SELF-PACED LEARNING MODULE

COLLEGE DEPARTMENT

MODULE 1
Subject:

FUNDAMENTALS OF ACCOUNTING 1

AISAT COLLEGE – DASMARIÑAS, INC.

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 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |2

INFORMATION SHEET PR-1.1.1

“THE BASIC ACCOUNTING ENVIRONMENT”

WHO CARES ABOUT ACCOUNTING?

On a Personal Level. Balancing your daily expenditures against your limited earnings or
resources(money) is a difficult feat. Accounting will help you prepare a budget.

On a Professional Level. The answer will definitely have a financial impact in your profession on in
the organization where you are employed. Some terms like feasible, profit, liquid, credit, risk is new to
you. These are business terms which you will encounter and you will realize these terms are very
important in understanding accounting and in making decisions.

On a Business Level. Accounting is vital to one’s daily activities, the impact of accounting is more felt
in the business from a small neighborhood bakery to a multi-national food company.

All, businesses, from simple to the most complicated, have one thing in common: they need
financial information before making decisions.

HOW HAS ACCOUNTING DEVELOPED?

The earliest accounting system was found as early as 2000 BC in the cities of Babylonia, Greece,
Egypt in 3500 BC in Assyria. It consisted of records of taxes imposed by the king and collected from the
people by the tax collectors.

The first accounting book was written by Cotrugli in Naples but the modern-day double entry
bookkeeping could be traced from the book prepared in 1494 by an Italian mathematician. Fr. Luca
Pacioli, entitled Summa de Aritmetica, Geometria, Proportioni et Proportionalita. Modern bookkeeping
has evolved from Pacioli’s “Model of Venice” which he developed to help the Italian merchandise in
their trade practice. This has earned for him the title of Father of Accounting.

What is Business?  simply defined as an economic activity of buying and selling in order to obtain
profit.

Ex. A major concern of a business is how best to use the resources – what machines are needed,
what labor skills are required, how many men to employ, how much fixed capital and working capital
are needed, what raw materials to use. There must be used efficiently at the least possible least cost.
Profit is obtained when the amount you receive is more than the amount you paid for the goods or
services you sold.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |3

WHAT ARE THE SOURCES OF CAPITAL?

The primary source of capital is the owner or investor.

If the business owner or entrepreneur does not have enough funds, one may borrow from
relatives, friends or financing institutions such as bank and cooperatives.
An entrepreneur is one who takes the risk of putting a business to produce and sell goods or
services.

The successful entrepreneur is one who creates new ideas or differentiates a product that
would entice the buyer.
WHAT IS BUSINESS RISK?
The reality is that any money making a venture is risky. The higher profit you desire, the riskier
the venture. Risk is the element of uncertainty in an outcome.

FORMS OF BUSINESS ORGANIZATION

Forms of
Business Sole / single proprietorship Partnership Corporation
Organization

Meaning Simplest form of business It is defined as the It is an artificial being created by

organization. contracts whereby 2 or operation of law, having the
more persons bind right of succession and the
themselves to contribute powers, attributes and
money, property or properties expressly authorized
industry to a common by law or incident to its
fund with the intention of existence.
dividing the profits
among themselves
Ownership One (1) owner Two (2) or more Five (5) or more

Capitalization Depends of the needs of the Depends of the needs of Depends on the type of the
business the business business as prescribed by law.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |4

Forms of
Business Sole / single proprietorship Partnership Corporation
Organization

Management Managed by the sole Managed by one (1) or Managed by board of directors.
structure proprietor(owner) more partners.

Examples beauty parlor, dress shops Jollibee, SMDC, etc.

barbershop, etc.

Business 1. DTI Registration 1. SEC Registration 1. SEC Registration

requirements 2. Bgy. Clearance
3. Mayors Permit (Sanitary,
Fire and Health Permit re:
employees)
4. BIR Registration
5. Registration SSS,
PHILHEALTH and HDMF(Pag-
ibig)
Advantages 1. easy to form, easy to
dissolve
2. Full control of operation.
3. All profits go directly to
the owner.
4. Less regulation.
The government taxes the
owner not the business.
2. Bgy. Clearance
3. Mayors Permit
(Sanitary, Fire and Health
Permit re: employees)
4. BIR Registration
5. Registration SSS,
PHILHEALTH and
HDMF(Pag-ibig)
1. Increase potentials
from partner strengths.
2. Easy to form with
proper agreement.
3. Less regulations.
4. Professional
partnership exempt from
tax.
2. Bgy. Clearance
3. Mayors Permit (Sanitary, Fire
and Health Permit re:
employees)
4. BIR Registration
5. Registration SSS, PHILHEALTH
and HDMF(Pag-ibig)
1. More sources of fund.
2. easy to transfer ownership.
3. Limited liability.
4. Unlimited commercial life.

Disadvantages 1. Unlimited liability. 1. Unlimited liability of 1. More regulation to follow.

2. limited life of the the partners. 2. Profit is taxed by the
business. 2. limited life. corporate tax.
3. Difficulty in raising capital. 3. High possibility of 3. costly to incorporate.
disputes and conflicts.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |5

INFORMATION SHEET PR-1.2.1

“TYPES OF BUSINESS ACCORDING TO ACTIVITIES”

Types of Business Merchandising or Trading Manufacturing Service

Meaning Commonly known as buy
and sell.
It deals with the buying of
goods and selling of the
same for profit.
Purchase of raw materials Focuses on providing intangible
and convert it to finished products.
product
It deals with the rendering of
services to the customers for a
certain fee.

Activity Buys goods and sells in the Converts raw materials to Does work for other
same form finished goods

Examples Sari-sari stores, Textiles manufacturing tailoring shops, beauty shops, firms
department stores, firms, candy of CPA’s, lawyers, doctors etc.
grocery stores etc. manufacturing firms, etc.

Nature of Revenue Sales Sales Service

Cost Cost of goods sold Cost of goods Cost of Services

manufactured and sold

expenses Selling and Administrative Selling and Administrative Administrative Expenses

Expenses Expenses

Advantages 1. Attracts more 1. Continuous demand. 1. No need for inventory.

customers.
2. Job satisfaction can be 2. Skills can be improved and can
2. It is flexible to change. ensured through the be produce better service.
output or produced item.

Disadvantages 1. Demands more work
and workers.
2. needs to manage
customer’s expectation.
3. Needs to budget
expenses improvements.
1. Need to keep up with 1. services are harder to value
high overhead costs.
2. Less demands during economic
2. Manufactured products downturns.
highly depend on the price
and availability of raw
materials.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |6

WHAT ARE THE WAYS OF OBTAINING PROFIT?

One of the motives why one goes into business is profit. How profit is obtained depending on the
line of business.

In service business – money is received for the cost of service rendered.

In merchandising business – money is received for the cost of merchandise given
In manufacturing business – money is received for the cost of the product given.

WHAT ARE THE TYPES OF BUSINESS ACTIVITIES?

1. FINANCING ACTIVITIES -- owner “finances” the business with a capital in cash and other
resources.
2. INVESTING ACTIVITIES -- involve the acquisition of properties such as land, furniture,
machineries and equipment.
3. OPERATING ACTIVITIES -- day to day activities related to earning of income when goods or
services are sold and the incurring of expenses when wages, rent, utilities, transportation are
paid.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |7

INFORMATION SHEET PR-1.3.1

“USERS OF ACCOUNTING INFORMATION”

USERS OF ACCOUNTING INFORMATION

1. Internal Users – those who make decisions that affect the internal operations of the company.

1.1. Owner
1.2. Board of Directors
1.3. Plant Managers/employees
1.4. Chief Executive Officers
1.5. Chief Finance Officers
1.6. Vice President

2. External Users – those who make their decisions based on the company’s financial information.

2.1. Investors
2.2. Suppliers
2.3. Creditors
2.4. Lending Institutions
2.5. Customers
2.6. Government, Regulatory Bodies and their employees
2.7. General Public

ACCOUNTING INFORMATION SYSTEM (AIS) involves an orderly way of accumulating and

reporting business transactions through a process of analyzing, measuring, recording, classifying and
summarizing, and from which reports are generated for proper communication to decision makers.
AIS is both a Measurement System when the data are processed) and a Communication System
When reports are prepared and distributed to the statement users.

What are the Fundamental System Principles?

1. Control Principle – prescribes that the AIS of the firm must possess internal control.
Internal Control enumerates the methods and procedures necessary to monitor the activities of
the business and ensure efficient operation.
2. Cost-Benefit Principle – prescribes that the advantages enjoyed from installing the system
must outweigh its cost.
3. Relevance Principles - prescribes that the information must be reported promptly and that
information must be useful to enable statement users to reach a conclusion and a make a
decision.
4. Compatibility Principle – prescribes a system designed to fit the unique characteristics of the
company – its personnel, activities and structure.
5. Flexibility Principle – prescribes that the company’s system should be changed.
SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:
st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |8

What are the components of an Accounting Information System?

There are five (5) components of an Accounting information system.

1. People or personnel - are involved from Phase 1 data gathering to Phase 4

2. Documents – support of the data gathered in the first phase
3. Records
4. Methods or procedures of doing
5. Equipment/devices such as computers and printers are also needed in all phases.

-------------------------------------------------------------------------

Analyzing. Classifying,
Data Measuring, storing, and Reporting, Decision
gathering and summarizing and making
recording interpreting
PHASE 1 PHASE 2 PHASE 3 PHASE 4
-------------------------------------------------------------------------
FLOW of ACCOUNTING INFORMATION SYSTEM

WHAT ARE THE FINANCIAL STATEMENTS PREPARED IN ACCOUNTING?

The three primary information needed by the users relate to

1. Financial Performance (Income Statement) also called Profit or Loss Statement or Statement of
Earnings. - report which describes how business operated or produced wealth over a given
period of time.

2. Financial Position (formerly called the balance sheet) show how healthy or robust the
enterprise when it shows a listing of accumulated resources (cash and properties)
After deducting the liabilities (debts or obligations to pay). After deducting the liabilities from
the assets, the net assets show the new value or net worth of the firm which belong to the
owner.
Statement of Changes in Owner’s Equity is another report prepared by the accountant which
explain the activities for a period of time that caused the owner’s equity to change.

3. Cash Flow Statement of the business is a financial statement which explains why the amount of
cash changed over a period of time. The report makes a listing of the cash inflow activities (cash
receipts) and the cash outflow (cash payments) of the business.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 Page |9

NATURE OF ACCOUNTING
Accounting is a service activity whose function is to provide quantitative information, primarily
financial in nature, about economic entities that is intended to be useful in making economic decision.
DEFINITION OF ACCOUNTING
Accounting is the art of recording, classifying, 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.

Based on the definition stated, it can be noted that there are four distinct function of accounting
namely, recording, classifying, summarizing and interpreting. Of the four functions, the interpreting
function may be considered as the most important simply because the first three function can now be
easily performed faster and with reasonable degree of accuracy by the computer.

Recording – involves putting into writing all the business transactions including significant event
which might occur and well affect the business.

Classifying – involves grouping together similar items or accounts for the purposes of systematic
recording and preparation of reports.

Summarizing – involves the preparation of the formal accounting reports or financial statements
at the end of the accounting period.

Interpreting – involves the analysis of the financial statements by developing financial ratios and
explaining their significance to make the statements more meaningful.

Role of Accounting in Business

The role of accounting in business may be summarized as follows:

1. It helps the owner/s or managers make plans and decisions

2. It reports and analyzes business transactions thru financial statements
3. It communicates financial information to all interested parties.

Reference Book:
21st Century Accounting Process
Basic Concepts and Procedures
International Edition 2013
Zenaida Vera Cruz-Manuel

Simplified Accounting
For Sole Proprietorship
By: Nelson S. Abeleda

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 P a g e | 10

SELF-CHECK QUESTIONS PR-1.1.1.

“The Basic Accounting Environment “

Directions:

A. Identification: Answer the following questions based on how you understand the topic
discussed.

____________________ 1. Known as a language of business

____________________ 2. Father of Accounting

____________________3. An economic activity of buying and selling in order to obtain profit

____________________ 4. Element of uncertainty in an outcome

____________________5. An orderly way of accumulating and reporting business transactions

B. Simple Illustration: Financial Statements Prepared in Accounting

Ms. Santos got her retirement pay of ₱ 420,000 and thought of putting up a Photocopy
Service Center. She invested, ₱ 350,000 on June 1 to purchase a reproducing machine for ₱
300,000 and paper and ink for ₱20,000. She set aside the remaining ₱ 30,000 as cash fund of
the business. During the month of June, reproduction of documents brought in cash sales of ₱
48,000. 40% of the supplies were used up and rent was paid for ₱ 5,000.

Required: Prepare a simple financial statement

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 P a g e | 11

SELF-CHECK ANSWER KEY 3Q-1.1.1.

“The Basic Accounting Environment “

Directions:

A. Identification: Answer the following questions based on how you understand the topic
discussed.

___Accounting________1. Known as a language of business

__Frater Luca Pacioli___2. Father of Accounting

___Business_________ 3. An economic activity of buying and selling in order to obtain profit

____Risk____________4. Element of uncertainty in an outcome

_Accounting Information System 5. An orderly way of accumulating and reporting business

Transactions.

B. Simple Illustration: Financial Statements Prepared in Accounting

Ms. Santos got her retirement pay of ₱ 420,000 and thought of putting up a Photocopy
Service Center. She invested, ₱ 350,000 on June 1 to purchase a reproducing machine for ₱
300,000 and paper and ink for ₱20,000. She set aside the remaining ₱ 30,000 as cash fund of
the business. During the month of June, reproduction of documents brought in cash sales of ₱
48,000. 40% of the supplies were used up and rent was paid for ₱ 5,000.

Required: Prepare a simple financial statement

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 P a g e | 12

Answer:

Income Statement (wealth produced) for June:

Sales ₱ 48,000
Supplies used – (20,000 x 40%) (8,000)
Rent ( 5,000 )
Profit for the month ending June 30,20XX ₱ 35,000
--------------------------
--------------------------

Statement of Changes in Equity ( change in owner’s wealth)

Santos, Capital, June 1, 20XX ₱350,000
Add: Profit for the month 35,000
Santos, Capital, June 30, 20xx ₱385,000
---------------------------
---------------------------

Statement of Financial Position (wealth accumulated), June 30,20XX

Cash ₱ 73,000
Supplies 12,000
Xerox Machine 300,000
Total Assets ₱ 385,000
------------------------------
----------------------------

Statement of Cash Flow (what cash has come and gone out) for the month of June:
Cash Investment of Santos, June 1, 20XX ₱ 350,000
Cash receipts from Sales 48,000
Cash payment for supplies ( 20,000)
Cash payment for rent ( 5,000)
Cash payment for machine (300,000)
Cash Balance, June 30, 20XX ₱ 73,000
---------------------------------
--------------------------------

-_

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 P a g e | 13

STUDENT NAME: _______________________ SECTION: __________________

PERFORMANCE TASK PR-1.1.1

PERFORMANCE TASK TITLE: BUSINESS SETTING-FORM OF ORGANIZATIONS

PERFORMANCE OBJECTIVE: After completing this performance task, you were being knowledgeable in
business setting, form of organization and able to identify the importance of accounting as a
language of business.
TOOLS AND MATERIALS: Modules, newspapers, magazines, internet resources.

EQUIPMENT : none

ESTIMATED COST : none

PROCESS / PROCEDURE

1. Interview a relative or a friend who has a business. Answer the following requirements.
a. Company’s name, location, and form of organization
b. Type of business and specify the goods or services being sold.
c. Initial capital, requirement (if new) or present net worth (if already existing)
d. Reasons for putting up the business.
e. Major customers and competitors
f. Current problems confronting the business.

Alternatively, look for a service provider, or merchandiser or manufacturer using the internet.
Answer the above requirements.

Instructions:
1. You may prepare it either typed written or written report. Write it legibly.
2. Use short bond paper only. (maximum of 2 pages only)
3. Tasks must be neat and presentable. Avoid erasures.

PRECAUTIONS: • Indicate references in your performance task (i.e., https//www.wikipedia.com, etc…)

•Avoid copy and paste performance task of other
ASSESSMENT METHOD: PERFORMANCE TASK CRITERIA CHECKLIST

STUDENT NAME: _____________________________________ SECTION: ___________

PERFORMANCE TASK CRITERIA CHECKLIST PR-1-1.1

Did I … CRITERIA SCORING
SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:
st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher
 Unit Principles of Accounting1
Module The Basic Accounting Environment
AE-ACTG1 Fundamentals of Accounting 1 Units: 3 P a g e | 14

1 2 3 4 5
1. Logic and key points. All corresponding ideas about the topic are
logically presented.
2. Content. Content of the essay flows and is passionate.
3. Cleanliness. Very clean and well presented.
4. Spelling and Grammar. No error in spelling and grammar.
5. Word usage. Word choice and usage are professionals.

GRADES

Teacher’s Remarks □ Quiz □ Recitation □ Project

5 - Excellently Performed
4 - Very Satisfactory Performed
3 - Satisfactory Performed
2 - Fairly Performed
1 - Poorly Performed

Ms. CHITA S. CABANZA

TEACHER

Date: __________________

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

st rd
MODULE 1 –3
PRELIM MR. WILBERT A. MAÑUSCA
1 Meeting CHITA S. CABANZA School Director
Subject Teacher