FUNDAMENTALS OF ABM11

ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 1

2ND SEMESTER
MODULE 1
Lesson 1
Introduction to Accounting
 LESSON 1
Introduction to
Accounting

Most Essential Learning Competencies:

At the end of the lesson, the learner
should be able to:
1. Define accounting;
2. Describe the nature of accounting; and
3. Narrate the history/origin of accounting.
Fundamentals of Accountancy, Business, and Management 1 – Module 1 2
 How you spend your allowance every day?

 When deciding between buying a bottle of soft drinks or fruit

juice, what is the basis of your decision?
 Do you compare the prices of both and then decide?
 When going home, do you sometimes choose to
walk from school rather than riding a jeepney
because you want to save?

These questions are connected to accounting.

Accounting is involved in all of our daily activities.
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 ACCOUNTING

Accounting is, broadly speaking, a system that helps

businesses track events that affect them. This process
involves identifying the events that affect a business,
recording these events, and communicating the summarized
results of all events within a particular period to interested
parties.

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 THE ACCOUNTING PROCESS
IDENTIFYING
this involves selecting economic events that are relevant to a
particular business transaction.

RECORDING
this involves keeping a chronological diary of events that are
measured in pesos.
COMMUNICATING
occurs through the preparation and distribution of financial and
other accounting reports.

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 NATURE OF ACCOUNTING
According to Accounting Theory “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:

1. Accounting is a process.
A process is composed of multiple steps that lead to a common
end goal.
•2. Accounting is an art.
Art refers to a way of performing something.

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 NATURE OF ACCOUNTING
3. Accounting deals with financial information and transactions.
Accounting deals only with quantifiable financial transactions.
These are only events identified by the accountant, recorded in
the books, and communicated to different parties.
4. Accounting is a means and not an end.
Accounting is a tool to achieve specific objectives. It is not the
objective itself.
5. 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.
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 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:

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 Early Development in Mesopotamia
During ancient civilizations, people followed a system of writing
and counting money. The development of accounting may be
relate to the taxation and trading activities of temples.

Development in Roman Empire

- The reign of Emperor Augustus (63BC – 14 AD)
- Roman government kept detailed financial information of the deeds of
Emperor Augustus regarding the stewardship of Roman resources.
- Evidenced by the Res Gestae Divi Augusti (The Deeds of the Divine
Augustus).
- Roman historians Suetonius and Cassius Dio recorded that in 23BC,
Augustus prepared a rationarium (account) which listed public revenues,
the amounts of cash in the aerarium (treasury), in the provincial fisci (tax
officials), and in the hands of publicani (public contractors); and that it
included the names of the freedmen and slaves from whom a detailed
account could be obtained.
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 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. 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, Geometria, Proportioni et Proportionalita
(Review of Arithmetic, Geometry, Ratio, and Proportion)
the first book published that contained a detailed chapter
on double-entry bookkeeping. The double-entry
bookkeeping system is defined as any bookkeeping
system that has a debit and a credit for each transaction.
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 19th Century – The Beginnings of Modern
Accounting in Scotland
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).

The Present - The Development of Modern

Accounting Standards and Commerce
At presentDaytimes,
2 accounting standards are already
available to guide accountants in their practice of the
profession. Some of these standards include the
PFRS (Philippine Financial Reporting Standard) and
the PAS (Philippine Accounting Standards).

Fundamentals of Accountancy, Business, and Management 1 – Module 1 11

 LESSON 2
Users of Accounting
Information

Most Essential Learning Competencies:

At the end of the lesson, the learner
should be able to:
• Define external users and gives examples
(ABM_FABM11- IIIa-7).
• Define internal users and give examples
(ABM_FABM11- IIIa-8).
Fundamentals of Accountancy, Business, and Management 1 – Module 1 12
 Users of Accounting Information
Accounting information helps users to make better economic decisions.
Financial reports supply the information these groups demand in order for
them to make decisions connected to the business.
Companies typically produce two types of financial statements:
• General purpose financial statements – intended to provide information
to those who do not have the capability to request directly from the
company.

• Special purpose financial statements – usually produced based on the

requests of parties that have capability to ask for accounting information
directly from the company.

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 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.

Fundamentals of Accountancy, Business, and Management 1 – Module 1 14

 External Users
Decisions made using accounting
Type of User Definition Example of Users information/ Benefits from
accounting information
Patrons, clients, people
Main source of income of acquiring goods or Whether or not to build relationship
Customers businesses; acquire goods and services of a company for with the business, to have any
services for a fee a fee dealings with the business.

Providers of additional funds Banks, lending

when the initial investments institutions, wealthy Whether or not to lend resources to
Creditors of owners is exhausted; lend individuals; sometimes the the business is not very risky before
resources to businesses government can also lend lending funds
usually in the form of money resources to a company
Providers of additional funds
when the initial investment of Wealthy individuals other Whether or not to invest in the
Potential owners is exhausted; invest businesses planning to business, primary concern is the
Investors resources in the business invest ability of the business to provide
hoping to earn decent returns acceptable returns

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 External Users
Decisions made using accounting
Type of User Definition Example of Users information/ Benefits from
accounting information
An external user whose Oversees business operations with
Different government
primary role is to regulate the end goal of improving the
agencies, taxing
Government businesses; studies financial economy; checks the accuracy of the
authorities, government
statements to determine financial statements to compute for
officials
amount of taxes payable the correct amount of taxes payable
Uses accounting information in the
Uses accounting information Professors, lectures, teaching of accountancy; possible
Academe primarily for academic students, and researchers improvements in the field of
purposes accountancy
Citizens and residents of the
country even though they do Concerned with the overall
Common people not
not plan to transact with the performance of the economy; use
General Public connected with the
business; use financial financial information to estimate
company
statements to gauge the economic performance
condition of the economy

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 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. They need more detailed information
on a timely basis in order to support their decisions.

Fundamentals of Accountancy, Business, and Management 1 – Module 1 17

 Internal Users
Decisions made using accounting
Type of User Definitions Example of Users information/ Benefits from
accounting information

Uses financial information in making

Employees that can make Board of directors, top business decisions; allows
Management decisions for the company; management, middle- management to identify problems
considered the brain of the level managers, immediately and to respond
company supervisors accordingly
Persons in the company aside
from managers and owners Laborers, field workers, Check if the business is profitable
Employees or stockholders; do not have non-managerial enough to provide compensation
authority to implement employees and other benefits
decisions

Mainly concerned with the returns

Existing investors of the Founders of the company, earned from their investment;
Owners or company; concerned mostly owners, stockholders, owners taking active roles in the
stockholders with the profits of the
partners, proprietors operations of the business; also
company
make decisions

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