LEARNING MODULE

FUNDAMENTALS OF ACCOUNTANCY AND BUSINESS

MANAGEMENT 1
The Notre Dame of Masiag, Inc.
Grade 12, Quarter 1

Name ___________________________________________________

Section ___________________________________________________

Subject Teacher MRS. LANY T. CATAMIN

Class Adviser MRS. THELMA S. LANADO

FOR PRIVATE USE ONLY

In the Notre dame of Masiag, Inc.,
Strictly not for Public Circulation
 Quarter 1
FUNDAMENTALS OF ACCOUNTANCY AND BUSINESS
MANAGEMENT 1

Introductory Part

Overview & References

This is an introductory course in accounting, business and management data
analysis that will develop your appreciation of accounting as language of business
and an understanding of basic accounting concepts and principles that will help you
analyze business transactions.

Anastacio, Ma. Flordeliza. Fundamentals of Financial Management (with Industry

Based Perspective).( Manila: Rex Book Store, 2011).
Gilbertson, Claudia. Fundamentals of Accounting. 8th ed. (Australia: Cengage
Learning, 2010).
Padillo, Nicanor, Jr. Financial Statements Preparation, Analysis and Interpretation.
(Manila: GIC Enterprises, 2011).
Pefianco, Erlinda C. The Accounting Process: Principles and Problems. (Makati:
Goodwill Trading, 1996).
Young, Felina C. Principles of Marketing. (Manila: Rex Book Store, 2008).

WEBSITE
Bytt Sprak.”Inspisere bøker”. Publicdomainvectors.org. Accessed July 30, 2020.
https://publicdomainvectors.org/no/gratis-vektorbilder/Inspisere-b%C3%B8ker/69
444.html.
“Clipart house diagram”.WebStockReview. Accessed date July 30, 2020.
https://webstockreview.net/pict/getfirst.
Corsair‟s Publishing. “An Uncollected History of Feedback”. Medium Circa
Navigate.
February 10, 2016. https://circa-navigate.corsairs.network
Page | 33
/an-uncollected-history-of-feedback-6 48dff27d94a.
“Datei:Shokunin businessman.svg”. Wikipedia. Accessed date July 30, 2020.
https://de.wikipedia.org/wiki/Datei:Shokunin_businessman.svg.
deko.bakimparasiyataniller.net. Pinterest. Accessed date July 30, 2020.
https://www.pinterest.ph/pin/639651953309372765/.
“Empty Female Boutique High-Res Stock Photo”. Getty Images. Accessed date July
30, 2020. https://www.gettyimages.com/detail/photo/
empty-female-boutique-royalty-free-image/157586327.
“Free building icons png, BUILDING images - Free”. PNG and Icons. Accessed date
July 30, 2020. https://www.iconspng.com/.
“Free Images : child, reading, book, girls, education, toddler. PxHere. Accessed
date
July 30, 2020. https://pxhere.com/en/photo/1450659.
“Friends Talking Icon”. Designtrends. Accessed July 30, 2020.
https://www.designtrends.com/graphic-web/icons/human-icons.html.
23
“I can provide you 200 buy and sell groups”. 199 Jobs. Accessed date July 30,
2020.
https://199jobs.com/jobs/admin-office/provide-you-200-buy-and-sell-groups/.
“I COMPLEMENTI: COSA SONO?”. Focus Junior. Accessed date July 30, 2020.
https://www.focusjunior.it/scuola/italiano/analisi-logica/complementi-cosa-sono-c
osa-servono/.
“Illustration Kids Clipart Free Photo”. Needpix.com. Accessed date July 30, 2020.
https://www.needpix.com/photo/1153751/illustration-kids-clipart-graphics-the-cla
ssroom-materials-teaching-materials-study-of-students.
“Książka Rysunek Dla Dzieci”. Jing.fm. Accessed date July 30, 2020.
https://www.jing.fm/iclipt/Jxhiw/.
“New Lenovo 110-15ACL 15.6" AMD A6-7310 Quad-core 4GB 500GB DVDRW
Ideapad Black”.Ebay. Accessed July 30, 2020.
https://www.ebay.com/c/24011372739.
“New MFS-4 SSE Installation”.Southern Pine Construction Company | Bacolod City
|
Philippines. Accessed date July 30, 2020.
http://southernpineconstruction.com/project-list/item/114-new-mfs-4-sse-installati
on?tmpl=component.
“New Trends Updates for Ready-to-Fill Pastry Market by 2025| Pidy Gourmet NV,
Royal Smilde BV, Wallbridge Company Ltd., Bells Professional Pastry”.
KDMArketResearch. Accessed date July 30, 2020.
https://teletype.in/@kdmarketresearch/rkNaR5xlL.
Most Essential Learning Competencies (MELCs)
Tugas, F., Salendrez, H., & Rabo, J., Manaligod, M.G., ed. Senior High School Fundamentals
of Accountancy, Business and Management 1 Textbook. Vibal Group
Florendo, J. (2016) Fundamentals of Accountancy, Business and Management 1. Rex Book
Store
https://www.accountingtools.com/articles/2017/5/9/liquidation
https://clipart-library.com/mason-jar-vector.html
BOOKS

Ong, Flocer Lao. 2016. Fundamentals of Accountancy, Business, and Management 1.

Quezon City: C&E Publishing, Inc.‌
Skousen, K. Fred, Earl Stice, and James Stice. 2000. Intermediate Accounting. 14th ed. Vol.
1. Singapore: Thomson Learning Asia.
WEBSITES
“Accounting Fundamentals | Chapter 1: The Accounting Equation | Top Hat.” n.d.
Tophat.Com. Accessed August 2, 2020. https://bit.ly/3hF8rNx.
“Teacher Sheila’s Lessons Portal: FABM-1.” n.d. Teacher Sheila’s Lessons Portal. Accessed
August 2, 2020. https://bit.ly/303Kp8Y.
Carlson, Rosemary. n.d. “What Is the Accounting Formula?” The Balance Small Business.
Accessed August 2, 2020. https://bit.ly/2X3giwC.
‌“Accounting Equation: How Transactions Affects Accounting Equation?” 2017.
IEduNote.Com. November 23, 2017. https://bit.ly/3hUUBqz.

Definition of Terms

Account- individual accounting record of the movements of specific accounts.

Accounting- is a systematic process of identifying, recording, measuring,
classifying, verifying, summarizing, interpreting and communicating financial
information.
Accounting cycle – a series of recurring accounting steps or processes that span
from the start to the end of a particular accounting period.
Accruals – adjusting entries containing accrued revenues and accrued expenses.
Accrued expenses- are expenses that have been incurred but not yet paid.
Accrued revenues – are revenues that have been earned but not yet collected.
Accrued salaries – are salaries incurred but not yet paid.
Adjusting entries – needed in order to present in the financial statements the
balances of the accounts in adherence to the accrual principle and time
period principle.
Assets – resources controlled by the business as a result of past transactions and
events and from which future economic benefits are expected to flow to the
business.
Basic accounting equation – assets equals liabilities plus owners equity
Bookkeeping – recording of monetary transactions
Book of accounts – records in which all accounts and transactions of a business
are maintained on a regular basis
Business- an organization that utilizes resources and information, supplying the
wants and needs of the customers through goods and services, in exchange
of money or giving back a different kinds of goods or services
Business transactions – interaction between business and other stakeholders
Chart of accounts – listing of all the accounts and is usually tailored to the
operations of the business
Current assets – are those reasonably expected to be realized in cash or
consumed in the business within its normal operating cycle or within one
year of the reporting date, whichever is longer
Current liabilities – reasonably expected to be settled in cash by the business
within its normal operating cycle or within one year from the reporting date,
whichever is longer
Doubtful accounts – an expense that refers to the portion of accounts receivable
that is in doubt of being collected
Employees – assess the company’s profitability and stability
Expenses – cost being incurred by business in generating revenues
Financial statements – written reports that reflect the financial standing and
economic activities of the business
Freight – cost associated with transporting goods from seller’s to buyer’s place
Generally accepted accounting principle(GAAP) – widely accepted set of rules,
concepts and principles in accounting
General ledger – used to record all other business transactions that are not
recorded in the special journal
General ledger – used to accumulate and classify individual transactions from the
journal
Gross profit – income of the business after deducting cost of goods sold but but
before deducting any other expenses
Income statement – formal statement showing the financial performance of the
business for a given period of time
Journal – used to record chronologically all transactions of a business as they
occur
Ledger – a collective record of individual accounts used by a business that is used
to sort all entries made in the journal and to group all transactions that affect
individual accounts
Liabilities – are present obligations of any entity arising from past transactions or
events
Official receipt – a document which acknowledges receipt of cash or check
Operating cycle – the average time that is required to go from cash to cash in
producing revenue
Revenues – earnings arising from the main line of operations of the business
Sales – amount of merchandise sold by a business for a specific period of time
Suppliers – uses the financial statements of their customers to determine whether
the debts owed to them are paid
Subsidiary ledger – used to provide detailed information about a specific ledger
account
Trial balance – a list of accounts and their balances at a given time
Unearned revenues – are revenues that have been collected but not yet earned
Voucher – an internal document which indicates authorization of payments
Lessons and Coverage(Module Learning Competencies)

Lesson Topic/Title You’ll learn to… Estimated

No. Time
Lesson 1 Introduction  Define accounting 3 days
to  Describe the nature of accounting
Accounting  Narrate the history/origin of accounting
Lesson 2 Users of  Define external users and give examples 3 days
accounting  Define internal users and give examples
information  Identify the types of decisions made by each
group of users
 Describe the type of information needed by
each group
Lesson 3 Accounting  Explain the varied accounting concepts and 5 days
Concepts principles
and  Solve exercises on accounting principles as
Principles applied in various cases
Lesson 4 The  Illustrate the accounting equation 9 days
Accounting  Perform operations involving simple cases with
Equation the use of accounting equation
Lesson 5 Types of  Discuss the five major accounts 5 days
Major  Prepare a chart of accounts
Accounts
Lesson 6 Books of  Illustrate the format of a general and special 5 days
Accounts journals.
 Illustrate the formats of a general and subsidiary
ledger.
Lesson 7 Business  Describe the nature and give examples of 5days
Transactions business transactions
and Their  Identify the different types of business
Analysis as documents
Applied to  Analyze common business transactions using the
the rules of debit and credit
Accounting  Solve simple problems and exercises in the
Cycle of analyses of business
Service
Business
Expected Skills
To do well in this module, you need to remember and do the following:
1. Read texts carefully;
2. Answer questions with all honesty;
3. Review your answers;
4. Follow instructions given;
5. Do the tasks given and do not delay in submitting requirements;
6. Feel free to communicate with your teacher;
7. Remember to review every time you are done answering the activities; and
8. Have fun as you learn.

Module Map
Here is a simple map of the lessons you will cover in this module:

INTRODUCTION TO ACCOUNTING

BRANCHES OF ACCOUNTING

USERS OF ACCOUNTING INFORMATION

ACCOUNTING CONCEPTS AND PRINCIPLES

THE ACCOUNTING EQUATION

Lesson 1
INTRODUCTION TO ACCOUNTING

INTRODUCTION
This module in Fundamentals of Accountancy, Business and Management
1 for the 21st century learners is designed to make learning more engaging and
meaningful to ABM Senior High School learners in the flexible and blended learning
environments. Further, the module provides specific examples on how accounting is
applied in making business decisions. One of the examples is service businesses
wherein they provide intangible goods or services to customers. Services usually
generates profit by charging labor and other services rendered to customers.

Learning is fun! So enjoy your journey as you unfold the most interesting and
worthwhile activities in accounting.

OBJECTIVES/COMPETENCIES – ESTIMATED TIME

 Define accounting
 Describe the nature of accounting 3 hours
 Narrate the history/origin of accounting
 PRE-ASSESSMENT

Before we embark on this journey, let’s find out how much you already know about the
topic in this Module through the following exercise.
Activity 1– PRE-ASSESSMENT1
Let us begin our activities by determining your prior knowledge of the lessons you are
about to study.
Directions: Read each item very well and choose the best answer. Write your answers
on your activity/assessment notebook. Entitle your work Q2-Lesson 1-Activity 1-
Preassessment 1.
____1) The selecting of economic events that are relevant to a particular business
transaction is called __________.
a. Recording c. Identifying
b. Measuring d. Classifying
____2) Keeping a chronological diary of events that are measured in pesos is
___________.
a. Verifying c. Interpreting
b. Recording d. Summarizing
____3) It occurs through the preparation and distribution of financial and other
accounting reports is called ___________.
a. Measuring c. Recording
b. Classifying d. Communicating
____4) Accounting provides assistance to decision makers by providing them financial
reports that will guide them in coming up with sound decisions is called
_____________.
a. A process c. An information system
b. A service activity d. An art and a discipline
____5) Collects processes and communicates financial information of any entity is
____________.
a. A process c. An information system
b. A service activity d. An art and a discipline
____6) The method of performing any specific job step by step according to the
objectives or targets is ____________.
a. A process c. An information system
b. A service activity d. An art and a discipline
____7) Dealt with commercial transactions at the time of Mesopotamia such as listing
of accounts receivable and accounts payable is during _________.
a. The cradle of civilization c. The industrial revolution (1760-1830)
b. French revolution (1700‟s) d. 14th century double-entry bookkeeping
____8) Mass production and the great importance of fixed assets were given attention
during the period of ____________.
 a.The cradle of civilization c. The industrial revolution (1760-1830)
b.French revolution (1700‟s) d. 14th century double-entry bookkeeping
____9) The most important event in accounting history is generally considered to be
the dissemination of double entry bookkeeping by Luca Pacioli happened during
___________.
a.The cradle of civilization c. The industrial revolution (1760-1830)
b.French revolution (1700‟s) d. 14th century double-entry bookkeeping
____10) The thorough study of accounting and development of accounting theory
began during the period of ______________.
a.The cradle of civilization c. The industrial revolution (1760-1830)
b.French revolution (1700‟s) d. 14th century double-entry bookkeeping
____11) These are the users wherein accounting information is used for analyzing
viability and profitability of their investments; ____________.
a. Management c. Creditors e. Employees
b. Owners d. Investors
____12) These users' needs the information because they are concerned with the risk
inherent in investing and the returns or invested decisions are the ________.
a. Management c. Creditors e. Employees
b. Owners d. Investors
____13) This user in which accounting is of great assistance to management for
planning, controlling, and decision making process is the __________.
a. Management c. Creditors e. Employees
b. Owners d. Investors
____14) These users who is interested in accounting information because it enables
them to determine the credit worthiness of the business or decide whether to
extend credit or not are the ____________.
a. Management c. Creditors e. Employees
b. Owners d. Investors
____15) These users who wants to find out the financial health, amount of sales and
profitability of business to determine their job security are the
____________.
a. Management c. Creditors e. Employees
b. Owners d. Investors

INTRODUCTION
This section demonstrates an understanding about the concept, definition, nature and the
history or origin of accounting.

“Is accounting important to you?” Accounting delivers financial information to

different users through financial statements. It gives business owners the chance to
analyze the overall efficiency and effectiveness of their business operations.
 MOTIVATION
Before the lesson proper, we will first review and get oriented to the words and
terminologies commonly used in this lesson. How do we do this? Let us perform activity 2.
Activity 2– Explain Me!
Direction: Explain the three highlighted words in the infographic. Write your answer in
your Activity/Assessment Notebook. Label your work as Q1- Activity 2-Explain Me!

INSTRUCTION/DELIVERY
Definition of Accounting
It is a systematic process of identifying, recording, measuring, classifying, verifying,
summarizing, interpreting and communicating financial information. It reveals profit or loss for
a given period, and the value and nature of a firm's assets, liabilities and owners' equity.

In a practical sense, the main objective of financial accounting is to accurately prepare an

organization's financial accounts for a specific period, otherwise known as financial statements.

Example, if the company's transactions are being tracked then Ms. Ken (investor), will know if
the money she invested is still there.
P100,000 (initial investment)
P70,000 (used to buy printers and pay the bills)
P30,000 (balance cash left)
P50,000 (collection from costumers (1month)
P30,000+ P50,000= 80,000 overall balance cash

Accounting is commonly called the “Language of Business” wherein it delivers financial

information to different users through financial statements.
Example:
Ms. Sweet started a business. She invested P100,000 (personal money).
After one month Ms. Sweet wanted to know how much the business made, and if the money she
invested is still there.
The American Institute of Certified Public Accountants (AICPA) defines accounting as:
“An art of recording, classifying and summarizing in a significant manner and in terms of
money transaction and events which are in part at least of financial character, and interpreting
the result thereof.”

This definition will provide a better understanding of accounting in terms of the following:
 Accounting is considered an art and a science;
 Accounting involves interconnected phases;
 Accounting is concerned with transactions and events having financial character;
 In accounting, business transactions are expressed in terms of money; and
 Accounting interprets the result of financial statement.
Accounting provides answers to the following questions:
 How much income does the company make?
 How much does the company owe to the creditors?
 Is this a good investment?
Accounting information gives business owners the chance to analyze the overall
efficiency and effectiveness of their business operations.

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, classify these and finalize 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.

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 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.
PRACTICE

Activity 3- The Way I Understand It!.

Direction: Answer the questions according to your own understanding. Write your
answer in your Activity/Assessment Notebook. Label your work Q1-Lesson 1-Activity
3. The Way I Understand It!

1. Define Accounting.

2. Give examples of decisions or questions that can be supported by accounting

information.
ENRICHMENT
Activity 4- Complete Me!
Direction:.Write your answer in your Activity/Assessment Notebook. Label your work
Q1-Lesson 1-Activity 4-Complete Me!.
After doing the activities:
I noticed _______________________________________________
A question I have is ______________________________________
I’m not sure _____________________________________________
I realized _______________________________________________

VALUES INTEGRATION
Activity 5
Direction: Answer the question below. Label your work as Q1-Lesson 1- Activity 5-
Values Integration.
1. As Notre Damean, how important is accounting to you? Does it affect your
daily activities? How?
EVALUATION

Activity 6- FILL ME IN.

Direction: Fill in the blanks with the correct answer. Write your answer in your
Activity/Assessment Notebook. Label your work Q1-Lesson 1-Activity 6.
_____________1) Refers as the economic events of an organization.
_____________2) The art of recording, classifying, summarizing and finalizing
financial data.
_____________3) Refers to the method of performing any specific job step by step
according to the objectives or targets.
_____________4) This involves keeping a chronological diary of events that are
measured in pesos.
_____________5) Refers to the way something is performed.
_____________6) The oldest evidence practice of Mesopotamia which dealt with
commercial transactions.
_____________7) He was the father of accounting.
_____________8) The first book published that contained a detailed chapter on
double-entry bookkeeping.
_____________9) Mass production and the great importance of fixed assets were
given attention during this period.
_____________10) In this period, rapid changes in accounting practice and reports
were made.

Lesson 2
The External and Internal Users of Financial Information
Introduction
In this module we will discuss the external and internal users of financial
information.

OBJECTIVES/COMPETENCIES – ESTIMATED TIME

Define external users and gives
examples 2 hours
Define internal users and give examples
MOTIVATION
In this lesson we are going to discuss the different branches of accounting.

Activity 1. Review
Direction: Complete the statement below. Write your answer in your
Activity/Assessment Notebook. Entitle your work Q2-Lesson1. 2-Activity 1.
In the previous lesson I learned that
______________________________________________
_____________________________________________________________________
___________
_____________________________________________________________________
___________
 INSTRUCTION/DELIVERY
Accounting
- is the language employed to communicate financial information of a concern to such
parties.
Slavin and Reynolds
Accounting is the discipline that provides information on which external and internal
users of the information may base decisions that result in the allocation of economic resources
in society.
Who uses accounting data or information?
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.
What information will user need that can be answered by accounting?
Internal users (Primary Users) of accounting information include the following:

Management
Information need: income/earnings for the period, sales, available cash, production cost
Decisions supported: analyze the organization's performance and position, and take
appropriate measures to improve the company results, sufficiency of cash to pay
dividends to stockholders; pricing decisions
Employees
Information need: profit for the period, salaries paid to employees
Decisions supported: job security, consider staying in the employ of the company or look
for other employment opportunities
Owners/Investors/Stockholders
Information need: profit or income for the period, resources or assets of the business,
liabilities of the business
Decisions supported: considerations regarding additional investment, expanding the
business, borrowing funds to support any expansion plans.

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.
EXTERNAL 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.
Potential Investors use accounting information to make decisions to buy shares of a
company.
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:

Creditors: for determining the credit worthiness of an organization. Terms of credit are set by
creditors according to the assessment of their customers' financial health. Creditors
include suppliers as well as lenders of finance such as banks.

Tax Authorities (BIR): for determining the credibility of the tax returns filed on behalf of a
company.
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.
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.
Regulatory Authorities (SEC, DOLE): for ensuring that a company's disclosure of accounting
information is in accordance with the rules and regulations set in order to protect
the interests of the stakeholders who rely on such information in forming their decisions.
Types of Information needed by each Group of Users
Accounting information includes both financial (quantitative) and non-financial
(qualitative) information used by the decision maker.
*Qualitative analysis-means looking at the intangibles
*Quantitative analysis- means looking at the actual numbers.
*Comprehensive analysis- should include looking at both qualitative and quantitative factors
that would impact decision maker.
SUMMARY OF THE DIFFERENCES BETWEEN INTERNAL AND EXTERNAL
USERS
Internal users of accounting information are those who are involved in planning,
organizing and running the business. They need more detailed information on a timely basis in
order to support their decisions. Examples of these internal users are managers, employees and
owners.
 The external users of accounting information are those individuals or organizations
outside a company who are interested in its financial information. Examples of these external
users are potential investors, suppliers and government agencies.

PRACTICE

Activity 2- Answer Me!

Direction: Answer the questions below. Write your answer in your Activity/Assessment
Notebook. Label your work Q1-Lesson 2-Activity 2- Answer Me!
1. What are the examples of External Users?
_____________________________________________________________________
2. What kind of information do users need that can be answered by Accounting?
_____________________________________________________________________
3. What decisions of external users that are supported by accounting information?
_____________________________________________________________________

ENRICHMENT
Activity 3- The Way I Understand It!!
Direction: Answer the following questions based on your own understanding. Write
your answer in your Activity/Assessment Notebook. Label your work Q1-Lesson 2-
Activity 3- The way I Understand It!
1. In your own opinion, which internal user needs the accounting information the most?
Why?
_____________________________________________________________________
2. In your own opinion, which external user needs the accounting information the
most? Why?
_____________________________________________________________________
3. Differentiate internal users from external users of accounting information.
_____________________________________________________________________

VALUES INTEGRATION
Activity 5
Direction: Answer the question below. Label your work as Q1-Lesson 2- Activity 5-
Values Integration.
1. As Notre Damean, how important is the understanding of the concepts of
internal and external users of accounting information?

Lesson 3
 ACCOUNTING CONCEPTS AND PRINCIPLES
Introduction
In the previous module, you have learned about the two classifications of accounting
information users: 1) external, which are parties not connected to the company but use to its
accounting information to make informed decisions, and 2) internal, which are parties that make
decisions on behalf of the company.
An accountant performs a series of steps in the preparation of financial reports or
financial statements that shall be communicated to these users. Apparently, the accountant has a
lot of financial events to identify, record and summarize!
You might ask: what are the chances the accountant will not commit a mistake along
these steps?
Good thing because there are sets of concepts, principles, assumptions and rules that guide
accountants in the practice of their profession so that the financial statements they produce are
accurate, consistent and comparable.
What are these? Go further to find out!

OBJECTIVES/COMPETENCIES – ESTIMATED TIME

Explain the varied accounting concepts and
principles
5 hours
Solve exercises on accounting principles as
applied in various cases
PRE-ASSESSMENT
Before we embark on this journey, let’s find out how much you already know about the
topic in this Module through the following exercise.
Activity 1– PRE-ASSESSMENT1
Let us begin our activities by determining your prior knowledge of the lessons you are
about to study.
Directions: Read each item very well and choose the best answer. Write your answers
on your activity/assessment notebook. Entitle your work Q2-Lesson 3-Activity 1-
Preassessment 1.

1. Which of the following is considered the language of business?

a. Building Size b. Accounting c. Customers
2. _________ refers to the amount spent when an item was originally acquired.
a. Acquisition Cost b. Present Value c. Market Value
3. What refers to the Philippine money?
a. Dollar b. Philippine Peso c. Euro
4. It refers to the economic benefit earned by the business from its main line of
operations such as the sale of its products or services.
a. Asset b. Revenue c. Expense
5. What do you call the costs incurred by the business in the course of generating
revenues?
a. Liquidation b. Asset c. Expense
6. Which of the following statements is NOT correct?
a. The personal transactions of the owner of the business may be recorded in the
accounting books of the business.
b. The business and its owner are separate from each other.
c. Only B is correct.
7. Which of the following principles states that bookkeeping and financial recording
should be free from bias and prejudice?
a. Materiality Principle b. Conservatism Principle c. Objectivity Principle
8. It refers to the process of selling off all assets, paying all liabilities and distributing
remaining funds to shareholders to close the business.
a. Formation b. Accounting Cycle c. Liquidation
9. Which of the following terms does NOT refer to revenue?
a. Sales b. Fees c. Capital
10. Which of the following is an incurable cost of a bakery business?
a. Cost of purchasing bread ingredients
b. Salary of the baker.
c. Both a and b
MOTIVATION
In this lesson we are going to discuss the different accounting concepts and principles.

Activity 2. Scratch the Past!

A. Direction: Can you still recall salient points in previous accounting lessons? On your
Activity/Assessment notebook, enumerate what each box below asks. Entitle your work
Q2-Lesson 3-Activity 2- Scratch the Past!

3 Steps 3 Examples 3 Examples

in the Accounting of Internal Users of External Users
Process

Activity 2. THINK LIKE A LAW MAKER!

B. Direction: Follow what are asked below.
During the outbreak of Covid-19 pandemic, our national and local
governments have crafted and enforced rules that would lead to everyone’s safety.
What if you have the chance of making rules for the Masiagenio to follow during this
pandemic? What one rule will you implement and why? The activity below is for you
to try! Please do it on your answer Activity/Assessment notebook. Label your work
as Q1-Lesson 3- Activity 2- Think like a Law Maker!

LET’S BATTLE COVID- 19

YOUR RULE PURPOSE

INSTRUCTION/DELIVERY
Accounting Concepts, Principles and Assumptions
Accounting concepts, principles and assumptions are important because they guide
accountants in the proper and accurate preparation of financial statements. Hence, internal and
external users of financial statements are able to compare the performance of a company in
different periods, the performance of various companies, and the performance of a company in
relation to the industry.

GAAP (Generally Accepted Accounting Principles) - Being a set of accounting concepts,

principles, rules and guidelines, GAAP governs the application of accounting procedures. It is
very useful because it aims to standardize as well as regulate accounting definitions,
assumptions, and methods.
PAS (Philippine Accounting Standards) and PFRS (Philippine Financial Reporting Standards)
are other accounting standards adopted in the Philippines. The IFRS (International Financial
Reporting Standards) is an international accounting standard used as guide in the formulation of
PFRS and other standards.

UNDERLYING ACCOUNTING ASSUMPTIONS

1. Accrual Basis Assumption. It requires that revenue is recorded in the period it is earned,
regardless of the time the cash is received or collected. It also requires that expense is
recognized and recorded at the time it is incurred, regardless of the time that cash is paid.
Example:
Cebu Trading is an enterprise that supplies masks, face shields and sanitizing agents to small
and medium businesses. In April 2020, its customer CC Pharmacy purchased 50 boxes of mask
on credit. Cebu Trading recorded the sales of 50 boxes of mask even though it wasn’t paid in
cash yet.
2. Economic Entity Assumption. It assumes that the business entity is separate from its
owners. In that, the transactions of the business are separate from the transactions of its owners.
Example:
Garry is one of the owners of a bike parts store in their municipality. In June, his son asks him
to buy for him a new smart phone. This transaction was personal, so it was not recorded in the
accounting books of the bike parts store although Garry is one of its owners.
3. Going Concern Assumption. It assumes the business is entity is going to continue existing
and operating in the indefinite future. It supposes that the business will be able to perform its
objectives and commitments and will not liquidate.
Example:
Good Shoes is a small shop that Ana owns. In January, she paid the monthly rent of her shop.
She also gave the building owner rent payments for February to December in advance. Because
of Going Concern Assumption, the shop’s accountant didn’t record the advance payment as
expense but as an asset from where it can derive future benefits. After all, the shoe shop will
still be operating in the future.
4. Monetary Unit Assumption. It assumes that accounting only records business transactions
and events that can be expressed in terms of money. Here in the Philippines, businesses
measure and report activities in Philippine peso.
Example:
Sun Shakes is a small business owned by Luis offering drinks and refreshments. The business
recorded its purchase of two blenders at P10,000 since the transaction can be measured in
money.
5. Time-Period Assumption. It requires a business to complete its whole accounting process
over a specific period of time. Artificially, the business can divide its life into shorter operation
time periods like monthly, quarterly, or annually. Hence, the business can furnish financial
statements monthly, quarterly, or annually.
Example:
BABY ALL is an online store that sells infant and toddler garments and essentials. Every six
months, the company prepares financial statements to evaluate its performance. Even though
BABY ALL will continue to operate in the indefinite future, it can divide its life into shorter
periods.

BASIC ACCOUNTING PRINCIPLES

1. Cost Principle.
It states that all assets acquired should be valued and recorded by the company based on
the actual cash equivalent or original cost of acquisition, not the prevailing market value or
future value.
2. Full Disclosure Principle.
It states that the financial statements of the company should contain sufficient
information to allow the stakeholders to draw appropriate judgment and make informed
decisions about the enterprise.
3. Matching Principle.
It requires that revenue be matched with expense, where if a company records revenue
during an accounting period, corresponding expense should also be recorded.
4. Revenue Recognition Principle.
 It states that revenues are to be recognized as soon as the goods have been sold (delivered
to customers) or as service has been rendered, regardless of when the money is actually
received.
5. Materiality Principle.
This states that business transactions that may affect the decision of a user of financial
information are considered important or material, and thus must be reported properly.
Professional judgment is needed to decide whether an amount is significant or immaterial.
6. Conservatism or Prudence Principle.
It states that if there are two options to choose from in the valuation of a business
transaction, the lower amount should be recorded and not the higher amount. Apparently, the
option of lower amount gives less effect on net income, or less effect on asset amount.
7. Objectivity Principle.
It entails that bookkeeping and financial recording be performed without bias and
prejudice. This is achieved by the business through having impartial supporting evidence or
documentation to business transactions.
PRACTICE

Activity 3- M E - N O T M E!
Direction: In daily life, there are rules to follow. And so with accounting! Now read
each accounting principle or assumption below. Write ME if you think the principle or
assumption matches to the meaning next to it; otherwise, write NOT ME. Write your
answer in your Activity/Assessment Notebook. Label your work Q1-Lesson 3-Activity
3. M E - N O T M E!
_______________ 1. ECONOMIC ENTITY ASSUMPTION
Meaning: It requires a business to complete its whole accounting process over a specific
period of time.
_______________ 2. MONETARY UNIT ASSUMPTION
Meaning: It assumes that accounting only records business transactions and events that can
be expressed in terms of money.
_______________ 3. TIME PERIOD ASSUMPTION
Meaning: It assumes that the business entity is separate from its owners.
_______________ 4. OBJECTIVITY PRINCIPLE
Meaning: It entails that bookkeeping and financial recording be performed without bias and
prejudice.
_______________ 5. MATCHING PRINCIPLE
Meaning: It requires that revenue be matched with expense, where if a company records
revenue during an accounting period, the corresponding expense should also be recorded.
_______________ 6. GOING CONCERN ASSUMPTION
Meaning: It assumes the business is entity is going to continue existing and operating in the
indefinite future.
_______________ 7. COST PRINCIPLE
Meaning: It states that all assets acquired should be valued and recorded by the
company based on the original cost of acquisition.

ENRICHMENT
Activity 4- Pick and Explain!
Direction:. In this lesson, you have meet face to face with the different accounting
concepts, principles and assumptions. Your task is to pick three principles or
assumptions from the glass jar and explain them using your own words. Write down
your explanation on your Activity/Assessment Notebook following the format on the
next page. Label your work Q1-Lesson 3-Activity 4- Pick and Explain.

Economic Entity
Going Concern

Accrual Basis

Time Period

GAAP

1 2
Accounting Principle or Assumption Accounting Principle or
Assumption Assumption
__________________________________ _______________________________
Explanation: Explanation:
__________________________________ _______________________________
__________________________________ _______________________________
__________________________________ _______________________________

3
Accounting Principle or Assumption
_______________________________
Explanation:
 _______________________________
___________________________________
___________________________________
VALUES INTEGRATION
Activity 5
Direction: Answer the question below. Label your work as Q1-Lesson 3- Activity 5-
Values Integration.
1. As Notre Damean, how can you apply your knowledge in accounting concepts
and principles in your daily life?
EVALUATION
Activity 6- Evaluation
Direction: Identify what accounting assumption or principle is described below.
Choose your answer from the banner provided, then write it your Activity/Assessment
Notebook. Label your work as Q1-Lesson 3-Activity 6- Evaluation.
___________________ 1. It states that the financial statements of the company should
contain sufficient information to allow the stakeholders to draw appropriate
judgment and make informed decisions about the enterprise.
___________________ 2. It states that revenues are to be recognized as soon as the
goods have been sold (delivered to customers) or as service has been rendered,
regardless of when the money is actually received.
___________________ 3. It states that if there are two options to choose from in the
valuation of a business transaction, the lower amount should be recorded and
not the higher amount.
____________________ 4. It presupposes that the business will continue operating in
the definite future and will not liquidate its assets
___________________ 5. It requires that expenses are recorded in the same period
as the revenue related to it.
____________________ 6. It is called as prudence, where the accountant needs to
exercise care in deciding about the recognition and valuation of an item in the
accounting records.
____________________ 7. This states that business transactions that may affect the
decision of a user of financial information are considered important or material,
and thus must be reported properly.
____________________ 8. It states that purchased assets of the business are to be
recorded at their purchase cost, not at their market value.
___________________ 9. This assumption places a line of separation between the
personal transactions of the owner and the transactions of the business he
owns.
____________________ 10. In the Philippines, financial transactions are businesses
are recorded in their Philippine peso values.

Cost Principle Revenue Recognition Principle

Conservatism Principle Matching Principle
A. Direction: Read each item or question carefully. Write the letter of your answer on
your activity/Assessment notebook.
1. It states that if there are two options to choose from in the valuation of a business
transaction, the lower amount should be recorded and not the higher amount.
a. Conservatism Principle b. Materiality Principle c. Objectivity Principle
2. ___________ requires that revenue and expenses be recorded in the period it is
earned and incurred regardless of when collected and paid, respectively.
a. Going Concern Assumption c. Economic Entity Assumption
b. Accrual Basis Assumption
3. PAS is an accounting standard adopted in the Philippines. What does it stand for?
a. Philippine Accepted Standards
b. Philippine Accounting Standards
c. Philippine Accounting System
4. Which of the following is likely to be a basis for conservatism principle?
a. Asset valuations do not affect the relevance of a company’s financial
statements.
b. Values of lower amount have lesser effect on company’s assets, and therefore
make financial reporting more relevant to the actual condition of the company
c. Both a and b
5. What accounting principle states that if revenue is recorded in an accounting period,
its corresponding expense should also be recorded in the same accounting period?
a. Materiality Principle b. Matching Principle c. Revenue Recognition Principle
6. It is the Philippines’ version of the IFRS.
a. Generally Accepted Accounting Principles
b. Philippine Financial Reporting Standards
c. Philippine Accounting Standards
7. Which of the following principle is also known as prudence principle?
a. Conservatism Principle b. Materiality Principle c. Objectivity Principle
8. Based on the Time Period Assumption, the business prepares financial statements
periodically, whether quarterly, annually, or any other intervals.
a. The statement is true. b. The statement is neutral c. The statement is false.
9. If the financial statement combines both the personal transactions of Mario and that
of his business, it violates the _________.
a. Monetary Unit Assumption
b. Economic Entity Assumption
c. Cost Principle
10. Revenues: Earnings;
Expenses: _______
a. Costs Incurred b. Debts Paid c. Assets Purchased
11. Lily, the accountant of Z Enterprise, recorded sales of P300,000 in January.
Corresponding to this sale are the salaries of employees amounting to P20,000.
What amount of expense should Lily record?
a. P300,000 b. P20,000 c. Lily should not record the expense
12. Which of the following statements pertaining to materiality principle is NOT correct?
a. In the recording of business transactions, professional judgment should be
utilized in determining whether a transaction is material or not.
b. Material or significant business transactions are those the affect the decisions
of accounting information users.
c. Business transactions involving amounts less than P1,000 are deemed
insignificant.
13. Noel and Nilo run a small business as partners. In the previous week, their
company bought a computer set for P25,000. The same computer set can
be purchased at only P20,000 from the same vendor this week. At what
amount should the computer set be recorded by the accountant of Noel and
Nilo’s business?
a. P25,000 b. P20,000 c. P0
14. What accounting principle supports your answer in number 13?
a. Materiality Principle b. Objectivity Principle c. Cost Principle
15. That a company’s financial information should be reported at regular intervals suits
to what accounting assumption?
a. Monetary Unit Assumption
b. Time-Period Assumption
c. Going Concern Assumption

Lesson 5
The Accounting Equation
Introduction
 This is an introductory course in accounting, business and management data analysis that
will develop your appreciation of accounting as language of business and an understanding of
basic accounting concepts and principles that will help you analyze business transactions.

In this module, you will be acquainted with the fundamental accounting equation which
will serve as your guide in the business world. You will have a better understanding of the
components of the accounting equation and the relationship between and among the accounting
elements. The accounting terms such as Assets, Liabilities, Owner’s Equity will be discussed
thoroughly and you will be able to put your understanding to test as you will be given the
opportunity to solve simple cases using the lessons you will learn through this module.

Learning is fun! So enjoy your journey as you unfold the most interesting and worthwhile
activities in accounting.

OBJECTIVES/COMPETENCIES – ESTIMATED TIME

 Illustrate the accounting equation
 Perform operations involving simple 9 hours
cases with the use of accounting equation

PRE-ASSESSMENT
Before we embark on this journey, let’s find out how much you already know about the
topic in this Module through the following exercise.
Activity 1– PRE-ASSESSMENT1
Let us begin our activities by determining your prior knowledge of the lessons you are
about to study.
Directions: Read each item very well and choose the best answer. Write your answers
on your activity/assessment notebook. Entitle your work Q2-Lesson 1-Activity 1-
Preassessment 1.
1. It shows the relationship between a company’s assets, liabilities, and capital.
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation
2. This refers to the economic resources owned by the company.
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation
3. This refers to the property and rights owned by the business..
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation
4. This refers to the investment of an owner.
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation
5. These include claims of the creditors on the assets of the company.
a. Assets c. Owner’s Equity
 b. Liabilities d. Accounting Equation
6. This refers to the obligations to pay and debts of a company.
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation
7. This has to show a balance in every business transaction.
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation

8. This includes a company’s cash, supplies, and equipment.

a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation

9. This shows no changes when an owner invests additional cash in the business.
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation

10. This demonstrates the dual aspect of a business transaction and proves
that Debit = Credit.
a. Assets c. Owner’s Equity
b. Liabilities d. Accounting Equation
MOTIVATION
In this lesson we are going to discuss the accounting equation.
Activity 2. Find Me!
A. Direction: Find the missing values. Copy the format and write your answer in your
activity/assessment notebook. Entitle your work Q2-Lesson 3-Activity 2- Find Me!!
ASSETS LIABILITIES OWNER’S EQUITY
1 250,000 150,000 100,000
2 665,000 347,000
3 234,000 434,000
4 123,000 23,000
5 876,000 500,000
6 15,000 5,999
7 1,089,021.18 396,156.93
8 68,000 66% of assets
9 1/3 of owner’s equity 143,628
1 164% of liabilities 26,007
0

INSTRUCTION/DELIVERY
The accounting equation formula represents the relationship between the assets,
liabilities, and owner's equity of a business. The value of a company's assets should always
equal the sum of its liabilities and owner's equity. The underlying concept of this formula is
thatevery asset acquired by a company was financed either through debt (liability) or through
investment from owners (owner’s equity).
The accounting formula materializes a company's assets in terms of its liabilities and owner’s
equity. This simple formula serves as the foundation of double-entry bookkeeping wherein
there are always two account entries made for each transaction—a debit to one account and a
credit to another.
Keep reading to have a better understanding of the accounting formula basics, its elements, and
its relationship to one another.
The Accounting Equation

The Elements of the Accounting Equation

1. Assets - these are economic resources owned by the company expected for future gain. They
are property and rights of value owned by the company.

Assets refer to items like cash, inventory, accounts receivable,

buildings, land, or equipment. Purchasing something with the
company’s cash on hand will not affect the accounting equation
because it's just converting one type of asset (cash) into another type
of asset (inventory, equipment, or whatever
else is purchased). The accounting formula
doesn't differentiate between types of assets.

2. Liabilities - these are debts or obligations, which are.. amounts owed

to others. These include debts,.. obligations to pay, and claims of the
creditors on the.. assets of the company. Liabilities are one of three
ways.. in which a business can acquire funding.

Liabilities can include bank loans, credit card accounts,.. or accounts payable (such as when a
supplier offers to.. extend credit to a business).
3. Owner’s Equity - these are the total capital the.. owners have
invested in the business. These include.. the .interest of the owners on
the company; claims of… the .owners on the assets of the company; and
the.. investment of the owner plus or minus the results on the..
operations of the company.

Owner’s Equity or capital comes from two main sources:. investment of owners and earning
from the company.

Let us put into practice the accounting equation above. For example, if Company Tibs owns
Php100,000 in assets but owes Php30,000 to creditors, how much would be the total claim of the
owners?

Assets = Liabilities + Owner’s Equity

Php100,000 = Php30,000 + ?
Php100,000 = Php30,000 + Php70,000
Php100,000 = Php100,000

The equity to which owners/investors have a claim is Php70,000.As you can see, the
accounting formula is all about balance. Any activity on the right side is reflected on the left
side.
Here are some more examples:

1. Given liabilities of Php10,000 and the owner’s equity of Php50,000, find the value of the
assets.

Assets = Liabilities + Owner’s Equity

Assets = Php10,000 + Php50,000
Assets = Php60,000

2. Given assets of Php100,000 and the owner’s equity of Php70,000, find the liabilities.

Assets = Liabilities + Owner’s Equity

Liabilities = Assets - Owner’s Equity
Liabilities = Php100,000 - Php70,000
Liabilities = Php30,000

3. Given assets of Php200,000 and liabilities of Php90,000, find the owner’s equity.

Assets = Liabilities + Owner’s Equity

Owner’s Equity = Assets - Liabilities
Owner’s Equity = Php200,000 - Php90,000
Owner’s Equity = Php110,000
Analyzing the Effects of Business Transactions to the Accounting Equation

The accounting equation shows that for every debit, there must be an equal credit. As we
have already discussed, Assets, Liabilities and Owner’s Equity are the three components of the
accounting equation that make up a company’s balance sheet.Accounting Equation
demonstrates the dual aspect of a business transaction and proves that Debit = Credit. Here is a
table to show you the effects of transactions on the accounting equation.

The following details will include the amount and the account affected in illustrating the
effects on the accounting equation. Notice that the accounting equation is always balanced in
every transaction such that assets are always equal to liabilities and owner’s equity.

TRANSACTION ASSETS LIABILITIES OWNER’S ANALYSIS

EQUITY
 1. Mr. Pacs Increase No Increase The cash investment of Mr.
invests cash Cash Change Mr. Pacs, Pacs increases the assets of
of Php10,000 Capital the business and the capital
(owner’s equity) of the owner.
2. Mr. Pacs Increase No Increase The equipment increases the
invests Equipment Change Mr. Pacs, assets of the business. Since
equipment Capital this is an investment of Mr.
amounting to Pacs, her capital
Php100,000 correspondingly increases.
3. Renders Increase No Increase The business earns cash by
Php5,000 Cash Change Service rendering services. There is
services for Income increase in assets for the
cash cash collected and increase
in capital as revenue
increases capital.
4. Purchases Increase Increase No Supplies increase the assets
P1,000 Supplies Accounts Change of the business. Liabilities
supplies on Payable correspondingly increase as
credit the supplies were bought in
credit.
5. Purchases Increase No No Land increases the assets of
Php200,000 Land Change Change the business. Cash
Land paying correspondingly decreases
cash Decrease with the cash paid for the
Cash purchase of land.

PRACTICE

Activity 3- Your Turn!

Direction: Give the effect of the following transactions on the accounting equation. Copy
the format and write your answer in your Activity/Assessment Notebook. Label your
work Q1-Lesson 5-Activity 3- Your Turn!
On August 21, 2020, Don JPacs opens Pacs Laundry Services. On the transaction
summary table below, indicate the effect of each transaction to each account. Put “+”
to signify increase or “-” to signify decrease. Indicate the amount of increase or
decrease for each account. The first one is done for you.

TRANSACTION ASSETS LIABILITIE OWNER’S

S EQUITY
 1. Don Jpacs invested + +
Php100,000 cash in the Php100,00 Php100,000
business. 0
2. Bought Php2,000 worth of
supplies by cash.
3. Borrowed Php50,000 cash
from Don Almabs.
4. Services rendered to client on
credit worth Php5,000
5. Cash services rendered to
Ms. Rastaken, Php10,000

ENRICHMENT
Activity 4- My Own Accounting Equation!
Direction: Applying the Accounting Equation to your daily life as a student and
consumer, write your transactions made on a day to day basis and analyse the effects
of each transaction to the different accounting accounts. Copy the format below and
write your answer in your Activity/Assessment Notebook. Label your work Q1-Lesson
3-Activity 4- Pick and Explain.
TRANSACTION ASSETS LIABILITI OWNER’S
ES EQUITY

1.

2.

3.

4.

5.

6.

7.

8.
 9.

10.

VALUES INTEGRATION
Activity 5
Direction: Answer the question below. Label your work as Q1-Lesson 5- Activity 5-
Values Integration.
1. How can you apply the Accounting Equation to your daily transactions as a student
and as a consumer? What are some examples of these transactions?
EVALUATION

Activity 6- Evaluation
Direction: Choose the corresponding answer from the word box and write it on your
Activity/Assessment Notebook. Label your work as Lesson 5-Activity 6- Evaluation.

Assets Decrease

Increase No Changes

Liabilities Owner’s Equity

Balanced Sheet Accounting Equation

_______________ 1.This refers to the obligations to pay and debts of a company.

_______________ 2. This refers to the economic resources owned by the company.
_______________ 3. This has to show a balance in every business transaction.
_______________ 4. This demonstrates the dual aspect of a business transaction and
proves that Debit = Credit.
_______________ 5. This refers to the property and rights owned by the business.
_______________ 6. This refers to the investment of an owner.
_______________ 7. These include claims of the creditors on the assets of the
company.
_______________ 8. This includes a company’s cash, supplies, and equipment.
_______________ 9. It shows the relationship between a company’s assets, liabilities,
and capital.
_______________ 10. This shows no changes when an owner invests additional cash
in the business.

Lesson 5
Types of Major Accounts
Introduction
This is an introductory course in accounting, business and management data
analysis that will develop your appreciation of accounting as language of business and
an understanding of basic accounting concepts and principles that will help you
analyze business transactions.
OBJECTIVES/COMPETENCIES – ESTIMATED TIME
Discuss the five major accounts 5 days
Prepare a chart of accounts

PRE-ASSESSMENT
Before we embark on this journey, let’s find out how much you already know about the
topic in this Module through the following exercise.
Activity 1– PRE-ASSESSMENT1
Let us check your prior knowledge about this module’s coverage.
Direction: Fill in the blanks with the correct answer. Write your answer on your
Activity/Assessment notebook.
1. The _________________ includes everything that your company owns. It is divided
into tangible and intangible.
2. Any product or service that your company purchases to generate income or
manufacture goods is considered an _________________. This may include
advertising costs, utilities, rent, salaries and others.
3. _________________, one of the primary types of accounts in accounting, includes
the money your company earns from selling goods and services. This term is
also used to denote dividends and interest resulting from marketable
securities.
4. _________________ include the debts or obligations payable to creditors and other
outsiders to which your company owes money. These can be loans, unpaid
utility bills, bank overdrafts, car loans, mortgages and more.
5. The ________________ defines how much your business is currently worth. It's the
residual interest in your company's assets after deducting liabilities. Common
stock, dividends and retained earnings are all examples of this.
MOTIVATION
Good Job! You are now ready for the next lesson which is the Types of Major Accounts. You
need to learn more effectively. Good luck!
Activity 2. Scrambled Words!
Direction: Given the scrambled letters in each number, arrange them to form a word
based on the definition or description given. Write your answer on your
Activity/Assessment notebook. Label your work as Q1-Lesson 5- Activity 2-
Scrambled words.
1. Tangible and intangible items that the Company owns that have value. 
_______________ (EASSST)
2. Money that the Company owes to others.  _______________ (ABLITILIESI)
3. Money the company earns from its sales of products or services, and interest and
dividends earned from marketable securities.  _______________
(CINEMO)
4. Money the company spends to produce the goods or services that it it sells. 
_______________ (PEENSSEX) 5. That portion of the total assets that the owners or
stock holders of the company fully own; have paid for outright. 
_______________(YQUITE)

INSTRUCTION/DELIVERY
There are five main types of accounts in accounting, namely: assets, liabilities,
capital /owner’s equity, income, and expense. Continue to read below to explore on how
each account can be further broken down into several categories.
FIVE TYPES OF MAJOR ACCOUNTS
1. ASSETS - These are all the economic resources owned by the company and are
expected for future gain. They include property and rights of value owned by the company.
Assets refer to items like cash, inventory, accounts receivable, buildings, land, or equipment.
Assets can be categorized to Tangible and Intangible. Tangible Assets are the physical
entities that the business owns such as its land, buildings, vehicles, equipment, and
inventory. While Intangible Assets are the things that represent money or value such as
Accounts Receivables, Patents, Contracts, and Certificate of deposit (CDs).

Two types of Assets:

1. Current Assets - cash and other assets that are expected to be converted to cash within a
year.
Examples:
 Cash includes coins, currencies, checks, bank deposits, and other cash items readily
available for use in the operations of the business.
 Cash equivalents are short-term investments that are readily convertible to known
amounts of cash which are subject to an insignificant risk to changes in value.
 Marketable securities are stocks and bonds purchased by the enterprise and are to be held
for only a short span of time or duration. They are usually purchased when a business has
excess cash.
2. Non-Current Assets - an asset that is not likely to turn to unrestricted cash within one
year. It is also referred to as a long-term asset.
Examples:
 Long-term investments are assets held by an enterprise for the accretion of wealth through
capital distribution such as interests, royalties, dividends and rentals, for capital appreciation
or for other benefits to the investing enterprise such as those obtained through trading
relationships.
 Property, Plant, and Equipment are tangible assets that are held by an enterprise for use in
the production or supply of goods or services, or for administrative purposes.
a. Land - a piece of lot or real estate
b. Building - structure used to accommodate the office, store, or factory
c. Equipment - includes typewriter, air-conditioner, calculator, filing cabinet,
computer, electric fan, trucks, and cars used by the business in its office or factory.
Specific account titles may be used such as: -office equipment, -store equipment, -
delivery equipment, -transportation equipment, and -machinery and
equipment.
d. Furniture and fixtures - include tables, chairs, carpets, curtains, lamp and lighting
fixtures.
Specific account titles may be used such as: -office furniture and fixtures - store
furniture and fixtures.
2. LIABILITIES - These include the debts or obligations payable to creditors and other
outsiders to which your company owes money. Liabilities are one of three ways in which a
business can acquire funding.

Two types of Liabilities:

1. Current Liabilities - amounts due to be paid to creditors within twelve months.
Examples:
 Accounts payable includes debts arising from the purchase of an asset or the acquisition
of services on account.
 Notes payable includes debts arising from the purchase of an asset or the acquisition of
services on account evidenced by a promissory note.
 Loan Payable is a liability to pay the bank or other financing institution arising from
funds borrowed by the business from these institutions payable within twelve months or
shorter.
 Utilities payable is an obligation to pay utility companies for services received from
them. Examples of this are telephone services, electricity, and water services.
 Unearned revenues represent obligations of the business arising from advance payments
received before goods or services are provided to the customer. This will be settled when
certain goods or services are delivered or rendered.
 Accrued liabilities include amounts owed to others for expenses already incurred but are
not yet paid. Examples of these are salaries payable, utilities payable, taxes payable, and
interest payable.
2. Non-current Liabilities - are long term liabilities or obligations which are payable for a period
longer than one year.
Examples:
 Mortgage payable is a long-term debt of the business with security or collateral in the form of
real properties.
 Bonds payable is a certificate of indebtedness under the seal of a corporation, specifying the
terms of repayment and the rate of interest to be charged.
3. OWNER’S EQUITY - defines how much your business is currently worth. Owner’s Equity
or Capital is an account bearing the name of the owner representing the original and additional
investment of the owner of the business. It is increased by the amount of net income earned
during the year and decreased by the cash or other assets withdrawn by the owner as well as the
net loss incurred during the year. Drawing represents the withdrawals made by the owner of the
business in cash or other assets.

Two types of Equity:

1. Contribution (Investments) - may be start-up capital or a later infusion of cash.
2. Drawing (Withdrawals) - If a business is profitable, the owners often want some of
the profit returned to them.

4. INCOME OR REVENUE - is money the business earns from selling a product or service,
or from interest and dividends on marketable securities. Other names for income are revenue,
gross income, turnover, and the "top line." Net income is computed as revenue less expenses.
Other names for net income include profit, net profit, and the "bottom line." Income accounts
are classified as temporary or nominal accounts. This is because their balance is reset to zero at
the beginning of each new accounting period.

5. EXPENSES - these are money the company spends that allow a company to operate. This
may include advertising costs, utilities, rent, salaries and others. Like revenue accounts, expense
accounts are temporary accounts that collect data for one accounting period and are reset to zero
at the beginning of the next accounting period.

A unique type of Expense account, Depreciation Expense, is used when purchasing

Fixed Assets. Costly items, such as vehicles, equipment, and computer systems, are not
expensed, but are depreciated over the life expectancy of the item. A contra-account,
Accumulated Depreciation, is used to offset the Asset account for the item.
Examples:
 Salaries or wages expense include all payments made to employees or workers for rendering
services to a company.
 Utilities expense is an expense related to the use of electricity, fuel, water, and
telecommunication facilities.
 Supplies expense covers office supplies used by a business in the conduct of its daily
operations.
 Insurance expense is the expired portion of premiums paid on insurance coverage such as
premiums paid for health or life insurance, motor vehicles, or others.
 Depreciation expense is the annual portion of the cost of tangible assets such as buildings,
machineries, and equipment charged as expense for the year.
 Uncollectible accounts expense/doubtful accounts expense/bad debts expense means the
amount of receivables charged as expense for the period because they are estimated to be
doubtful of collection.
 Interest expenses are the amount of money charged to the borrower for the use of borrowed
funds.

CHART OF ACCOUNTS
A chart of accounts is a list of all your company’s accounts used, and is listed together in one
place. The main account types include Assets, Liabilities, Owner’s Equity, Income, and
Expenses. Here’s a sample chart of accounts list. This is a chart of accounts for a fictional
business: Ewing Cleaning Supply.

Figure 1: Chart of Accounts

Companies in different lines of business will have different looking charts of accounts.
The chart of accounts should give anyone who is looking at it a rough idea of the nature of your
business by listing all the accounts involved in your company’s day-to-day operations. The
chart of accounts is designed to be a map of your business and its various financial parts. A
well-designed chart of accounts should separate out all the company’s most important accounts,
and make it easy to figure out which transactions get recorded in which account.
PRACTICE

Activity 3- IDENTIFY ME!

Direction: Identify each account if it is part of the Asset, Liability, Owner’s Equity,
Income, or Expense. Write your answer in your Activity/Assessment Notebook. Label
your work Q1-Lesson 5-Activity 3- IDENTIFY ME!
_________________1. Partner A, Drawings
_________________2. Prepaid Insurance
_________________3. Revenue
_________________4. Salaries
_________________5. Interest Payable
_________________6. Land
_________________7. Common Stock
_________________8. Bonds Payable
_________________9. Unearned Revenue
_________________10. Office Equipment
_________________11. Machinery Equipment
_________________12. Uncollectible accounts
_________________13. Partner B, Capital
_________________14. Wages
_________________15. Cash
ENRICHMENT
Activity 4- In My Own Opinion!
Direction: Discuss the following terms based on your own understanding. Copy the
format below and write your answer in your Activity/Assessment Notebook. Label your
work Q1-Lesson 5 - Activity4-In My Own Opinion!.
1. Owner’s Equity-
2. Revenue or Income-
3. Assets-
4. Expenses-
5. Liabilities-

VALUES INTEGRATION
Activity 5
Direction: Answer the question below. Label your work as Q1-Lesson 5- Activity 5-
Values Integration.
1. In your own opinion, why do companies need to create their personalized Chart of
Accounts? What is its importance?
2. In your own opinion, is it better for a company to acquire current or non-current
assets?
EVALUATION
Activity 6- My Personal Chart of Accounts!
Direction: Applying the lessons you learned on the chart of accounts, create your
fictional business and make your very own chart of accounts. Follow the format below.
Write your answer on your Activity/Assessment notebook. Label your work as Q1-
Lesson 5- Activity 6 – My personal chart of Accounts!
CHARTS OF ACCOUNTS
Account Number Account Title Account Number Account Title

Lesson 6
BOOKS ACCOUNTS
Introduction

This section deals with the different book of accounts. This module in Fundamentals of
Accountancy, Business and Management 1 for the 21st century learners is designed to make
learning more engaging and meaningful to ABM Senior High School learners in the flexible
and blended learning environments. The objective of this module is for you to appreciate the
various tools used in recording transactions.
OBJECTIVES/COMPETENCIES – ESTIMATED TIME
Illustrate the format of a general and special
journals.
5 days
Illustrate the formats of a general and
subsidiary ledger.

MOTIVATION
Good day students! In our previous lesson, we discussed the accounting equation. Today,
we will discuss the book of accounts.
Activity 1. Classify Me!
Directions: Identify or classify the concept being referred to. Fill in the blanks
with the word journal or ledger. Write your answer on your Activity/Assessment
notebook. Label your work as Q1- lesson 6- Activity 1- Classify Me!

1. Accounts Receivable Subsidiary __________________

2. Cash Receipts ___________________
3. Purchases ___________________
4. Accounts Payable Subsidiary ___________________
5. Cash Payments ___________________

INSTRUCTION/DELIVERY
The two major types of books of accounts are the Journal and Ledger.
1. JOURNAL
Companies initially record transactions and events in chronological order (the order in
which they occur). Thus, the journal is referred to as the book of original entry. For each
transaction, the journal shows the debit and credit effects on specific accounts.

There are two types of journals, the General Journal and the Special Journal.
A. GENERAL JOURNAL
The general journal is the most basic journal. Typically, a general journal has spaces for
dates, account titles and explanations, references, and two amount columns. The journal makes
several significant contributions to the recording process:
- It discloses in one place the complete effects of a transaction.
- It provides a chronological record of transactions.
- It helps to prevent or locate errors because the debit and credit amounts for each entry can be
easily compared.
Entering transaction data in the journal is known as Journalizing. Companies make
separate journal entries for each transaction. A complete entry consists of:
a. The date of the transaction which is entered in the Date Column.
b. A brief explanation of the transaction which appears on the line below the credit account title.
A space is left between journal entries. The blank space separates individual journal entries and
makes the entire journal easier to read.
c. The column titled P.R (which stands for Post Reference) which is left blank when the journal
entry is made. This column is used later when the journal entries are transferred to the ledger
accounts.
d. The Debit Account title which is entered first at the extreme left margin of the column
headed “Account Titles and Explanation,” and the amount of the debit is recorded in the Debit
column.
e. The Credit Account title which is indented and entered on the next line in the column headed
“Account Titles and Explanation,” and the amount of the credit is recorded in the Credit
column.

A journal entry should contain the Date, Account Titles and Explanation, Posting
Reference, Debit, and Credit. Below is a sample of a General Journal.

DATE ACCOUNT TITLES AND P.R DEBIT DEBIT

EXPLANATION .
xxx
xxx Xxx xxx
xxx xxx
Xxx
To illustrate the recording of transactions in the general journal, let us use the following
transactions as an example:
August 21, 2020 Mr. J Pacs invested PHP500, 000 in a coffee shop business.
August 30, 2020 purchased equipment for his business amounting to PHP100, 000 by cash.
September 6, 2020 started his operations and made a sales for that day amounting to PHP20,
000.
We will now record the above transactions in the General Journal.
DATE ACCOUNT TITLES AND P.R. DEBIT CREDIT
EXPLANATION
2020
Aug 21 Cash 500,000
J Pacs, Capital 500,000
Initial Investment

Aug 30 Equipment 100,000

Cash 100,000
Purchased equipment for cash

Sep 6 Cash 20,000

Sales 20,000
Cash sales for shop operations
Some entries involve only two accounts, one Debit and one Credit. An entry like these is
considered a Simple Entry. Some transactions, however, require more than two accounts in
Journalizing. An entry that requires three or more accounts is a Compound Entry. All of the
transactions in the above examples are simple entries. An example of a compound entry is the
following:
On December 25, 2020, Mr. J Pacs purchased furniture costing PHP80, 000. He pays
PHP30, 000 cash and agrees to pay the remaining PHP50,000 on account . The compound entry
is as follows:
DATE ACCOUNT TITLES AND P.R. DEBIT CREDIT
EXPLANATION
2020
Dec 25 Furniture and Fixture 80,000
Cash 30,000
Accounts Payable 50,000
Bought furniture by paying cash and
the
balance on account
B. SPECIAL JOURNALS
Some businesses encounter voluminous quantities of similar and recurring transactions
which may create congestion if these transactions are recorded repeatedly in a single day or a
month in the general journal. These journals are used to record specific types of high-volume
information that would otherwise be recorded in and overwhelm the general ledger. Take the
case of our example above, if Mr. J Pacs will record the sales per day using the Official Receipt
or Cash Sales Invoice issued, it would be unnecessary and impractical to credit “sales” account
repeatedly. In order to facilitate efficient and practical recording of similar and recurring
transactions, a Special Journal is used.

The following are the commonly used Special Journals:

a. Cash Receipts Journal – used to record all cash that has been received. The cash receipts
journal is used to record transaction involving receipt or collection of cash. The source
document for this journal is the Official Receipts or Cash receipts issued by the business.

The following illustrate the format of a cash receipts journal:

 The date of the transaction is entered in the Date column.
 A brief explanation of the transaction is entered in the description column.
 The column titled Ref. (which stands for Reference) which is left blank when the journal
entry is made. This column is used later when the journal entries are transferred to the
ledger accounts.
 The Debit Cash column represents the amount of cash received for a particular
transaction.

Major categories of receipts, such as cash sales and collection of accounts receivable are
provided with separate columns. These transactions are frequent and repetitive items, therefore
a separate column is provided.
The column sundry is used for various miscellaneous and less regular items, such as
capital investment, receipt of loan proceeds, among others.
b. Cash Disbursements Journal – used to record all transactions involving cash payments. The
cash disbursements journal is the opposite of the cash receipts journal. It is the journal where all
cash payments are recorded.
The source documents used to update this journal are the check voucher or cash voucher,
cash receipts or official receipts from suppliers or vendors. The following illustrate the format
of a cash disbursement journal:
The date of the transaction is entered in the Date column. A brief explanation of the
transaction is entered in the description column.The column titled Ref. (which stands for
Reference) which is left blank when the journal entry is made. This column is used later when
the journal entries are transferred to the ledger accounts.
The Check or Voucher number represents the identifying number of the check issued for
the related cash payment. Most of the time, a check or cash voucher accompanies the
disbursement. The voucher number may be used as the alternative for this column.
The Debit Cash column represents the amount of cash received for a particular transaction.
Major categories of receipts, such cash sales and collection of accounts receivable are provided
with separate columns. These transactions are frequent and repetitive items, therefore a separate
column is provided.
The column sundry is used for various miscellaneous and less regular items, such as
capital investment, receipt of loan proceeds, among others.
c. Sales Journal (Sales on Account Journal) – used to record all sales on credit (on account).
The Sales Journal or Sales on Account Journal is used in recording several sales transactions on
account. The source document for this journal is the charge invoice or sales invoice to various
customers or clients. The following illustrate the format of a Sales Journal:

The date of the transaction is entered in the Date column.

A brief explanation of the transaction is entered in the description column or the name of the
customer.
The column titled Ref. (which stands for Reference) which is left blank when the journal
entry is made. This column is used later when the journal entries are transferred to the ledger
accounts.
The Charge Invoice Number or Sales Invoice Number represents the identifying number
of the source document issued to the customer when the sale was made.
The Debit Accounts Receivable column represents the amount of the sale transactions indicated
in the charge invoice.
The Credit Sales column represents the amount of the sale transactions indicated in the
charge invoice. The source document for this journal is the Charge Invoice issued by the
business.
d. Purchase Journal (Purchase on Account Journal) – used to record all purchases of
inventory on credit (or on account). The Purchase journal or the Purchases on Account Journal
is used to record recurring transactions of purchases on account. The source documents for
purchase journal are the
invoices from the supplier of the company. The following illustrate the format of a Purchase
Journal:
The date of the transaction is entered in the Date column.
A brief explanation of the transaction is entered in the description column or the name of
the supplier The column titled Ref. (which stands for Reference) which is left blank when the
journal entry is made. This column is used later when the journal entries are transferred to the
ledger accounts.
The Charge Invoice Number or Sales Invoice Number represents the identifying number of the
source document issued by the supplier when the items, goods or merchandise were delivered to
the company when the purchase was made.
The Debit Purchases column represents the amount of the goods purchases as indicated in the
charge invoice from the supplier The Credit Accounts Payable column represents the amount of
the goods or items purchased on credit from the supplier. The amount is indicated in the charge
invoice issued by the supplier.

2. LEDGER
The ledger refers to the accounting book in which the accounts and their related amounts
as recorded in the journal are posted periodically. The ledger is also called the „book of final
entry‟ because all the balances in the ledger are used in the preparation of financial statements.
This is also referred to as the T-Account because the basic form of a ledger is like the letter „T‟.
There are two types of ledgers, the General Ledger and the Subsidiary Ledger.

A. GENERAL LEDGER
The general ledger (commonly referred by accounting professionals as GL) is a grouping
of all accounts used in the preparation of financial statements. The GL is a controlling account
because it summarizes all the activities that have taken place as recorded in its subsidiary
ledger. The format of a general ledger is shown below, based on the discussion example on the
general journal:
General Journal Page 1
DATE ACCOUNT TITLES AND P.R. DEBIT CREDIT
EXPLANATION
2020
Aug 21 Cash 110 500,000
J Pacs, Capital 310 500,000
Initial Investment

General Ledger
Account Title: Cash Account No. 110
DATE EXPLANATION J.R. DEBIT CREDIT BALANCE
2020
Aug 21 Initial Investment J-1 500,000 500,000

General Ledger
Account Title: J Pacs, Capital Account No. 310
DATE EXPLANATION J.R. DEBIT CREDIT BALANCE
2020
Aug Initial Investment J-1 500,000 500,000
21
The account portion refers to the Account Title for example: Cash, Accounts
Receivable.
The account number is an assigned number for each account title to facilitate ease in
recording and cross-referencing. The Date column identifies when the transaction happened.
The Item or Explanation represents the source journal and the nature of the transactions.
The Journal Reference identifies the page number of the General or Special Journal from
which the information was taken.
The Debit and Credit columns are used in recording the amount of transactions from the
general journal or special journal. The Balance Column represents the running balance of the
Account after considering the debit and credit amounts. If the running balance amount is
positive, the account has a debit balance whereas if it has a negative running balance, the
accounts has a credit balance.

Posting is the process of transferring information from the journal to the ledger. Debits in
the journal are now correspondingly posted as debits in the ledger, and credits in the journal are
likewise posted as credits in the ledger. The steps in posting are as follows:

a. From the journal, copy the Date of the transaction to the ledger.
b. Under the Journal Reference (J.R.) column of the ledger, copy the page number of the
journal.
c. Under the Debit column in the ledger, transfer the Debit amount from the journal. Similarly,
under the Credit column in the ledger, transfer the credit amount from the journal.
d. After posting the amount to the ledger, write the Account Number in the Posting Reference
(P.R.) column on the journal.

B. SUBSIDIARY LEDGER
A subsidiary ledger is a group of like accounts that contains the independent data of a
specific general ledger. A subsidiary ledger is created or maintained if individualized data is
needed for a specific general ledger account. An example of a subsidiary ledger is the individual
record of various payables to suppliers. The total amount of these subsidiary ledgers should
equal the balance in the Accounts Payable general ledger. An example of an Accounts Payable
Subsidiary Ledgers is shown on the next page.

The upper portion indicates the name of the vendor or supplier. The vendor number is an
assigned number for each vendor as reference in keeping the records of a supplier. The Date
column identifies when the transaction happened. The Item or Description Column describes
the nature of transaction.
The Reference identifies the page number of the general our special journal from which
the information was taken. The Debit and Credit columns reflect the various effects of every
transaction to the record of the supplier or vendor.
The Balance column provides the running balance of every supplier. Take note that the total
running balance for all subsidiary ledgers should equal the Accounts payable general ledger.

The purpose of keeping Subsidiary Ledgers is for accuracy and efficiency. They aid us in
keeping accurate records. Since the total of a certain subsidiary ledger must agree with the
balance shown in the general ledger account, this system helps us find mistakes. It provides an
internal control over record keeping. Today, computerized accounting information systems use
the same method to store and total amounts, but it takes a lot less time.

PRACTICE

Activity 3- JOURNALIZE ME!

Direction: Journalize the following transactions of Tam-is Bakeshop for the month of
December 2020. Use the provided format below. Label your work as Q1-Lesson 6- Activity 3-
Journalize Me!.

2020
December 3 Ms. Tam-is invested Php300, 000 in the business.
5 Paid cash Php 15,000 for electricity bill for the month.
15 Purchased kitchen equipment Php50, 000 on account.
25 Paid baker’s salary for the month, Php20, 000.
Account Titles and
Date P.R. Debit Credit
Explanation
 ENRICHMENT
Activity 4- On My Own Understanding!
Direction: Discuss the following terms based on your own understanding. Write your answer
on your activity/Assessment notebook. Label your work as Q1-Lesson 6- Activity 4- On My
own Undestanding!

1. Cash Receipts Journal –

2. Cash Disbursements Journal –
3. Sales Journal –
4. Purchases Journal –
VALUES INTEGRATION
Activity 5
Direction: Answer the questions below. Label your work as Q1-Lesson 5- Activity 5-
Values Integration.
1. In your own understanding, how important are records in accounting? As a student, is record
keeping is important? How and why?
EVALUATION

Activity 6- My Personal Chart of Accounts!

Let us check how much you learned from this module’s coverage.
Direction: Read and answer each question below. Write your answer on your
Activity/Assessment Notebook. Label your work as Q1-Lesson 6- Activity 5-Evaluation.

1. Where do we record the transactions that we have identified in the accounting process?

2. What are the tools that we use to document these transactions?

Lesson 7
BUSINESS TRANSACTION AND THEIR ANALYSIS AS APPLIED TO THE
ACCOUNTING CYCLE OF A SEVICE BUSINESS
Introduction

OBJECTIVES/COMPETENCIES – ESTIMATED TIME

Illustrate the format of a general and
special journals.
5 days
Illustrate the formats of a general and
subsidiary ledger.

MOTIVATION
 Learning is fun! So enjoy your journey as you unfold the most interesting and worthwhile
activities in accounting.

Activity 2.
Directions: Fill in the blanks with the correct answer. Write your answer on your
activity/assessment notebook. Label your work as Q1-lesson 7-Activity 2.
1. Debit increase in Assets and Credit Decrease in __________.
2. Debit decrease in __________ and Credit increase in Liabilities.
3. Debit decrease in __________ and Credit increase in Owner’s Equity.

4. ____________ and (5). ___________ increases Owner’s Equity.

6. ____________ and (7). _________ decreases Owner’s Equity.

II. Directions: Indicate whether the accounts have a Debit or Credit balance. Put a
check (✓) in the corresponding column.
ACCOUNT DEBIT CREDIT
1. Assets
2. Liabilities
3. Owner’s, Capital
4. Owner’s, Withdrawal
5. Revenues
6. Expenses
I

INSTRUCTION/DELIVERY
RULES OF DEBIT AND CREDIT
The account or accounts to be debited and credited can be determined easily
by applying the rules of debit and
credit. Generally, debit signifies increase in assets, expenses and drawing whereas, credit
signifies increase in liabilities,
capital and revenues. On the other hand, debit signifies decrease in liabilities, capital
and revenues, whereas credit
signifies decrease in assets, expenses, and drawing

Stated differently,

Debit signifies:

Credit signifies:

Increase in Assets
Decrease in Liabilities
Decrease in Capital
Increase in Drawing
Decrease in Revenue
Increase in Expense

Decrease in Assets
Increase in Liabilities
Increase in Capital
Decrease in Drawing
Increase in Revenue
Decrease in Expense