QUEEN ANNE SCHOOL

MODULE IN FUNDAMENTALS OF ACCOUNTANCY ANDBUSINESS MANAGEMENT 1

WEEK 1

Reference Number: 202011A1-01

Name: Grade and Section:
Subject Teacher: Ms. Monica Joyce B. Naperi LRN:
I. OBJECTIVES
1. define accounting ABM_FABM11- IIIa-1
2. describe the nature of accounting ABM_FABM11- IIIa-2
3. explain the functions of accounting in business ABM_FABM11- IIIa-3
4. narrate the history/origin of accounting ABM_FABM11- IIIa-4
Learning Targets
 I CAN define accounting.
 I CAN describe its nature.
 I CAN explain the functions of accounting in business.
 I CAN give examples of business transactions and decisions requiring the need for accounting.
 I CAN narrate the history of accounting.
II. SUBJECT MATTER
TOPIC: Introduction to Accounting
CONTENT:
1. Nature of accounting
2. Function of accounting in business
3. History of accounting
III. LEARNING RESOURCES
The Commission on Higher Education in collaboration with the Philippine Normal University
Teaching Guide for Senior High School FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND
MANAGEMENT 1 SPECIALIZED SUBJECT | ACADEMIC - ABM
https://drive.google.com/file/d/0B9Eg9DdzmSYCa2p4TWxJWFJhUTg/view
IV. PROCEDURE
 Define Accounting
 Determine the nature of Accounting
 Identify the functions of Accounting
 Know the history of Accounting
V. ASSESSMENT
Day 1. Definition of Accounting
Day 2. Acronym
Day 3. Explanation
VI. AGREEMENT ENRICHMENT
Read and answer the given activities & assessment for the week. Submit your output on specified date of retrieval
Noted by :

____________________________________
Name and Signature of parents/guardian

____________________________________
Date
DAY 1
Definition of Accounting
“Accounting is the process of IDENTIFYING, RECORDING, and COMMUNICATING economic events of an
organization to interested users.” (Weygandt, J. et. al)
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. Examples of economic events or transactions - In a
bakery business:
• sales of bread and other bakery products
• purchases of flour that will be used for baking
• purchases of trucks needed to deliver the products
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.
COMMUNICATING – occurs through the preparation and distribution of financial and other accounting reports.

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,
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.
• 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.
DAY 2
Continuation
Function of Accounting in Business
Accounting is the means by which business information is communicated to business owners and stakeholders. The role
of accounting in business is to provide information for managers and owners to use in operating the business. In addition,
accounting information allows business owners to assess the efficiency and effectiveness of their business operations.
Prepared accounting reports can be compared with industry standards or to a leading competitor to determine how the
business is doing. Business owners may also use historical financial accounting statements to create trends for analyzing
and forecasting future sales.
Accounting helps the users of these financial reports to see the true picture of the business in financial terms. In order for
a business to survive, it is important that a business owner or manager be well-informed.
Mr. Juan is a retired government employee who is good at baking. One day he decides to put up a bakery shop in your
barangay. He renovates a portion of his house to serve as the area for the production of bread. He purchases baking
equipment and raw materials to produce five different types of bread. Mr. Juan also hires Jose to help him with the
baking and, at the same time, to be in-charge of sales. Mr. Juan pays Jose on a weekly basis. Every day, Mr. Juan’s wife
deposits the daily cash sales in their bank account at XY Savings Bank. With the help of accounting, what possible
decisions or questions of Mr. Juan can accounting provide an answer to? Possible Answers: • Is my business earning?
(profitability)
• How much daily or monthly sales do I need in order to recover my fixed cost? (break-even)
• Do I need to hire additional workers to help me with my production?
• Can I afford to set up a new store in another place? Where do I get the funds?
• Can I afford to pay a bank loan? Discuss
The Role of Accounting

The purpose of accounting is to provide financial information to the stakeholders of the business: management,
investors and creditors. Accounting measures and summarizes the activities of the company and communicates the
results to management and other interested parties

Managers need accurate and timely financial data to make intelligent decisions, and accountants are the ones who
produce this information. While the accounting process collects the data and presents it in various types of reports, the
accountants help interpret the meanings of the reports and suggest ways to use these details to solve business problems.

Accounting can be classified in two forms: management and financial. Management accounting helps to run the
business, while financial accounting reports on how well it's running.

Internal Management Accounting

Managerial accounting produces internal reports that are designed for management and are used for decision-making.
These reports are modified and adapted to the specific purposes and needs of individual managers and are not usually
released to parties outside the company.

A few examples of management accounting reports are aging of accounts receivable, inventory levels, monthly sales
and status of accounts payable. Internal accounting reports are also used for the preparation of budgets and forecasts.

Accounting Data for Decision-Making

Running a business requires accurate data about the company's assets, liabilities, profits and cash position. Accounting
provides this crucial information. Accounting plays a significant role in evaluating the viability of investments. Proper
consideration of an investment demands a careful analysis of costs and projections of expectations for future cash
flows. Certain criteria, such as determining hurdles to return on investment, must be met.

Consider the decision managers often face of whether to invest in a new plant or expand the existing facilities. A choice
might be to invest $1 million in a new production facility or spend $300,000 to expand a production line. Each
alternative will have different cash outflows in the beginning and varying future cash inflows. Each approach will have
a different return on investment. So, which one should management choose? The company's accountants will analyze
the figures for each investment, calculate the rate of return for each project and present their findings to management.

This is a situation where accounting procedures produce the relevant financial data that management needs to make
intelligent decisions. They also have to explore the various ways to finance these investments. Decisions must always
be backed up with valid facts and figures.
Accounting for Government Regulations

Businesses must comply with government regulations and pay taxes on corporate income, Social Security taxes and
sales. Accountants make sure the filings are accurate and on time. Any mistakes made when reporting income can
result in fines and penalties.

Accounting for Planning

Successful organizations create plans to achieve their objectives. These plans include cash flow projections, sales
planning, purchases of fixed assets and projecting inventory levels. An accounting analysis of historical data will
provide the basis for making forecasts and developing plans to meet those targets.

Using Accounting Data for Budgeting

Budgets are essential to running a successful business. Accounting uses historical data to form the basis for future
budgets and cost controls. With this information, managers can prepare overhead expense budgets and sales plans, and
create cash flow projections. Then they monitor the regular accounting reports to make sure costs stay within the
budgets.

Cost Accounting for Products

Manufacturing companies use cost accounting to calculate the cost of making products, determine break-even sales
volumes and set optimum inventory levels. Managers need to know how much it costs to make their products to
develop pricing strategies that allow the company to make a reasonable profit

An important responsibility of management is to control costs. However, to do this, managers must have predetermined
standard costs of operations to use as yardsticks for measurement.

Take, for example, a company that manufactures yellow widgets. The company's accountants have determined that
manufacturing costs for this product include $2.57 in materials, $8.38 in labor and applied production overhead of
$3.16 per unit. The total cost of production for a yellow widget is $14.11. The selling price is $23.51, giving the
company a gross profit margin of 40 percent.

With these figures in hand, management can monitor production costs on a weekly or monthly basis to make sure the
costs of production do not exceed these standards. If accounting reports show a discrepancy above the intended cost of
manufacturing, then management knows to step in, find the cause of the problem and take corrective action.

Accurate accounting of manufacturing costs for each product is essential to the development of a sales plan and a
projected product mix. More than likely, each product will have a different gross profit contribution, and management
must establish sales goals for each item to reach the overall gross profit level needed to cover overhead and produce the
target net profit.

Ratio Analysis Based on Financial Data

Financial ratios are vital metrics used to gauge the performance of all aspects of a company's condition and operations;
accounting provides the data required to construct these ratios. A company's liquidity is measured by the current and
quick ratios. Profit margins and expenses are reported as percentages of sales and compared to budgeted benchmarks.
Financial leverage is a ratio of total debt to capital investment.

What-If Strategies

Managers often meet with department heads to discuss possible changes in strategies and operations. They explore
various "what-if" ideas. For example, what would happen if the company decided to improve profits by cutting
administrative salaries? Would that be a good idea? Probably not. Employees don't like cuts in their wages.

But what if the managers chose to stimulate sales by lowering the selling prices of the products? Profits per unit would
go down, but the decrease would hopefully be more than made up by the increased sales volume. An accounting
analysis and projection would help clarify the results of this decision and determine if that strategy would be a wise
move.

Financial Accounting for External Users

Financial accounting produces reports for external users, such as owners, investors, employees, creditors, unions and
government agencies. These reports for external use are the profit and loss statement, balance sheet and cash flow
statements. Unlike internal management accounting reports, financial statements prepared for outside users are
compiled using Generally Accepted Accounting Principles.

Financial accounting reports whether the company made an adequate profit and how likely it is to pay dividends to
shareholders. Curious investors will examine the financial statements to gauge the safety of their investments and
potential for future growth and increase in value. Employees will look at the statements and get an idea of whether they
can expect raises or increased contributions to pension funds.

Accounting reports, both managerial and financial, are essential to productively manage any company or organization.
There is no substitute. Not having accurate and timely information about how effectively a business is running is a
recipe for disaster.

DAY 3.

Continuation

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.
 Self-learning activities/Assessment in Accounting and Business 1
Quarter 1/Week /August 24-28

Name: _____________________________ Grade and Section:__________________

Subject teacher: Ms. Monica Joyce B. Naperi Score:

CHECK WHAT YOU KNOW

Activity 1. In your own words, define Accounting.

.
Activity 2. Give an acronym of every letter of a word ACCOUNTING, every acronym of the letter is related to the given
word.
A-
C-
C-
O-
U-
N-
T-
I-
N-
G-
Activity 3. Explain
“Accounting is the language of Business”