DEPARTMENT OF EDUCATION

REGION III
Schools Division of Cabanatuan City
Maharlika Highway, Cabanatuan City

Introduction of Accounting

FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS AND MANAGEMENT 1

SELF-LEARNING MODULE
Writers: Leonard A. Arenas, CPA (Teacher III, HCPSMSHS)
Merlin B. Magtalas (Teacher II, HCPSMSHS)
Lucina A. Tablada (Teacher III, MRMNHS)

Project EL AR:
11
Enhance Learning
thru Adequate Resources SHS
 GUIDE FOR THE LEARNER, PARENTS,
GUARDIANS AND LEARNING FACILITATOR

To You, Learner:

Welcome to Fundamentals of Accountancy, Business and Management 1 Grade

11 Self-Learning Module (SLM) on Introduction of Accounting! This module was made to
give you with fun and meaningful time for guided and independent learning at your
convenience. You will be able to process the contents of this Module while being an active
learner.

To You, Parent/s, Guardian/s and Learning Facilitator/s:

This Module was collaboratively developed and reviewed by the teachers, school
heads and supervisors of DepEd Division of Cabanatuan City to assist you in helping the
learners meet the standards set by the K to 12 Curriculum while overcoming their different
constraints in schooling. 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.

This Module is about the Introduction of Accounting. The discussion starts with the
definition of Accounting, its nature and lastly the historical roots of Accounting.

Studying Accounting needs patience, extra effort to learn business and accounting
terminologies, passion and dedication. A learner should not be tired in knowing the correct
answers in every problem. The formula for this is the right attitude plus right study habits
plus right materials plus right faith with the Lord God Almighty. At the end of the day,
learner will feel the fulfilment in every perfect score they obtained in every activity. This is
the foundation of your Accounting journey, do not limit yourself in this module but rather
continue to expand your horizon with other books, internet materials and collaborate with
students of other school. There are also social media groups available for students, so do
not be shy to join and look for study-buddy because group learning is fun and enjoyable!

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 OBJECTIVES

At the end of this module, the learners should able to:

1. Understand the definition and nature of accounting

2. Narrate the history/origin of accounting

COMPETENCIES

Define accounting
ABM_FABM11-IIIa-1
Describe the nature of accounting
ABM_FABM11-IIIa-2
Narrate the history/origin of accounting
ABM_FABM11-IIIa-4

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 WHAT DO YOU ALREADY KNOW?

MULTIPLE CHOICE

Directions. Read each question carefully and then choose the best answer on each question.
Write the CAPITALIZED LETTER only on the space before the number.

___1. Accounting is ____.

A. a system that helps fast track business events that affect them
B. process that will undergo single step in order to make the financial statements
C. involve in the preparation of legal reports called financial statements
D. 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.

___2. Statement 1: Accounting requires creative judgment and skill

Statement 2: Accounting cannot be considered as an exact science
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

___3. Accounting is recognized and characterized as a storehouse of information. What

nature of accounting it refers?
A. Accounting is a service activity
B. Accounting is a process
C. Accounting is both an art and a discipline
D. Accounting is an information system

___4. Accounting is identified as ________, 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
A. Service
B. Process
C. Art
D. discipline

___5. The following are examples of financial information, EXCEPT:

A. one hundred thousand pesos cash
B. twenty thousand pesos worth of merchandise
C. car costing one million pesos
D. fire that burned the whole building

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 WHAT YOU NEED TO KNOW

Have you ever made a decision in your life?

What are the things that you consider before making a decision?

From what color of shirt you are going to wear, how much money you are going
to spend for the day, are you going to bring pack lunch or not, which tricycle you are
going to ride on, are you going to read or write or will play music or not. These are the
typical things that decision making is necessary.

In every situation where there are several options or alternatives to choose from,
making a decision is indeed an undertaking that needs careful and intelligent assessment
of all the choices given. This thing is needed in order to lessen the risks if cannot be
avoided. Careful decision making will help you to choose or assess which one is best or
not.
As student in ABM strand, it is imperative to learn how to make business decisions.
The following are the typical business decisions that every business individual or
organization is making:

1. Whether they will put an investment to the company or not.

2. Whether they will continue their operations or will shut down.
3. Whether they will hire more employees or not.
4. Whether they will expand their business or not.
5. Whether they will rent building or will build their own building

Before a business person can make a decision, he needs reliable information

about the alternatives to determine which one is best for his objectives. And here comes
now the role of Accounting in business. Business needs accounting output which will serve
as basis in order for them to make an informed decisions. The accounting output refers
to the Financial Statements which comprise of the following: Statement of Financial
Position, Income Statement, Statement of Changes in Equity, Cash Flow Statement and
Notes to the Financial Statements.

Definition of Accounting

The American Institute of Certified Public Accountants (AICPA) defines accounting

as 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 requires creative judgment and skill. For the output of accounting to be
done, it requires discipline and training. These are the reasons why accounting is
considered as an art. Accounting can be considered as science because it is a body of
knowledge. But, it cannot be considered as an exact science because the rules and
principles in accounting are constantly changing and improving.

Accounting process will undergo series of steps in order to make the financial
statements. It will start from the identifying of business transactions and events, recording
of it in the books of accounts, classifying then summarizing of these accounts which is
presented in terms of money, in part at least of financial character and lastly interpreting
the results of the accounting report to the intended users.

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 "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 – listing down of accountable events.

Accounting records transactions in the accounting journals which is chronologically

lists transactions and events that affect the business. Journal is often called the book of
original entry.

COMMUNICATING - or reporting the results to users of financial information.

This involves the preparation of accounting reports called financial statements which
is submitted or made available to users of financial information for their decision making.

Types of Financial Statements

1. Balance Sheet/Statement of Financial Position - shows a list of the resources, debts

and capital of the enterprise as of date of reporting.
2. Income Statement/Statement of Comprehensive Income - show the income,
expense and net result of operations over a period of time up to the date of
reporting.
3. Statement of Cash Flow - shows the changes in the cash position: cash inflows
and outflows of the enterprise for the period.
4. Statement of Changes in Equity - shows a summary in change in capital of the
enterprise during the period.
5. Notes on the Financial Statements - shows additional disclosure of certain
information which are useful to users of the financial statements in understanding
the information in the financial statement.

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 Nature of Accounting
The basic features of accounting are as follow:

• 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.

History 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. Clay Tablet

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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. 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 Luca Pacioli
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.

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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.

9
 WHAT HAVE YOU LEARNED?

MULTIPLE CHOICE

Directions. Read each question carefully and then choose the best answer on each
question. Write the CAPITALIZED LETTER only on the space before the number.

___1. The following are the phases in Accounting, arrange them in order:
I. Identifying economic events.
II. Recording business transactions
III. Communicating the results to intended users
A. I, II, III B. II, III, I
C. II, I, III D. I, III, II

___2. The following are economic events in a XYZ Laundry Shop EXCEPT
A. Investment of an owner to the laundry shop, P100,000.
B. Laundry Income of XYZ’s competitor, P200,000
C. Laundry shop’s Employees Salary, P10,000
D. Electricity bill of the business, P2,000

___3. Why accounting is an art?

A. It uses colors and beautiful paper to prepare reports
B. The output of accounting is dependent on the user’s perception
C. For the output of accounting to be done, it requires discipline and training
D. Abstract reasoning is needed to rationalize accounting reports

___4. Why accounting is not an exact science?

A. Because the rules and principles in accounting are constantly changing and
improving
B. Because it is a body of knowledge
C. Because it is prepared by a living thing
D. Because it needs an investigation and further evaluation

___5. The following are the nature of accounting EXCEPT:

A. Accounting is a service activity
B. Accounting is a process
C. Accounting is both an art and a discipline
D. Accounting is a traditional system

___6. The oldest evidence of record keeping which was found in Mesopotamia which dealt
with commercial transactions at the time such as listing of accounts receivable and
accounts payable.
A. Tablet
B. clay tablet
C. capsule tablet
D. capsule

___7. He is the “Father of Accounting”

A. Adam Smith
B. Luca Pacioli
C. Bill Gates
D. Henry Sy

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___8. What is the first national U.S. accounting society which was set up in 1887?
A. American Association of Public Accountants
B. American Institute of Certified Public Accountants
C. Securities and Exchange Commission
D. International Accounting Standards

___9. A _____ is when one company takes over all the operations of another business entity
resulting in the dissolution of another business.
A. business amalgamation
B. business combination
C. merger
D. fusion

___10. Statement 1: As economies worldwide continued to globalize, accounting regulatory

bodies required accounting practitioners to observe
Statement 2: 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.
A. Both are true
B. Both are false
C. Only statement 1 is true
D. Only statement 2 is true

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 ENRICHMENT ACTIVITY 1

Directions. From the box that contains words, encircle the words that form part the
definition of Accounting.

art branch scarce service

recording mathematics living profit
speech classifying financial data interpreting
identifying market summarizing transactions or events

ENRICHMENT ACTIVITY 2
ENRICHMENT ACTIVITY 2

Directions. Identify the economic events in a Carwash Business. Write EE if it is an

economic event in a Carwash Business and write N/A if it cannot be considered as an
economic event of the business

___1. The owner invested equipment worth of P200,000 in the carwash business
___2. The owner deposited cash of P300,000 in BDO as an investment in the carwash business
___3. The company accepted the deposit of customer for car wash service, P200
___4. The owner gave P900 to her daughter coming from his own pocket.
___5. The owner bought a cake for his friend, P600 using his own credit card

ENRICHMENT ACTIVITY 3
ENRICHMENT ACTIVITY 2

Directions. Identify what financial statement does each statement describes.

_______________________1. It shows additional disclosure of certain information which are useful

to users of the financial statements in understanding the information
in the financial statement.
_______________________2. It shows a summary in change in capital of the enterprise during the
period.
_______________________3. It shows the changes in the cash position: cash inflows and outflows
of the enterprise for the period
_______________________4. It shows the income, expense and net result of operations over a
period of time up to the date of reporting.
_______________________5. It shows a list of the resources, debts and capital of the enterprise as
of date of reporting.

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13
Activity Number 3
1. Notes to the financial
statements
2. Statement of Changes in
Equity
3. Statement of Cash Flows
4. Statement of Comprehensive
Income
5. Statement of Financial Position
Activity Number 1
Art Service Recording
Activity Number 2
Classifying Financial Data
1. EE
2. EE Interpreting Identifying
3. EE Summarizing
4. N/A
5. N/A Transactions or events
What Have You Learned?
1. A
2. B
3. C
4. A What Do You Already Know?
5. D
6. B 1. D
7. B 2. A
8. A 3. D
9. C 4. B
10. A 5. D
ANWER KEYS
 REFERENCES

Books

1. Florendo J.G., Fundamentals of Accountancy, Business, and Management 1 (2016), Rex

Book Store, page 36.

2. Banggawan R.B., Asuncion DJ.O., Fundamentals of Accountancy, Business, and

Management 1: A Guide to Understanding and Mastering Basic Accounting (2017), Real
Excellence Publishing, page 18,19

3. Teaching Guide for Senior High School Fundamentals of Accountancy, Business, and
Management 1, (2016), Published by the Commission on Higher Education, page 14,15

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 Introduction of Accounting
The American Institute of Certified Public Accountants (AICPA) defines accounting as 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.

The basic features of accounting are as follows: Accounting is a service activity; Accounting
is a process; Accounting is both an art and a discipline; Accounting deals with financial
information and transactions and Accounting is an information system.

The history of Accounting can be traced back from six periods: The Cradle of Civilization,
14th Century, French Revolution (1700s), The Industrial Revolution (1760-1830), 19th Century
– The Beginnings of Modern Accounting in Europe and America, The Present - The
Development of Modern Accounting Standards and Commerce.

The father of Accounting is Luca Pacioli wherein he wrote the Summa de Arithmetica, the
first book published that contained a detailed chapter on double-entry bookkeeping.

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. This is the reason why the International Accounting Standards has been invented,
to assure transparency and reliability, and to obtain greater confidence on accounting
information used by global investors.

DEPARTMENT OF EDUCATION
Region 3
Division of Cabanatuan City
Curriculum Implementation Division (CID)
Learning Resource Management and Development System (LRMDS)
This self-learning module (SLM) is developed by the SDO Cabanatuan City CID-LRMDS Team under Project
EL AR: Enhanced Learning thru Adequate Resources.
Cover and page elements illustrations by Jan Carl B. Briones ● Project EL AR logo by Gemmarie G. Rivas