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Fundamentals of Accountancy, Business, and Management 1, Quarter 3 – Module 1:, Introduction to Accounting, Fundamentals of Accountancy, Business, and Management 1, Alternative Delivery Mode, Quarter 1 – Module 1: Introduction to Accounting, First Edition, 2020, Republic Act 8293, section 176 states that: No copyright shall subsist in any work of the Government of the Philippines. However, prior approval of the government agency or office wherein the work is created shall be necessary for exploitation of such work for profit. Such agency or office may, among other things, impose as a condition the payment of royalties., Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names, trademarks, etc.) included in this module are owned by their respective copyright holders. Every effort has been exerted to locate and seek permission to use these materials from their respective copyright owners. The publisher and authors do not represent nor claim ownership over them., Published by the Department of Education, Secretary: Leonor Magtolis Briones, Undersecretary: Diosdado M. San Antonio, Printed in the Philippines by ________________________, Department of Education – Region VI, Office Address: Duran Street, Iloilo City_________________________, ____________________________________________, Telefax: (033)336-2816, (033)509-7653___________________, E-mail Address: [email protected]_________________________, Fundamentals of Accountancy, Business, and Management 1, Quarter 1 – Module 1:, Introduction to Accounting, Introductory Message, For the facilitator:, Welcome to the Fundamentals of Accountancy, Business, and Management 1 Alternative Delivery Mode (ADM) Module on Introduction to Accounting., This module was collaboratively designed, developed and reviewed by educators both from public and private institutions to assist you, the teacher or facilitator in helping the learners meet the standards set by the K to 12 Curriculum while overcoming their personal, social, and economic constraints in schooling., This learning resource hopes to engage the learners into guided and independent learning activities at their own pace and time. Furthermore, this also aims to help learners acquire the needed 21st century skills while taking into consideration their needs and circumstances., In addition to the material in the main text, you will also see this box in the body of the module:, As a facilitator you are expected to orient the learners on how to use this module. You also need to keep track of the learners' progress while allowing them to manage their own learning. Furthermore, you are expected to encourage and assist the learners as they do the tasks included in the module., For the learner:, Welcome to the Fundamentals of Accountancy, Business, and Management 1 Alternative Delivery Mode (ADM) Module on Introduction to Accounting., The hand is one of the most symbolized part of the human body. It is often used to depict skill, action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand in this learning resource signifies that you as a learner is capable and empowered to successfully achieve the relevant competencies and skills at your own pace and time. Your academic success lies in your own hands!, This module was designed to provide you with fun and meaningful opportunities for guided and independent learning at your own pace and time. You will be enabled to process the contents of the learning resource while being an active learner., This module has the following parts and corresponding icons:, At the end of this module you will also find:, The following are some reminders in using this module:, Use the module with care. Do not put unnecessary mark/s on any part of the module. Use a separate sheet of paper in answering the exercises., Don’t forget to answer What I Know before moving on to the other activities included in the module., Read the instruction carefully before doing each task., Observe honesty and integrity in doing the tasks and checking your answers., Finish the task at hand before proceeding to the next., Return this module to your teacher/facilitator once you are through with it., If you encounter any difficulty in answering the tasks in this module, do not hesitate to consult your teacher or facilitator. Always bear in mind that you are not alone., We hope that through this material, you will experience meaningful learning and gain deep understanding of the relevant competencies. You can do it!, This module was designed and written with you in mind. It is here to help you master the introduction to accounting. The scope of this module permits it to be used in many different learning situations. The language used recognizes the diverse vocabulary level of students. The lessons are arranged to follow the standard sequence of the course. But the order in which you read them can be changed to correspond with the textbook you are now using., The module is divided into three lessons, namely:, Lesson 1 – Definition and Nature of Accounting, Lesson 2 – History of Accounting, Lesson 3 – External and Internal Users, After going through this module, you are expected to:, define accounting; (ABM_FABM11-IIIa-1), describe the nature of accounting; (ABM_FABM11-IIIa-2), narrate the history of/ origin of accounting; (ABM_FABM11-IIIa-4), define external users and gives examples; (ABM_FABM11-IIIa-7) and, define internal users and give examples. (ABM_FABM11-IIIa-8), The following are statements about the definition and nature of accounting. Write O if you believe that the statement is part of the definition and nature of accounting and write X if it does not., 1. Accounting is both a science and an art., 2. Accounting is universal., 3. Accounting deals with both financial and non-financial transactions., 4. Accounting follows certain steps and procedures., 5. Accounting is for large companies only., 6. Bookkeeping encompasses all steps in the accounting process., 7. Accountants prepare but do not interpret financial reports., 8. Identification, recording, and communication are the three steps in the accounting process., 9. Identifying phase occurs through the preparation and distribution of financial and other accounting reports., 10. Accounting is a service activity., In order to effectively communicate and understand each other, people must use the same language. In a story called business, accounting is known as its language and the accountant is the storyteller., Mahinhin sold 2 pairs of shoes to Maganda for ₱350.00 each. She bought it from the supplier for ₱250.00 each., How much is Mahinhin’s total sales?, How much is the total cost for the two pairs of shoes?, How much is Mahinhin’s total profit?, What you have just done is an example of simple accounting. To better understand accounting, let us first know its definition., The word “accounting” comes from the French word “compter” meaning to count or score. Other accounting terms are derived from Latin, such as “debit” – “he owes” and “credit” – “he trusts”., Accounting Defined, “Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.”, -American Institute of Certified Public Accountants (AICPA), “Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.”, -American Accounting Association (AAA), “Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.”, -Financial Reporting Standards Council (FRSC), To summarize the given definitions, accounting is a system that helps businesses track events that affect them. This process involves identifying the events that affect a business, recording these, and communicating the summarized results within a particular period to interested parties., There are three (3) important activities implied by the given definitions – identifying, recording, and communicating economic events of the organization to intended users. These activities make up the accounting process. Take a look at the illustration below., IDENTIFYING – This involves selecting economic events that are relevant to a particular business transaction. The economic events of an organization are referred to as transactions., RECORDING – This involves keeping a chronological diary of events that are measured in pesos and cents. The diary referred to in the definition are the journals and ledgers which will be discussed in future chapters., COMMUNICATING – This occurs through the preparation and distribution of financial and other accounting reports it also includes the analysis and interpretation of data for the users., You should also note that the accounting process includes the bookkeeping function, but it only involves the recording of economic events. It is therefore just one part of the accounting process., Based on the definition of accounting as we have discussed earlier, we could derive the following features or natures of accounting:, 1. Accounting is a service activity. Accounting aids decision makers by providing them financial reports that will guide them in coming up with sound decisions., 2. 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., 3. 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. Because it follows certain standards and professional ethics, it is also a discipline., 4. Accounting deals with financial information and transactions. Accounting records financial transactions and data, classifies these and finalizes their results given for a specified period of time, as needed by their users. At every stage, from start to finish, accounting deals with financial information and financial information only. It does not deal with non-monetary or non-financial aspects of such information., 5. Accounting is a means and not an end. Accounting is a tool to achieve specific objectives. It is not the objective itself. Imagine that you dream to go to Paris someday. Accounting can be thought of as the plane that will bring you to your destination., 6. 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., Identify whether the activity occurs in the identifying, recording, or communicating phase of the accounting process. Write your answers on a separate sheet of paper., Preparing financial and other management reports, Classifying events as accountable or non-accountable transactions, Assigning amounts to financial transactions, Preparing journal entries and posting to the ledger, Conducting regular shareholders’ meeting to present results of operations, Accounting is a process of identifying, recording, and communicating financial information to its intended users., The following statements describe the nature of accounting:, It is a service activity., It is a process., It is both an art and a discipline., It deals with financial information., It is a means and not an end., It is an information system., Answer the following on separate sheet of paper., Identify what organization gave the following definitions of accounting., “Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.”, “Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.”, “Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.”, B. Identify the nature of accounting described by the following statements., Accounting helps users of financial report in making decisions., Accounting follows certain standards and professional ethics., It does not deal with non-monetary or non-financial information., Accounting is recognized and characterized as a storehouse of information., Accounting is a tool to achieve specific objectives., In doing accounting, you must follow definite steps., Accounting has a specific technique and it requires skills and expertise, Write your thoughts! On a sheet of paper, write a brief description to answer the following questions in relation to the meaning and nature of accounting., What does “accounting” mean?, What statements can describe the nature of accounting? Give three statements and elaborate each in your own words., Do you agree on the statement, “Accounting is the language of business”? Why or why not?, Using this link, watch a video presentation on the definition of accounting that will enhance your understanding of the concept., The items below are about the historical developments in accounting. Read each item carefully and choose the letter of your choice. Write your answers on your answer sheet., He is known as the Father of Accounting., In which civilization are accountants called the "eyes and ears" of the king?, Which of the following is a significant development in accounting during the 14th century?, During the 19th century, what significant development happened in accounting?, In which century did William Seward Burroughs invent and patent the first workable adding machine?, He is the Father of Cost Accounting., The oldest evidence of record keeping of Mesopotamia which dealt with commercial transactions at the time such as listing of accounts receivable and accounts payable., In which period did the formal accounting profession emerge?, During this period, social upheavals affecting government, finances, laws, customs, and business had greatly influenced the development of accounting., In what country was “tally sticks” used?, Theodore Roosevelt once said, “The more you know about the past, the better prepared you are for the future.” In order to understand the accounting that we are practicing today and to adapt to future developments, it is a must to know how it all started., Accounting started as a simple recording of repetitive exchanges and has evolved in response to various social and economic needs of men., This module will give you a glimpse of the past and will help you appreciate the present., Define Accounting by completing the sentence below., Accounting is a process of _____________, _____________, _____________, economic events of an organization to interested users., The accounting that we are using today is a result of the developments that transpired in the past. The complex system of accounting that we have today began with simple day to day transactions which evolved significantly throughout the centuries., HISTORY OF ACCOUNTING, Evidences show that accounting dates back to as early as the ancient civilizations. The following section narrates the evolution of accounting., Jericho, The first accountant known was “Jerry of Jericho”. He was someone who needed to keep track of what was stored in the temple or king’s granary., Egypt, Dr. Gunter Dreyer of the German Institute of Archaeology recently discovered numerous inscribed bone labels attached to bags of oil and linen in the tomb of King Scorpion I at Abydos, Egypt., The labels dated back 5300 years are the world's earliest known writing. It describes inventory owners, amounts, and suppliers., In ancient Egypt, the accountant was called the "eyes and ears" of the king., “Zero” was not yet invented., Sumeria and Mesopotamia, Token system expanded. This was used as evidence of transactions., Clay “envelopes” or tablets dated from around 4000 BC in Sumeria, Complex tokens evolved about 3700 BC, Use of lines, notches, and other markings used as abstract representations of wealth and the development of numbers, These evolved into cuneiform., Use of sealing tablets, Babylonia, 59 symbols were built from just two symbols., Greece, The public economy of the Athenians had a highly developed system of accounting and auditing., Accounts were kept by clerks and controlled by “checking clerks.”, Accountability was assured by public exposure of accounts on stone., Rome, Practices of private life led to public accounting process, Transactions were first entered in a “day book” (memorandum or “adversaria” in Latin)., Monthly, the entries were transferred to the ledger (“codex tabulae”). The codex could be used in court to substantiate contracts and claims., In government, there was separation of responsibilities., Use of tally sticks started., China, India, and Greece - Invention of Money, Coins appeared to be a simultaneous but independent development at about the same time in China, India, and Greece., 63BC-14AD, The Roman government kept detailed financial information of the deeds of Emperor Augustus regarding the stewardship of Roman resources., This is evidenced by Res Gestae Divi Augusti (The Deeds of the Divine Augustus), 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 the publicani (public contractors); and that it included the names of the freedmen and slaves from whom a detailed account could be obtained., 14th Century, The year Luca Pacioli, the Father of Accounting was born., He wrote the book entitled "Summa de Arithmetica, Geometria: Proportioni et Proportionalita"., One section of the book was devoted to methods of recording merchant transactions, including ideas about double-entry bookkeeping., 17th Century (The French Revolution), 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., Rise of cost accounting, Josiah Wedgwood – Entrepreneur & Cost Accountant, 18th Century, William Seward Burroughs invented and patented the first workable adding machine in 1885 in St. Louis, Mo., Production increased dramatically after 1900., 19th Century, The beginning 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)., Present, At present times, accounting standards are already available to guide accountants in their practice of the profession. Some of these standards are the GAAP, IFRS/PFRS and the IAS/PAS. These standards are continually developed and improved to suit and accommodate the changing needs of businesses and various organizations., The most notable development in the present is the increased dependence on digitalization and smart technologies, continued globalization of the accounting profession, and the imposition of increased regulations on the profession., On a separate sheet of paper, copy, and arrange the following events correctly as they appear in the timeline of accounting by writing the numbers 1-5 on the space provided., ________ Development in the Roman Empire, ________ Signing of Charter by Queen Victoria, ________ Early development in Mesopotamia, ________ Formation of accounting standards such as IAS and IFRS, ________ Dissemination of double-entry bookkeeping in Italy, Accounting is as old as civilization itself., Accounting started as a simple recording of repetitive exchanges and has evolved to Accounting standards used today., Bear in mind that accounting is dynamic and will continue to change over time to address the needs of the society., Below is a table with two columns. Listed under column A are the developments in accounting under column B are the periods in history. Match the development in accounting with its period by writing the letter of your answer on a separate sheet of paper., On a separate sheet of paper, copy the table below and narrate the history of accounting by giving one significant development in each period., Using this link, watch a video presentation on the brief history of accounting. Carefully observe and list down at least three (3) similarities in the video and in this module., The following are users of financial information. Classify each of the following as either external user by writing E, or internal user by writing I. Use a separate sheet of paper for your answers., On a separate sheet of paper, copy, and arrange the following events correctly as they appear in the timeline of accounting by writing the numbers 1-5 on the space provided., ________ Rise of Cost Accounting, ________ Use of clay “envelopes” or tablets, ________ Increased dependence on digitalization and smart technologies, ________ Dissemination of double-entry bookkeeping in Italy, ________ Invention of Money, There is a saying “No man is an island”. There is no known business that is established just to transact with itself. Every business is influenced by a certain internal and external factors. Internal parties are those who are directly involved in the operations of the business. There are also parties, although outside of the company, who have stake or interest in the business., In order to build a lasting relationship, communication is key. In business communicating accounting information to these different parties empowers them to make better economic decisions., The users of accounting information are divided into two (2) broad groups: External Users and Internal Users., External Users, External users are parties outside of the organization but affect and are affected by the organization. They are communicated with accounting information usually in the form of financial statements. The purpose of financial statements is to cater for the needs of such diverse users of accounting information in order to assist them in making sound financial decisions., Customers – They are the main source of income of businesses and they acquire goods and services for a fee. Customers have interest in the accounting information for assessing the financial position of a business, especially, when they have a long term involvement with, as it enables to maintain a steady source of business., Creditors – They are the providers of additional funds when the initial investment of owners is exhausted and lend resources to businesses usually in the form of money. Creditors are interested in accounting information because it enables them to determine the credit worthiness of the business. The credit terms and standards are set on the basis of the financial health of a business, so, it helps them to analyze by using the accurate information accordingly., Potential Investors – They are the providers of additional funds when the initial investment or owners is exhausted and they invest resources in the business hoping to earn decent returns. They need the information because they are concerned with the risk inherent in investing and the returns. Since it is important to assess the feasibility of making investments in the company, they need to analyze before they provide any financial resources to the company., Government – This is an external user whose primary role is to regulate businesses and studies financial statements to determine amount of taxes payable. Government wants to know earnings or sales for a particular period for the purpose of taxation., Academe – They use accounting information primarily for academic purposes. The academe is not confined in the accountancy field but for other fields of study like banking and finance, entrepreneurship, and economics similarly make use of financial statements., General Public - The general public is the last group considered to be an external user. Citizens and residents of the country even though they do not plan to transact with the business. They use financial statements to gauge the condition of the economy. By analyzing the financial statements of the companies, the public can properly respond to the various economic cycles., Internal Users, Internal users refer to the members of a company's management and other individuals who use financial information in running and managing the business. They work within the company and make decisions for the business., Management – The management makes decisions for the company and is considered as the brain of the company. Management needs the accounting information to evaluate the performance of the organization and position, so that the necessary measures may be taken to bring, improvements in terms of business results. Besides, accounting information is useful to help managers do their jobs better., Employees – They are persons in the company aside from managers and owners who do not have authority to implement decisions. Employees use the accounting information to find out the financial health, amount of sales and profitability of business to determine their job security, the possibility of future remuneration, retirement benefits, and employment opportunities., Owners (or Stockholders) - They are the existing investors of the company and the ones concerned mostly with the profits of the company. Owners use the accounting information for analyzing the viability and profitability of their investments. Accounting information enables the owners to assess the ability of the business organization to pay dividends. It also leads them to determine any future course of action., How these users make use of the accounting information will depend on the decisions they have to make. Below is a summary of all the users of accounting information, their examples, and the decisions that they make based on the accounting information., Match the user of accounting information in column A to the decisions made using the accounting information in column B. Write the letter of you answer only. Use a separate sheet for your answers., External users are parties outside of the organization but affect and are affected by the organization., Examples, customers, creditors, potential investors, government, academe, general public, Internal Users refer to the members of a company's management and other individuals who use financial information in running and managing the business., Examples, Management, Employees, Owner, The following are statements about the internal and external users of financial information. On a separate sheet of paper write TRUE if the statement is true and FALSE if otherwise., 1. Financial Statements are beneficial to a wide range of internal and external, users., 2. Investors acquire goods and services for a fee., 3. Creditors are less concerned with the riskiness of a company than the, customers., 4. The difference between potential and existing investors is the fact that potential, investors have already taken the risk., 5. External users include creditors, customers, and general public, 6. Unlike creditors who are assured to earn the interest and fees, investors may win, or lose in their investment., 7. Management includes Top management, Supervisors, field workers, and board of, directors., 8.The academe is an internal user of accounting information while government is, an external user., 9. Accounting information is not useful to any user if it is communicated in an, untimely manner., 10.The primary reason why employees need accounting information is to enable, them to perform better for the benefit of the company., Read each item carefully. Choose the correct answer from the given choices. Write the letter of your answer on a sheet of paper., 1. Which of the following statements about users of accounting information is, incorrect?, 2. The internal users of financial information include ___________________., I. Owners, II. Potential Investors, III. Employees, 3. These users require information on risk and return on investment., 4. These users are interested in information that enables them to assess whether, the loans owing to them will be paid when due., 5. Which of the following is an external user of financial information, 6. These users are interested in information that will enable them to assess the, ability of an entity to provide retirement benefits and employment opportunities., 7. Of all the external users, which group would most least likely examine a, company’s financial statements?, 8. Statement 1: Potential Investors are Internal users., Statement 2: Existing Investors are Internal users., 9. Which of the following does NOT fall under the category of customers?, 10. Ms. Adira is a professor in accountancy in the BS Accountancy program of the, University of the Philippines. She is also a stockholder of TwinSoles Company., In the point of view of TwinSoles Company, Adira is _____., On a separate sheet of paper, answer the following questions about the users of financial information in not less than five (5) sentences., In your own point of view, which external user benefits the most from accounting information? Explain., How about among the internal users? Explain.