Senior High School

Fundamentals of
Accountancy, Business and
Management 1
Quarter 3 - Module 1:
Introduction to Accounting

Department of Education  Republic of the Philippines

Fundamentals of Accountancy, Business and Management 1 - Senior High School
Alternative Delivery Mode
Quarter 3 - Module 1: Introduction to Accounting
First Edition, 2020
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 Senior High School

Fundamentals of
Accountancy, Business
and Management 1
Quarter 3 - Module 1:
Introduction to Accounting

This instructional material was collaboratively developed and reviewed by

educators from public and private schools, colleges, and universities. We
encourage teachers and other education stakeholders to email their feedback,
comments, and recommendations to the Department of Education at
action@deped.gov.ph.

We value your feedback and recommendations.

Department of Education  Republic of the Philippines

 Table of Contents

Introduction ---------------------------------------------------------------------- i-v

What I need to know
Module Content
General Instructions
What I Know
Lesson 1 ---------------------------------------------------------------------- 1-16
What’s New
What Is It
What’s More
What I have learned
What I can Do
Additional Activity
Post-test ---------------------------------------------------------------------- 17
Assessment

Answer Key ---------------------------------------------------------------------- 18-22

References ---------------------------------------------------------------------- 23-24

i
 What I Need To Know

For the Learners

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.
“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.

Module Content
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 example 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.
Meaningful activities are given in the form of worksheets, assignments and
online or virtual activities which allow learners to work at their own pace. As you go
along, you will know the definition, nature and history or origin of accounting. This
module will let you know the external and internal users of financial information. Here,
you are going to solve exercises and problems on the identification of users of
information, type of decisions to be made, and type of information needed by the users.
In addition, you will also cite users of financial information, and identify whether they
are external or internal users.
Learning is fun! So enjoy your journey as you unfold the most interesting and
worthwhile activities in accounting.

ii
 General Instructions

To do well in this module, you need to remember 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.

iii
 What I Know

Instructions: Choose carefully the letter that best describes your answer.
Write your answer on the space provided before the number.
____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

iv
 ____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

v
 The Definition, Nature and History
of Accounting

These are the competencies included in this lesson:

 Define accounting (ABM_FABM11-IIIa- 1)

 Describe the nature of accounting (ABM_FABM11-IIIa-2)

 Narrate the history/origin of accounting (ABM_FAB M11- IIIa-4)

What's New

Activity 1
Directions: Explain the three highlighted words in the infographic.
Write your answer on the lines provided below.

1
 What Is It

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;

2
 >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.

3
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.

4
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.

5
 What's More

Activity 2

Directions: Go back to the unanswered question in the introduction of this topic.

Write your answer on the lines provided below.

Is accounting important to you? Does it affect your daily

activities? How?

___________________________________________________

What I Have Learned

Activity 3

Instructions: Answer the questions according to your own understanding. Write your
answer on the lines provided below.

1. Define Accounting.

6
2. Give examples of decisions or questions that can be supported by accounting
information.

What I Can Do

Activity 4
Instructions:
1. You will create an infomercial on the nature and evolution/history of accounting.
2. Be Creative.
3. Submit your video presentation only in one file through cellphone, usb or any of
your convenience.
Guidelines:
Use any media platform at your convenience
Maximum of 2 minutes
You can use Mother Tongue, Tagalog or English as language
Wear casual attire

7
Self-Check!
Great job! You have completed Lesson 1 successfully! Before going to the next
lesson, check the icon that best shows your learning experience.

I have understood the lesson well, and I can even

teach what I learned to others.

I have understood the lesson, but there are still other

things that I need to review and relearn.

I need to do additional work to be able to master the

lesson. I need help in some tasks.
If you checked the first icon, you are ready for lesson 2.
If you have checked the first icon, you can proceed to the next lesson. If you
have checked the second icon, you need to review the things that you need to relearn.
If you have checked the third icon, it would be best if you read more and ask help from
your teacher, parents or peers in clarifying the lessons that you find it difficult. Be
honest so that you will truly improve.

Additional Activity

After doing the activities:

I noticed _______________________________
A question I have is _______________________________
I’m not sure _______________________________
I realized _______________________________

8
 Assessment

Let us check how much you have learned from this module's coverage.

Fill in the blank: Write your answer in the blank provided before the number.
_____________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.

9
 The External and Internal Users of
Financial Information

These are the competencies included in this lesson:

 Define external users and gives examples (ABM_FAB M11- IIIa-7)

 Define internal users and give examples (ABM_FA BM11- IIIa-8)

What's In

Activity 1. Review
Directions: Complete the statement. Write your answer on the lines provided
below.
In the previous lesson I learned that ______________________________________
___________________________________________________________________
___________________________________________________________________

What's New

Activity 2
What business would you want to enter into?
Sample businesses:

10
Instructions: Choose one of any business. Write your answer on the lines provided.

Question 1- If you would like to own a business, what kind of business would you
endeavor, and what do you want to know about the business?

Question 2- What possible decisions can accounting support?

What Is It

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:

11
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.

12
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.

13
 What's More

Activity 3
Instructions: Answer the questions below. Write your answer on the lines provided.

Give an example of External Users?

__________________________________________________

What kind of information do users need that can be answered by

Accounting?

______________________________________________

What decisions of external users that are supported by accounting

information?

______________________________________________________
__

What I Have Learned

Activity 4
Directions: Answer the questions below. Write you answer on the lines
provided.
1. Is the Local Government Unit (LGU) interested in your accounting reports?

___________________________________________________________________

2. Are the officers of the Local Government Unit internal or external users? Why?

14
 What I Can Do

Activity 5
Instructions: Using the graphic below. Write at least four frequently asked
questions by Internal Users. Write your answer on the lines provided.

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Self-Check!
Great job! You have completed Lesson 2 successfully! Before going to the next
lesson, check the icon that best shows your learning experience.

I have understood the lesson well and I can even teach

what I learned to others.

I have understood the lesson but there are still other

things that I need to review and relearn.

15
 I need to do additional work to be able to master the
lesson. I need help in some tasks.
If you checked the first icon, you are ready for lesson 2.

If you have checked the first icon, you can proceed to the next module. If you
have checked the second icon, you need to review the things that you need to relearn.
If you have checked the third icon, it would be best if you read more and ask help from
your teacher, parents or peers in clarifying the lessons that you find difficult. Be
honest so that you will truly improve.

Additional Activity

After doing the activities:

I noticed _______________________________
A question I have is _______________________________
I’m not sure _______________________________
I realized _______________________________

16
 Assessment

Essay

Instructions: Answer the questions according to your own understanding. Write

your answer on the lines provided below.

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.

17
 CONGRATULATIONS
FOR COMPLETING THIS MODULE!
 18
Activity 2
Yes, accounting is very important.
Activity 1
It affects our daily activities in a way
that we account everything we do.
IDENTIFYING – this involves selecting Example, my parents give me one
economic events that are hundred pesos of daily allowance in
school. Breakdown as follows;
relevant to a particular business
transaction Allowance P100
The economic events of an Expenses:
organization are referred to as
Fare (Tricab) P20
transactions.
Morning Snack 20
Examples of economic events or
transactions - In a bakery business: Lunch 30
• sales of bread and other bakery Afternoon snack 20 (90)
products
Balance P10
RECORDING – this involves keeping
a chronological diary of events that are
measured in pesos. The diary referred
to in the definition are the
journals and ledgers which will be
discussed in future chapters.
Pre-test
COMMUNICATING – occurs through
1. C 6. A 11. B
the preparation and distribution of
2. B 7. A 12. D
financial and other accounting reports.
3. D 8. C 13. A
4. B 9. D 14. C
5. C 10. B 15. E
(Lesson 1)
Answer Key
 19
Activity 3
1. Accounting is the process of
IDENTIFYING, RECORDING and
COMMUNICATING
economic events of an organization for
interested users.
2. • Is my business earning?
Post-test
(profitability)
1. Transactions
• How much daily or monthly sales do I
need in order to recover my fixed cost? 2. Accounting
(break-even)
3. Process
• Do I need to hire additional workers to
4. Recording
help me with my production?
5. Art
• Can I afford to set up a new store in
another place? Where do I get the 6. Clay Tablet
funds? (financing decisions)
7. Luca Pacioli
• Can I afford to pay a bank loan?
Activity 4
Video Presentation
 20
Activity 2
1.
• How much income have I earned
for a certain period?
• How much receivables do I
have?
• How much do I owe my
suppliers?
• How much is the value of my
inventory?
2.
• Will I be able to pay my liabilities
Activity 1
if I earn this much?
I have learned in the previous lesson that
• Can I expand my business? Will I
accounting is a systematic process of
be able to afford buying new
identifying, recording, measuring,
equipment?
classifying, verifying, summarizing,
• Do I need to adjust my selling interpreting and communicating financial
price? information.
• Do I need to cut costs? One nature of accounting is, it is a service
activity and the father of accounting is Luca
Pacioli.
(Lesson 2)

Activity 4
1. Yes. The LGU will check
whether you are paying your
local taxes. As required,
businesses must have a
business permit before they are
allowed
to operate in the city or
municipality. This is renewed
every year, with appropriate
taxes paid. The local government
may review your
accounting records to check
whether you are declaring or
paying the correct taxes.
2. External. They are not directly
involved in the operation or
management of the business.
21
Activity 5
1. Is cash sufficient to pay
bills?
2. What is the cost of
manufacturing each unit of
product?
3. Can we afford to give
employee pay raises this
year?
4. Which product line is the
most profitable?
Activity 3
potential investors –
Income or profit of the business
resources or assets of the business
liabilities or amount owed by the
business to its suppliers
taxes paid by the business
salaries and other benefits paid to
employees
Potential Investors – Is it profitable
for me to invest in this business?

Activity 3
1. Yes. The LGU will check whether
you are paying your local taxes. As
required, businesses must have a
business permit before they are
allowed
to operate in the city or municipality.
This is renewed every year, with
appropriate taxes paid. The local
government may review your
accounting records to check whether
you are declaring or paying the correct
taxes.
2. External. They are not directly
involved in the operation or
management of the business.
22
Post Test
1. Owners – They use the accounting
information for analyzing the viability
and profitability of their investments.
Owners invest capital to start and run
business with the primary objective to
earn profit. They need accurate financial
information to know what they have
earned
2. Investors- They use financial
statements to obtain valuable
information used in the valuation and
credit analysis of companies. ...
Knowledge of accounting helps investors
determine an assets' value, understand a
company's financing sources, calculate
profitability, and estimate risks
embedded in a company's balance sheet.
3. Internal users are people within a
business organization who use financial
information. While External users are
people outside the business entity
(organization) who use accounting
information.
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24
For inquiries or feedback, please write or call:

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