Fundamentals of

Accountancy,
Business, and
Management 1
Quarter 3 – Module 1:
Introduction to Accounting
Fundamentals of Accountancy, Business and Management – Grade 11
2nd Semester, Quarter 3 – Week 1: Introduction to Accounting
First Edition, 2021

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Fundamentals of
Accountancy,
Business, and
Management 1
Quarter 3 – Module 1:
Introduction to Accounting
Introductory Message
For the facilitator:
As a facilitator, you are expected to orient the learners on how to
use this module. You also need to keep track of the learners' progress
while allowing them to manage their own learning at home.
Furthermore, you are expected to encourage and assist the learners as
they do the tasks included in the module.

For the learner:

As a learner, you must learn to become responsible of your own
learning. Take time to read, understand, and perform the different
activities in the module.
As you go through the different activities of this module be
reminded of the following:
1. Use the module with care. Do not put unnecessary mark/s on any
part of the module. Use a separate sheet of paper in answering the
exercises.
2. Don’t forget to answer Let Us Try before moving on to the other
activities.
3. Read the instructions carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking
your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are done.
If you encounter any difficulty in answering the tasks in this
module, do not hesitate to consult your teacher or facilitator. Always
bear in mind that you are not alone. We hope that through this material,
you will experience meaningful learning and gain deep understanding
of the relevant competencies. You can do it!

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 Let Us Learn

My warmest greetings Grade 11 ABM learners! In this module, you will

be able to understand the following learning objectives:

1. Define accounting. (ABM_FABM11-IIIa-1)

2. Describe the nature of accounting. (ABM_FABM11-IIIa-2)
3. Narrate the history/origin of accounting. (ABM_FABM11-
IIIa-4)
4. Define internal users and gives examples. ABM_FABM11-IIIa-8
5. Define external users and gives examples. (ABM_FABM11-
IIIa-7)

Accounting is widely considered as the “language of business”. This is

because it is difficult to get by without accounting in today's business world.
Every company must make wise decisions to thrive, whether it is profit-
making or not-for-profit. Accounting presents data that is the basis for such
decisions to be made.
More so, accounting is as old as society itself. It has developed in
response to different social and economic needs. Accounting began as a clear
recording of trades that were repeated. Accounting history is also seen to be
indistinguishable from finance and business history.

Let Us Try

Direction: Read each statement carefully and fill in the blank(s) with the
correct answer. Answers may be more than one word.

1. As a process, accounting starts by interpreting the data, followed by

recording the transactions, and then ____________ the financial reports
to interested users.
2. Accounting is recognized not only as a “language of business” but also
as a storehouse of _____________.
3. Accounting follows certain standards, it is also considered as
_____________.
4. Accounting does not deal with ____________ transactions.
5. Financial reports are important so that users will have a timely and
sound ________.

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 Let Us Study

1.1 DEFINITION OF ACCOUNTING

“Accounting is the mechanism by which an organization's economic

events are identified, registered and distributed to interested users.”
(Weygandt, J. et. al). From this definition, three (3) terms are noted. Namely,
Identifying, Recording and Communicating. In Case students forget, please
follow the acronym I-R-C.

IDENTIFYING. This requires the selection of economic activities

related to a specific business transaction. An organization's economic events
are referred to as' transactions.' Note that all events that can be estimated in
terms of money are known as economic events and are stated in the financial
statements.
Examples of economic events or transactions in a grocery business:
• sales of consumer products to customers
• purchases of consumer products
• purchases of trucks to deliver the products

RECORDING. This includes maintaining a chronological diary of

events measured in pesos. The journals and ledgers referred to in the
description are the diaries which will be addressed in future chapters.

COMMUNICATING. It takes place in the preparation and execution of

financial and other accounting reports.

1.2 NATURE OF ACCOUNTING

The various definitions and explanations of accounting has been

propounded by different accounting experts from time to time and the
following aspects comprise the nature of accounting:

1) Accounting is a service activity.

Accounting provides decision makers with support by providing them
with financial information that can help them in making sound decisions.
This implies that accounting gathers financial data for the different
consumers to take decisions and fix business problems.

2) Accounting is a process.

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 A process refers to the procedure of doing some particular job step by
step in accordance with the aims or objectives. As it performs the basic task
of gathering, processing and transmitting financial information, accounting is
identified as a process. In doing so, certain basic steps are taken, such as
recording, classifying, summarizing and reporting financial data.

3) Accounting is both an art and a discipline.

The art of recording, classifying, summarizing, and finalizing financial
data is accounting. The word 'art' refers to the manner in which something is
carried out. It is behavioral awareness requiring a certain imagination and
skill to help us attain certain clear objectives. Accounting is a systematic
process consisting of definite techniques which involves skill and experience
in its proper implementation. So, accounting is an art by nature. And it is also
a discipline because it meets such principles and professional ethics.

4) Accounting deals with financial information and transactions.

Accounting records financial transactions and documents, classifies
them and as mandated by its users, finalizes their results for a defined period
of time. Accounting deals only with financial details and financial information
at any point, from start to finish. The non-monetary or non-financial elements
of such knowledge are not dealt with.

5) Accounting is an information system.

Accounting is known and defined as a storehouse of information. It
gathers procedures as a service feature and communicates any entity's
financial information. This discipline of knowledge has developed to fulfill the
need for financial information needed by different stakeholders.

1.3 HISTORY OF ACCOUNTING

Following is the evolution of accounting:

• The Cradle of Civilization

Around 3600 B.C., from Mesopotamia, China and India to Central and
South America, record-keeping was already widespread. The oldest
documentation of this activity was Mesopotamia's "clay tablet," which at the
time dealt with commercial transactions such as the listing of receivable
accounts and accounts payable.

• 14th Century - Double-Entry Bookkeeping

The most significant occurrence in accounting history is widely
considered to be the dissemination by Luca Pacioli ('The Founder of
Accounting') of double entry bookkeeping in Italy in the 14th century. Pacioli
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was highly admired in his day and was Leonardo da Vinci's friend and
contemporary.
The Italians of the 14th to 16th centuries are generally regarded as the
fathers of modern accounting and were the first to regularly use Arabic
numerals to track business accounts rather than Roman ones. Summa de
Arithmetica, the first book published that included a detailed chapter on
double-entry bookkeeping, was written by Luca Pacioli.

• French Revolution (1700s)

During this time, the detailed study of accounting and the advancement
of accounting theory began. Government-affecting social upheavals.
The development of accounting was profoundly influenced by finance,
legislation, customs and industry.

• The Industrial Revolution (1760-1830)

Attention was given during this time to mass production and the great value
of fixed assets.

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

America
In 1854, when Queen Victoria gave the Institute of Accountants in
Glasgow a Royal Charter, establishing the profession of Chartered
Accountant, the modern, formal accounting profession originated in Scotland
(CA).
In 1887, the first national U.S. accounting society was founded. The
predecessor to the new American Institute of Certified Public Accountants
(AICPA) was the American Public Accountants Association .

• The Present - The Development of Modern Accounting Standards and

Commerce
In the 20th century, the accounting profession evolved around state
standards for audits of financial statements. The government also sets
accounting requirements outside the self-regulation of the industry, by laws
and agencies such as the Securities and Exchange Commission (SEC). As
economies continue to globalize around the world, accounting regulatory
bodies have required accounting professionals to comply with international
accounting standards (IAS). This is aimed at maintaining clarity and
reliability, and at achieving greater faith in the accounting data used by global
investors.

In the Philippines, accounting standards are developed during this

modern period, such as Philippine Accounting Standards (PAS) and Philippine
Financial Reporting Standards (PFRS).

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1.4 INTERNAL USERS OF ACCOUNTING INFORMATION

Internal users or Primary users of accounting information include:

Management - Management plans, controls and make better decisions by

using helpful accounting information. Managers regularly face economic
decisions such as how much supplies will be purchased? Is there enough
cash? How much was earned last year? Is target being met? Accounting
information is required for all those questions and business decisions. Also,
management needs the accounting information to identify the function of the
organization and position.

Employees - Employees offer credit to the organization by means of their

labor. Employees have an interest within the organization’s profitability,
economic stability, financial position and capability to gauge organization’s
expansion and career development opportunities. Thus, they have the right
to be concerned about the internal operations of the organization.

Owners - Owners of the organization need financial information to assist

them make decisions so as to avoid risk of their investments. They use the
accounting information for analyzing the viability and profitability of their
investments as accounting information enables the owners to estimate the
capacity of the business organization to pay dividends.

1.5 EXTERNAL USERS OF ACCOUNTING INFORMATION

External users are the secondary users of accounting information.

Following are the 8 types of external users and their information needs:

Investors
Investors use accounting information to work out whether an
investment maybe a good fit for their portfolio and whether they should hold,
increase or decrease their investment.

Lenders
Lenders use accounting information of borrowers to assess their credit
worthiness, i.e. their ability to pay back any loan. Lenders offer loans and
other credit facilities on terms that supported the assessment of monetary
health of borrowers.

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 On a lighter note, borrowers can only get a loan from lenders if they will
prove that they don’t need the money.

Suppliers
Just like lenders, suppliers need accounting information to assess the
credit-worthiness of its customers before offering goods and services on credit.
Some suppliers only have a couple of customers. These customers might be
very large businesses themselves. Suppliers need accounting information of
its key customers to assess whether their business is in healthiness which is
important for sustainable business growth.

Customers
Most consumers do not care about the financial information of its
suppliers. Industrial consumers however need accounting information about
its suppliers so as to assess whether or not they have the specified resources
that are necessary for a stable supply of products or services within the
future. Continuity in supply of quality inputs is important for any business.

Tax Authorities/Bureau of Internal Revenue (BIR)

Tax authorities determine whether a business declared the right
amount of tax in its tax returns.
Occasionally, tax authorities conduct audits of the tax returns filed by
businesses so as to verify the data with the underlying accounting records.
Tax authorities also cross reference accounting information of suppliers and
consumers as to recognize potential tax evaders.

Government
Government ensures that a company's disclosure of accounting
information is in accordance with the regulations that are in place to
safeguard the interest of varied stakeholders who depends on such
information in forming their decisions.

Auditors
External auditors examine the financial statements and the underlying
accounting record of companies to form an audit opinion. Investors and other
stakeholders rely on the independent opinion of external auditors on the
accuracy of financial statements.

Public
General public can also have an interest in accounting information of a
corporation. These could include journalists, analysts, academics, activists
and individuals with an interest in economic developments.

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 Let Us Practice

Write (I) if you believe the statement is about Identifying, (R) if the
statement pertains to Recording, (C) if it has something to do with
Communicating and (N) if it has nothing to do with Identifying,
Recording nor Communicating.

1. XYZ Company sold 10 units of computer on account to a client.

2. Mr. Yan, the owner of IRC Company loaned money from the bank.
3. Mr. Villar, manager, died because of Covid 19.
4. The accountant of the company prepares the Statement of Financial
Position of Ribbon Corporation.
5. The accounting staff journalizes the transactions of Woody Company.

Let Us Practice More

In which order/sequence of events correctly portrays the history of

accounting?

A. Early Development in Mesopotamia- Development in the Roman

Empire- Signing of charter by Queen Victoria- Dissemination of double-entry
bookkeeping in the fourteenth century Italy- Formation of accounting
standards such as PAS and PFRS.

B. Early development in Mesopotamia- Development in the Roman

Empire- Dissemination of double-entry bookkeeping in the fourteenth century
Italy- Signing of charter by Queen Victoria- Formation of accounting
standards such as PAS and PFRS

C. Development in the Roman Empire- Early Development in

Mesopotamia-Dissemination of double-entry bookkeeping in the fourteenth
century Italy- Signing of Charter by Queen Victoria- Formation of accounting
standards such as PAS and PFRS.

D. Early Development in Mesopotamia- Development in the Roman

Empire- Dissemination of double-entry bookkeeping in the fourteenth century
Italy- Formation of accounting standards such as PAS and PFRS- Signing of
charter by Queen Victoria.
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 Let Us Remember

Just like love and music, accounting too is considered the “language of
business” because anywhere on the globe, everybody knows how number
works. In accounting definition, three (3) important words matter although
in higher accounting (in your college years), the definition of accounting is
expanded. In the meantime, let us remember the acronym I-R-C which stands
for Identifying, Recording and Communicating.

For as long as people have been keeping track of trade, documenting

business and financial transactions have been around. Accounting has a long
tradition, with its roots in the earliest transactions between individuals, from
writing on wet clay tablets to now logging into a web spreadsheet.

Regardless of the instruments, accountants are those who evaluate

data, keep accounts and interpret information for companies, from one-
person ventures to large organizations, about financial and operational
activities. Their work has provided valuable information to make informed
decisions for company owners and other stakeholders.

The aim of accounting is to provide users who have to make decisions

with helpful details. Accounting users are divided into both external and
internal users. Management, staff and owners include internal users of
accounting information. Internal users are those people who run an
organization’s everyday operations and manage them. Managerial accounting
describes the financial details that management needs for the primary users
to schedule, monitor, and estimate the activities of an entity.

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 Let Us Assess

Activity 1:
Instruction: In a sheet of paper, answer the following questions. DO NOT
copy the definition from this module. Base your answer according to
your understanding of the concept.

1. Define accounting.
2. Define recording.
3. Define communicating.

DEFINITION RUBRIC
1 point 3 points 5 points
No Understanding Partial Understanding Full Understanding
Student appears to have no Student appears to have Student appears to have full
understanding of the partial understanding of understanding of the
concept or term. The the concept or term. The concept or term. The
student may have left the student has provided an student has provided an
question unanswered or example or a definition of example and a definition of
stated, “don’t know.” Or the the term. The example the term. The example and
student may have provided and/or definition may be definition correctly explain
an incorrect definition or incomplete. the meaning of the word.
example.

Activity 2:
Instruction: Match Column A with the correct answer on column B.
Write the letter of the correct answer on the space provided before the
number.

COLUMN A COLUMN B
____ 1 It collects, processes and communicates A. Arts and Discipline
financial information of any entity. B. Financial Information
____ 2 It follows certain standards and C. Information System
professional ethics. D. Process
____ 3 It does not deal with non-monetary or E. Service Activity
non-financial events or transactions. F. Journal
____ 4 It provides assistance to decision makers
by providing them financial reports.
____ 5 A method of performing any specific job
step by step according to the objectives or
targets.

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Activity 3:
Instruction: Each question in this section is a multiple-choice question with
four answer choices. Read each question carefully and choose the BEST
answer.

1. Which user is considered as internal user?

a. Bank
b. Buyer
c. Middle management
d. Owner

2. Who may need accounting information to decide which products to

buy from which companies?
a. Company owner
b. Creditors
c. Customers
d. Investors

3. Employees use accounting information to

a. Run the business
b. Make lending decisions
c. Determine company’s profitability and profit sharing
d. Decide which products to buy from which companies

4. The major internal users of accounting information are?

a. Government authorities
b. Investors for investment decisions
c. Financial analyst to research a particular stock
d. Managers who use information for day-to-day operating
decisions

5. Which of the following would not be considered an internal user of

accounting data for a company?
a. Bureau of Internal Revenue
b. Controller of the company
c. President of the company
d. Production manager

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 Let Us Enhance
Analyze the case below and answer the questions thereafter.

An ABM graduate named Jason decided to start a bakery business in Cateel,

Davao Oriental. Their house is in the heart of the Poblacion and so his mother
allowed him to use a spare portion of their house for his bakeshop. For his
startup capital, he loaned P200,000 from his father. He then proceeded to
purchase an oven, a mixer and other related equipment, machines and tools
for his baking needs. He also purchased raw materials such as flour, sugar,
and all sort of baking supplies.

Because it is the only bakeshop operating in town, the sale of bakery products
rises steeply. In order for him to keep track of sales and expenses, he applied
what he learned in Senior High School about the importance of record
keeping. He uses a journal and a ledger for record keeping purposes.

As his business continues to grow, he sees the opportunity to borrow bigger

capital from the bank. The bank requires a Financial Report showing the
health and operation of his business. He then furnishes the bank the copy of
the Financial report as part of their requirement before a loan will be granted.

Questions:
1. Name the transactions or events which can be considered “IDENTIFYING”
based on the definition of Accounting?

2. Name the transactions or events which can be considered “RECORDING”

based on the definition of Accounting?

3. Name the transactions or events which can be considered

“COMMUNICATING” based on the definition of Accounting?

Recognition Rubric
1 point 3 points 5 points
No recognition of Partial recognition of Full recognition of
transaction transaction transaction
Student appears to have no Student appears to have Student appears to have full
recognition of transactions partial recognition of recognition of the
or events. The student may transactions or events The transactions or events. The
have left the question student has provided an student has provided an
unanswered or stated, example or a transactions example and a transactions
“don’t know.” Or the or events. The example or events. The example
student may have provided and/or transaction may be correctly recognizes the
incomplete. transactions or events.

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an incorrect transaction or
example.

Let Us Reflect
Accounting is the practice of documenting, classifying, summarizing,
evaluating and interpreting accounting documents in order to assess the
company's net profit/loss and financial status. It is a structured body of
knowledge comprising some underlying concepts and guidelines that are
followed when accounting is maintained. Accounting, however, is not pure
science because it does not create a link between cause and effect.

Moreover, only certain transactions and events represented in monetary

terms or in quantitative form are reported in accounting. For example, the
transaction would be reported in the account books, such as the selling of
goods for P5,000.00. There are, however, so many significant business
activities, but as such events are not represented in quantitative or monetary
form, they cannot be recorded in the accounting record. Resignation of a loyal
employee, death of the boss, conflict between employees, for example, as these
incidents have a direct effect and influence on the organization. Accounting,
therefore, only documents certain transactions that can be represented in
terms of money.

Finally, accounting offers information such that users can make better
and informed decisions, such as administrators, shareholders, staff, creditors
and financial institutions.

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 13
Activity 3: Activity 2:
1. D 1. C
2. A
3. C 2. A
4. D 3. B
5. A
4. E
5. D
Let Us Assess:
1. I
2. I
3. N
4. C
B 5. R
Let Us Practice More: Let Us Practice:
Answer Key
 References

Articles of Accounting Tools for CPE courses and book. Retrieved from
https://www.accountingtools.com/articles/what-is-a-bank-
reconciliation-statement.html Retrieved on July 21, 2020.
Beticon et.al (2016). Fundamentals of Accountancy, Business and
Management 2 (Teachers Manual for SHS). Philippines: Vibal Group ,
Inc.
Iñigo,A., Vigonte, F. & Pakig, B. (2017). Fundamentals of Accountancy,
Business and Management 2 (1st Edition). Philippines: Jo- deh
Publishing
Lopez, R. (2017). Fundamentals of Accountancy, Business and Management
2 (1st Edition). Philippines: Lopez Publishing
Salazar, D. (2017). Fundamentals of Accountancy, Business and Management
2 (1st Edition). Philippines: Rex Bookstore, Inc.
Teaching Guide for Senior High School Fundamentals of Accountancy,
Business and Management 1
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Department of Education – Region XI Davao City Division

DepEd Davao City, Elpidio Quirino Ave., Davao City

Telefax: 224-3274

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