Republic of the Philippines

Laguna State Polytechnic University

ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
LSPU Self-paced Learning Module (SLM)
Course Fundamentals of Accounting 1 & 2
Sem/AY First Semester/2021-2022
Module No. 1
Lesson Title DEFINITION OF ACCOUNTING, FUNDAMENTAL CONCEPTS AND BASIC PRINCIPLES,
ELEMENTS OF FINANCIAL STATEMENTS
Week
4
Duration
Date March 14 to April 08, 2022
This lesson introduces Accounting to BSOA students who do not have any background
Description in accounting and a review for those BSOA students who graduated from Senior HS
of the with academic track in ABM. This lesson will discuss the definition of Accounting,
Lesson importance of accounting in a business entity. This will identify and describe the
fundamental concepts and principles of Accounting. This will also discuss the elements
of the financial statements, those that pertains to the financial position of a business
which are assets, liabilities and equity, and those that pertains it’s financial
performance which are income and expenses.

This lesson will also discuss what is an account, the simplest form of account which is
the “T” account, and the accounting equation or the basic accounting model. This
lesson will also discuss the double-entry system and how it follows the rule of the
accounting equation. The rule of debits and credits will also be discussed in this lesson

Learning Outcomes
Intended Students should be able to meet the following intended learning outcomes:
Learning  Define accounting.
Outcomes  Explain the fundamental accounting concepts and principles
 To identify and define the elements of the financial statements
 To describe the account, “T” account, and the accounting equation
 To explain how the double-entry system follows the rules of the accounting
equation.

Targets/ At the end of the lesson, students should be able to:
Objectives  Identify the functions of accounting.
 Enumerate the fundamental concepts and basic principles of accounting.
 Identify the elements of the statement of financial position.
 Identify the elements of the statement of financial performance.
 Define assets, liability, equity, income and expense.
 Classify account titles under each element.
 To analyse the effect of transactions in the elements of the financial statements

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
using the basic accounting model.
 To state the rules of debit and credits.
 To identify the normal balance of each account.

Student Learning Strategies

Online Activities A. Online Discussion via Google Meet/FB Group Page

(Synchronous/
(For further instructions, refer to your Google Classroom and see the
Asynchronous) schedule of activities for this module)

B. Learning Guide Questions:

1. Give at least three definitions of accounting.
2. Why is accounting often referred to as the language of business?
3. What are some of the fundamental concepts that underlie the
accounting process?
4. What are some of the accounting principles that guide the accounting
practice?
5. What are the two basic financial statements?
6. What are the elements that can be found in each financial statement?
7. What is the basic summary device of accounting? What does it contain?
8. What is the basic accounting model?
9. How the double-entry system follows the rules accounting equation?

Note: The insight that you will post on online discussion forum using Learning Management
System (LMS) will receive additional scores in class participation.

Offline Activities
(e-Learning/Self- Lecture Guide
(Refer to the textbook: Chapter 1- Accounting and Its Environment
Paced) 2 – Accounting Principles and Reporting Standards

Definitions of Accounting

1. Is a service activity. Its function is to provide quantitative information, primarily

financial in nature, about the economic entities that is intended to be useful in making
economic decisions.

2. Is an information system that measures, process and communicates financial

information about an economic entity.

3. 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 a financial
character, and interpreting the results thereof.

Phases of Accounting
1. Recording business transactions
Business transactions are the economic activities of a business. Recording these

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
historical events is a significant function of accounting.
Before the effects of the transactions can be recorded, they must be measured in
terms of money.
To measure a business transaction, the accountant must decide on three(3) issues:
a. Recognition issue – when the transaction occurred
b. Valuation issue – what value to place on the transaction
c. Classification issue – how the components of the transaction should be
classified

2. Classification
Classification of recorded data reduces the effects of numerous transactions into
useful group or categories

3. Summarization
Summarization of financial data is achieved through the preparation of financial
statements.

4. Interpretation
The financial statements are analyzed to evaluate the liquidity, profitability and
solvency of the business organization.

Fundamental Concepts
1. Entity Concept. This is the most basic concept in accounting. It’s simply the
accounting of business transactions of different entities should be accounted for
separately.
2. Periodicity Concept. The life of an entity is divided into a time periods usually
one year for financial reporting purposes. This is called the accounting period.
3. Stable Monetary Unit Concept. Since the information provided by accounting is
financial in nature, a reasonable unit of measure is necessary to be able to do so.
In the Philippines we use the Philippine peso, this is as if peso has the same
purchasing power at any given time.
4. Going Concern. Financial information are generally presented on the assumption
that the entity is established not for a limited period of time, hence going concern
is the underlying concept behind the depreciation of an asset.

Basic Accounting Principles

1. Objectivity Principle. Accounting records are based on the most reliable data
from valid source documents which can be verified by other user of financial
information.
2. Historical Cost. This principle states that assets should be recorded at their
actual cost at acquisition date and not on the fair market value as at reporting
date.
3. Revenue Recognition Principle. Revenue/Income is to be recognized in the
accounting period when goods are delivered or services are rendered or
performed and not when cash or payment is received.
4. Expense Recognition Principle. Expenses should be recognized in the
accounting period in which goods and services are used up to produce revenue
and not when the entity pays for those goods and services.
5. Adequate Disclosure. Requires that all relevant information be disclosed in the
financial statements.
6. Materiality. The size and nature of the item are evaluated together to determine
it’s materiality in a particular circumstance.
7. Consistency Principle. Application of accounting method should be the same
from accounting period to another to achieve comparability of financial reports of
an enterprise.
(Refer to the textbook: Chapter 2- The Accounting Equation and the Double Entry System)

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Elements of Financial Statements

The accounting process or cycle will provide the accounting information about an entity’s
financial position at the end of the period and the entity’s financial performance during a
certain period.

Elements of Financial Statements

I.
Financial Position
A. Assets
B. Liability
C. Equity
II. Financial Performance
D. Income
E. Expense

Asset is a present economic resource controlled by the entity as a result of past events.

Liability is a present obligation of the entity to transfer an economic resource as a result

of past events.

Equity is the residual interest in the assets of the enterprise after deducting all its
liabilities

single or sole proprietorship, there is only one equity account

partnership, each partner has an owner’s equity
corporation, owners’ equity or stockholders equity consists of share capital of
stockholders/members, and retained earning

Income is increases in assets, or decreases in liabilities, that result in increase in equity,

other than those relating to the contributions from holders of equity claims.

Expenses are decreases in assets, or increases in liabilities, that result in decreases in

equity, other than those distributions to holders of equity claims.

Commonly used account titles

A. Assets

Current Assets
• As per revised Philippines Accounting Standards(PAS) No. 1, assets are current
when:
a. It expects to realize the assets, or intends to sell or consume it, in its
normal operating cycle;
b. It holds the asset primarily for the purpose of trading
c. It expects to realize the asset within twelve months after reporting
period; or
d. The asset is cash or cash equivalent unless the asset is restricted
from being exchanged or used to settle a liability for at least twelve
months after reporting period.

• Cash- it includes coins, currency, checks, money orders, bank deposits and bank
drafts.

• Cash Equivalents – as per PAS no.7, these are short-term, highly liquid investments
that are readily convertible to known amount of cash and which are subject to an

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
insignificant risk of changes in value.
– Example: Marketable securities, time deposits

• Notes Receivable – is a written pledge that the customer will pay the business a fixed
amount of money on a certain date.

• Accounts Receivable – these are claims against customers arising from sale of
services or goods on credit.
•
• Inventories – as per PAS No. 2, these are assets which are
– Held for sale in the ordinary course of business;
– In the process of production for such sale;
– In the form of materials or supplies to be consumed in the production process
or in the rendering of services.

• Prepaid Expenses- these are expenses paid for by the business in advance.
– Example: Prepaid insurance, Prepaid rent, Prepaid taxes

Non-current assets

 Property, Plant and Equipment- as per PAS no. 16, these are tangible assets that are
held by an enterprise for use in the production or supply of goods or services, or for
rental to others, or for administrative purposes and which are expected to be used
during more than one period.
Included are: land, building, machinery and equipment, furniture and fixtures, motor
vehicles and equipment.

 Accumulated Depreciation – is a contra account that contains the sum of the

periodic depreciation charges.

 Intangible Assets – per PAS No. 38, these are identifiable, nonmonetary assets
without physical substance held for use in the production or supply of goods or
services, for rental to others, or for administrative purposes.
Included are: goodwill, patents, copyrights, licenses, franchises, trademarks, brand
names, secret processes, subscription lists and non-competition agreements.

B. Liabilities

Current Liabilities
• As per revised Philippines Accounting Standards(PAS) No. 1, liabilities are
current when:
a. it expects to settle the liability in its normal operating cycle;
b. it holds the liability primarily for the purpose of trading
c. the liability is due to be settled within twelve months after the
reporting period; or
d. the entity does not have an unconditional right to defer settlement of
the liability for at least twelve months after the reporting period.

 Accounts Payable – represents the reverse relationship of the accounts

receivable.
 Notes Payable – a reverse of notes receivable. In this case the business entity is
the maker of the note; that is, the business entity is the party who promises to
pay.
 Accrued Liabilities – contains the amount payable to others for unpaid expenses.
This includes salaries payable, rent payable, utilities payable, interest payable, and
taxes payable.

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
 Unearned Revenues – consists of payments receive before the providing the
service or before the delivery of goods to the customers.
Example: Rental advance and deposits received by the lessor;

 Current Portion of Long-Term Debt – these are portions of mortgage notes,

bonds, and other long-term indebtedness which are to be paid within one year
from the balance sheet date.

Non-current Liabilities

• Mortgage Payable- this account contains long term debt of the business entity for
which the business has pledged certain assets as security to the creditor.

• Bonds Payable – long term debt obtain from lenders by issuing bonds. The bond
is a contract between the issuer and the lender specifying the terms of repayment
and the interest to be charged.

C. Owner’s Equity
 Capital – this account is used to record the original and additional investment of
the business owner. It is increased by the amount of profit earned during the year
or is decreased by a loss.

 Withdrawals – this account is used to record cash or other assets taken by the
owner from the business.

 Income Summary – a temporary account used at the end of the accounting period
to close income and expenses.

D. Income

 Service Income – revenues earned by performing services for a customer or

client.

Example: transport services; tutorial services; medical services;

 Sales – revenues earned as a result of sales of merchandise.

Example: sale of lot by real estate companies; sale of motor vehicles; sale of
groceries by supermarket or sari-sari stores

E. Expenses
 Cost of sales – or cost of goods sold, is the cost incurred to purchase or to produce
the products sold
 Salaries and wages – expense incurred as a result of an employer-employee
relationship such as salaries, wages, 13th month pay, cost of living allowances and
other benefits.
 Power, light and water – utilities expenses
 Communication expense
 Rent Expense
 Supplies Expense
 Insurance Expense
 Depreciation Expense – portion of the cost of property, plant and
equipment(except land) allocated or charges as expense during the period.
 Uncollectible Accounts Expense – the amount of receivables estimated to be

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
doubtful of collection and charged as expense during the period.
 Interest Expense – an expense related to the borrowed funds.

The Account

The account is the basic summary device of accounting.

Account is a detailed record of the increases, decreases and the balance of each element of
the financial statements. Each element of the financial statement has to have a
separate account.

“T” account is the simplest form a account, it has three(3) parts the
1. account title
2. left side - debit side
3. right side – credit side

Account title

left side or right side or

debit side credit side

The Accounting Equation

- is the basic tool of accounting, the basic accounting model

Assets = Liabilities + Owner’s Equity

This equation states that assets must always equal liabilities and owner’s equity.

Debits and Credits – The Double-Entry System

Double-entry system is used in accounting, which means that every business transactions
must be recorded under this system.

Each transaction affects at least 2(two) accounts, there must be one or more accounts that
increases ( debited or credited) or decreases ( debited or credit). The increases or
decreases in each account is depend upon each type of account.

Dr and Cr is the abbreviation for debit ( from the latin debere) and credit ( from the latin
credere), respectively.

The rules of debit and credit

Increases in assets are recorded as debits, while decreases are recorded as credits.

Increases in liabilities and owner’s equity are recorded as credits, while decreases are
recorded as debits.

Increases in income increases owner’s equity hence recorded as credits.

Increases in expense decreases owner’s equity hence recorded as debits.

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

The normal balance of an account refers to the side of account – debit or credit – where
increases are recorded

Engaging Activities

Discussion about the definition of accounting, its basic concepts and

fundamental principles.

Memorization and oral recitation of account titles and definition under each
element of the financial statements.

Lecture, discussion on the accounting equation and the basic rules for debit
and credit.

Recite the rule of debit and credit for assets, liabilities, owner’s equity,
income and expenses.

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Performance Tasks

PT 1

True of False
___________1. Accounting is a service activity whose function is to provide qualitative information, about
economic entities that is intended to be useful in making economic decisions.
___________2. The measurement phase of accounting is accomplished by recording phase.
___________3. For reporting purposes, the personal assets and debts of a business owner should be
combined with the assets and debts of the business.
___________4. Assets are usually valued under historical cost.
___________5. Objectivity principle requires relevant information to form part of financial statements for
decision-making purposes.
___________6. The periodicity concept involves dividing the life of a business entity into accounting
periods of equal length thus enabling the financial users to periodically evaluate the results
of business operations.
___________7. Objectivity principle states that an accounting transactions should be supported by
sufficient evidence to allow two or more qualified individuals to arrive at essentially similar
conclusion.
___________8. Going concern concept assumes that the business has an indefinite economic life.
___________9. A business transaction is the occurrence of an event or of a condition that must be
recorded.
__________10. Interpretation of financial data is achieved through the preparation of financial
statements.

PT 2

Multiple Choice

1) Which of the following is an appropriate definition of accounting?

a. A means of recording transactions and keeping records
b. Collection, organization, and communication of vast amounts of information
c. The interconnected network of subsystems necessary to operate a business
d. The measurement ,processing, and communication of financial information
about an identifiable economic entity
2) Accounting is a service activity. It's function is to provide
a. qualitative information

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
b. quantitative and qualitative information
c. quantitative information
d. None of the above.
3) A business which prepares financial statements every year is following the __________concept.
a. periodicity
b. entity
c. going concern
d. stable monetary unit
4) The _________concept assumes that the business has an indefinite economic life
a. periodicity
b. entity
c. going concern
d. stable monetary unit
Which accounting concept should be considered if the owner of a business takes goods from
5) inventory for his personal use?
a. The substance over form concept
b. The accrual concept
c. The going concern concept
d. The business entity concept
Which accounting principle states that omitting or misstating this information could influence
6) users of the financial statements?
a. Materiality
b. Objectivity
c. Historical cost
Which of the following accounting principle means that similar items should receive a similar
7) accounting treatment?
a. Materiality
b. Objectivity
c. Historical cost

8) Assets are usually valued under which basis?

a. replacement cost

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
b. Historical cost
c. net realizable value
d. fair market value

Which of the following accounting concepts states that an accounting transaction should be
supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially
9) similar conclusion?
a. matching
b. objectivity
c. periodicity
d. stable monetary unit
10) Which of the following processes best defines accounting?
a. Measuring economic activities
b. Communicating results to interested parties
c. Preventing fraud
d. Both a and b

PT 3
True of False
___________1. Capital represents the owner’s investment, or equity in a business.
___________2. Liabilities represent amounts owed to creditors.
___________3. Accounts receivable is considered an asset.
___________4. The owner’s withdrawals account is listed with the other expenses of a
business.
___________5. Assets are things of value owned by a business entity.
___________6. An owner can invest cash or other assets of value in the business.
___________7. A withdrawal by the owner is recorded as a deduction from assets and
an increase in expense.
___________8. Accounts Payable is a current assets.
___________9. Capital investment is an income.
__________10. Prepaid rent is an expense.

Multiple Choice pp 3-29 to3-34

PT4

1. True or False pages 3-24 and 3-25

2. Problem #4 p 3-28

3. Problem #5 p 3-29

4. Problem #6, page 3-40, Effects of transactions

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
5. Problem #8, page 3-42

6. Problem #12 page 3-46 (however, instead of recording recording transactions in a financial
worksheet, records the transactions in T- Accounts.

Understanding Directed Assess

Learning Resources

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Accounting Fundamentals by Ballada, Win and Ballada, Susan. 2020 Issue – 6th Edition

https://www.youtube.com/watch?v=1924ois6Vn4
https://www.youtube.com/watch?v=fPOcUtfGtxQ
https://www.youtube.com/watch?v=w6jOjZqPXD0
https://www.youtube.com/watch?v=5CUCojBKuBo
https://www.youtube.com/watch?v=n-lCd3TZA8M
https://www.youtube.com/watch?v=w6jOjZqPXD0

LSPU SELF-PACED LEARNING MODULE: FUNDAMENTALS OF ACCOUNTING 1 & 2

Prepared by: MA. ALYN S. KARAGDAG, CPA