
Accounting deals with financial information and transactions
Accounting is an information system
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 busines

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V. Think Through (test and tasks)

OC Module 1 Worksheet
Name: Grade Level & Section:
Date: Score: Parent/Guardian’s Signature:

A. Answer the following questions. Explain your answers.

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

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2. Define Accounting.
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B. Give examples of decisions or questions that can be supported by accounting information.

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•Is my business earning? (profitability)

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•How much daily or monthly sales do I need in order to recover my fixed cost? (break-even)
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•Do I need to hire additional workers to help me with my production?

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•Can I afford to set up a new store in another place? Where do I get the funds? (financing
decisions)
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•Can I afford to pay a bank loan?

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RESOURCES:

• Accounting Theory (n.d.) Retrieved from http:// accountingtheory.weebly.com/nature-and-scope-of-accounting

• Valencia, E. and Roxas, G. (2009). Basic Accounting, 3rd ed. Valencia Education Supply
• Valix, Conrado T. et.al. (2015). Financial Accounting, Vol. 1, First part. GIC Enterprises & Co. Inc.
• Weygandt, J. et. al. (2012) Accounting Principles 10th ed. John Wiley & Sons (Asia) Pte. Ltd.

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This module is for TLCA leaners use only (NOT FOR SALE)