Grade 8 English, Music, and Arts Weeks 1-2, Second Quarter

A Grasp of
Accounting
Fundamentals

In this module, you are expected to learn about the nature, concepts, and principles of
accounting. Also, you will be introduced to different people involved in various business
transactions. These are just some of the major and relevant foundations of accounting which
we are about to discover!
Isn’t it exciting?
Get ready as we learn the fundamentals of accounting!
 Grade 8 English, Music, and Arts Weeks 1-2, Second Quarter

Getting Ready!
At the end of this module, the students will be able to:
a. Define accounting
b. Describe the nature, concepts, and principles of accounting
c. Distinguish the users of financial information as external and internal
d. Solve exercises on accounting principles as applied in various cases
e. Perform operations involving simple cases with the use of accounting equation

Getting Started!
Encircle the words that are related in accounting. After that, write the words you have found on the box
below.

L I A B I L I T I E S

E N S F I N A N C E T

D V S G H J O L H I N

G E E X C A K N A D F

E S T - A C C O U N T

R E S T R E P O R T N

G R T B U S I N E S S

A U D I T I N G R Z X

Going Deeper!
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 Grade 8 English, Music, and Arts Weeks 1-2, Second Quarter

The process of planning, recording, analyzing, and recording

financial information is called accounting.
It is considered as “the language of business”.

Accounting Equation
Accounting equation shows the relationship among assets, liabilities, and owner’s
equity.

Assets = Liabilities + Owner’s Equity

Accounting equation must be balance.

The total amounts on both left and right side must be equal.

Nature of Accounting
1. Accounting is a process.
Accounting is recognized as a cycle as it plays out the particular assignment of gathering,
handling and conveying money- related data. In doing as such, it follows basic steps like collection
of data recording, classification summarization, finalization and reporting.

2. Accounting is an art.
Accounting is a craft of recording, classifying, summarizing, and finalizing money-related
information. Its distinct strategies and its appropriate application requires applied aptitude and
mastery.

3. Accounting is means and not an end.

Accounting discovers the monetary outcomes and position of an element and a similar time.
It imparts this data to its clients. The clients at that point take their own choices based on such data.
Thus, it tends to be said that simple keeping of records can be the essential goal of any individual.
Then again, the principle goal might be distinguished as taking choices based on money-related data
provided by accounting. Consequently, accounting itself isn't a target, it helps accomplishing a
particular goal.
4. Accounting deals with financial information and transactions.
Accounting records the budgetary exchanges and date in the wake of arranging the
equivalent and finishes their outcome for a distinct period for passing on them to their clients. Thus,
from beginning as far as possible, at each stage, accounting manages budgetary data. Just monetary
data is its topic. It doesn't manage non-money related data of non-budgetary perspective.

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 Grade 8 English, Music, and Arts Weeks 1-2, Second Quarter

5. Accounting is an information system.

Accounting is perceived and described as a storage facility of data. As a help work, it gathers
measures and conveys budgetary data of any substance. This order of information has been
developed out to address the issue of money-related data needed by various interested groups.

Source: https://accountingtheory.weebly.com

Accounting Information Users

Communication about financial information is done by different users. These users are
characterized into two:
1. External users – people who are outside the business but are interested in the company’s financial
information.
Example: government, banks, investors, suppliers, creditors, customers
2. Internal users – people who are within the business and regarded as the first ones who would be
interested in financial information.
Example: board of directors, managers, owners, company employees

The General Accepted Accounting Principle (GAAP)

GAAP pronounced as “gap” is a principle that gives standards and rules that accountants follow
when reporting financial activities.

Accounting Concepts
The development of accounting standards from GAAP/IFRS is based on these various concepts:
a. Entity concept
This concept states that a business is considered separate and distinct from the owner. This
requires that there should be separate records for the business and personal activities of the owner.
b. Going concern concept
This concept assumes that the business will continue its operations for an indefinite period
unless there is an indication to the contrary.
c. Accrual concept
This concept gives rise to receivables and payables. Incomes or revenues are recorded as
long as the procuring cycle is finished regardless of whether payment has been received or not. On
the contrary, expenses are still recorded even if the payment has been received or not.
d. Period concept
In this concept, the life of business is divided into periods. At the end of each period,
financial activities are summarized through financial reports.
e. Unit of measure
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 Grade 8 English, Music, and Arts Weeks 1-2, Second Quarter

In accounting, a certain monetary unit is crucial in means of recording all the financial
transactions of the company. Philippine peso (₱), the currency of Philippines, is used for all financial
transactions.
f. Matching concept
This concept requires proper matching of expenses against the revenues. All expenses
incurred for the period must be recorded whether it is paid or not. It must be recorded in the same
period with the recognized revenues to avoid understatement of expenses in one period and
overstatement in another period.
g. Dual effect concept
This concept indicated that every business transaction will cause a value received and a value
given up. Every transaction affects at least two accounts and affects accounting equation in both
sides (debit and credit).
h. General-purpose concept
This concept makes financial reporting understandable for both external and internal users.

Check our Google Classroom for accounting videos

and exercises.

Going Further!

Exercise 1: Write T if the statement about accounting is true and F if false. Write your
answer on the space provided before the number.
_____1. Accounting is an art because we can use different artistic skills in recording,
classifying, summarizing, and finalizing a statement of account.
_____2. Keeping of records is only applicable for clients only.
_____3. In accounting, reporting is not needed when you have your records.
_____4. Accounting is a step by step process.
_____5. Accounting is a storage facility of data.
Exercise 2: Check the boxes where the accounting users belong.

1. Company employees 4. Business managers

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 Grade 8 English, Music, and Arts Weeks 1-2, Second Quarter

Internal External Internal External

2. Owner of a business 5. Banks

Internal External Internal External

3. Clients
Internal External

Exercise 3: Identify the accounting concept in each item. Write the letter of your answer
on the space provided before the number.
A. Entity E. Unit of measure
B. Going concern F. Matching
C. Accrual G. Dual effect
D. Period H. General purpose

_____1. Life of business is divided into periods wherein financial reports are submitted at the end of each
financial period
_____2. Philippine currency
_____3. Makes financial reporting understandable for both external and internal users
_____4. Requires proper matching of expenses against the revenues
_____5. Gives rise to receivables and payables
_____6. Debit and credit are affected in every transaction
_____7. Separates records for the business and personal activities of the owner
_____8. Proper matching of expenses against the revenues is required

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This material is owned by St. Theodore School of Taguig. Unauthorized reproduction and distribution are strictly prohibited.