Fundamentals of Accountancy, Business and Management 1

(Lesson 1)

Fundamentals of Accountancy,
Business, and Management 1
(FABM 1)

Description: This is an introductory course in accounting,

business, and management data analysis that will
develop students’ appreciation of accounting as a
language of business and an understanding of basic
accounting concepts and principles that will help them
analyze business transactions.

CONTENTS:
Lesson 1:
- Definition, nature, function, and
history of accounting.
- The external and internal users of
financial information.

GRADING SYSTEM

Written Works Performance Task Quarterly Assessment

25% 45% 30%

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.

Crafted from FABM1 TG Page 1 of 7

Fundamentals of Accountancy, Business and Management 1
(Lesson 1)

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

“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

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
• 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 the future.
• 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.”
(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.

Crafted from FABM1 TG Page 2 of 7

Fundamentals of Accountancy, Business and Management 1
(Lesson 1)

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.

Following is the evolution of accounting:

• The Cradle of Civilization
o Around 3600 B.C., record-keeping was already common from Mesopotamia,
China, and India to Central and South America.
o 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
o 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.
o Pacioli was much revered in his day and was a friend and contemporary of
Leonardo da Vinci.
o 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.
o Luca Pacioli wrote Summa de Arithmetica, the first book published that
contained a detailed chapter on double-entry bookkeeping.
• French Revolution (1700s)
o The thorough study of accountin g and development of accounting theory
began during this period.
o Social upheavals affecting government, finances, laws, customs, and
business had greatly influenced the development of accounting.
• The Industrial Revolution (1760-1830)
o 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
o 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).
o 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.
o The American Association of Public Accountants was the forerunner to the
current American Institute of Certified Public Accountants (AICPA).
o In this period rapid changes in accounting practice and reports were made.
Accounting standards to be observed by accounting professionals were

Crafted from FABM1 TG Page 3 of 7

Fundamentals of Accountancy, Business and Management 1
(Lesson 1)

promulgated. Notable practices such as mergers, acquisitions and growth of

multinational corporations were developed.
o A merger is when one company takes over all the operations of another
business entity resulting in the dissolution of another business.
o 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
o 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).
o As economies worldwide continued to globalize, accounting regulatory bodies
required accounting practitioners to observe International Accounting
Standards.
o This is to assure transparency and reliability, and to obtain greater confidence
on accounting information used by global investors.
o 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 to have greater transparency and comparability
of financial data across borders.

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'

Crafted from FABM1 TG Page 4 of 7

Fundamentals of Accountancy, Business and Management 1
(Lesson 1)

financial health. Creditors include suppliers as well as lenders of finance such

as banks.
o Tax Authorities (BIR): for determining the credibility of the tax returns filed
on behalf of a company.
o 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.
o 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.
o Regulatory Authorities (SEC, DOLE): for ensuring that a company's
disclosure of accounting information is by the rules and regulations set to
protect the interests of the stakeholders who rely on such information in
forming their decisions.

Crafted from FABM1 TG Page 5 of 7

Fundamentals of Accountancy, Business and Management 1
(Lesson 1)

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.

Rubrics Assessment in checking essay questions.

- Grammar 30%
- Organization 30%
- Content 40%
Total 100%

1. What is accounting? Why it is important to you? Does it affect your daily activities?
How?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________.

2. Why accounting is considered as the language of business based on the function of

accounting discussion?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________.

3. Give at least five (5) examples of decisions or questions that can be supported by
accounting information.
1. ______________________________________________________________
2. ______________________________________________________________
3. ______________________________________________________________
4. ______________________________________________________________
5. ______________________________________________________________

Crafted from FABM1 TG Page 6 of 7

Fundamentals of Accountancy, Business and Management 1
(Lesson 1)

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?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________.

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.

Users Internal or External Information Needed

a. Potential Investor
b. Banks
c. Management
d. DOLE
e. BIR
f. Owners
g. Employee
h. Supplier
i. Customer
j. SSS

Crafted from FABM1 TG Page 7 of 7