FAR Module1

MARY THE QUEEN COLLEGE OF PAMPANGA INC.
Gapan-Olongapo Road, Guagua, Pampanga 2003
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Module No – Title : MO1 – Introduction to Accounting
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Financial Accounitng and Reporting
Institute of Accountancy
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Time Frame : 1 week – 12 hrs
1. Overview
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This learning material provides an overview of accounting and explain its role in business.
To have a fair knowlege of the evolution of accounting anad find how it affecetd accounting
pedagogy, policy and practice.
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2. Desired Learning Outcomes
At the end of the learning session, you should be able to:
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a) Define accounting, its nature and purpose
b) Narrate the history/origin of accounting;
c) The different practices in the field of accounting.
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d) State the different branches of accounting.
e) Differentiate between external and internal users of accounting information.
f) State the forms of business organization;
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g) State the types of business according to their activities.
3. Content/Discussion
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The word “Account” in everyday language is often used as substitute for an “explanation” or
a “report” of a certain actions or events. If you are a student you may have to explain to your
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parent what have you learned to the day. In order to explain or to report, of course, you have
to remember what you were doing during the class and what have you learned. As it is not
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easy to remember, you may need to keep some written record. In effect, such records can be
said to form the basis of rudimentary accounting (reporting) system.
Lesson 1. Define accounting and its purpose
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Accounting is a service activity. Its function is to provide quantitative information,
primarily financial in nature, about economics entities that is intended to be useful in making
economic decisions. Accounting may be defined as the science and art of systematically
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recording, presenting and interpreting the economic information to permit informed
judgments and decisions by users of the information. Accounting , the science, is the classified
knowledge of the subject – the body of scientific principles which has been developed as a
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result of study or experience. Accounting, the art, the actual classifying, recording, presenting
and interpreting of the financial facts of an entity. It is, for this matter, said that is the
language of business.
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Lesson 2. Brief History of Accounting.
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Accounting arguably began before the use of abstract counting. Around 7,500 BC, the
Mesopotamians were using small clay objects as counters for keeping account of goods.
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Each object represented particular quantities of different types of commodities, such as food,
clothing, and even labor.
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They became increasingly complex over centuries, bearing intricate markings, and eventually,
imprints of these markings onto parchment replaced the counters themselves. According to many
scholars, accounting and writing evolved side-by-side in this way.
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The need to keep a record of both goods and currency was accelerated by a number of
factors. One was the ability to accumulate personal wealth. Affluent members of society wanted to
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record what they had, what they owed, and what was owed to them. More than 5,000 years
ago, Egyptian bookkeepers were keeping detailed records of the royal inventory, using bone
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labels attached to goods like oil and linen to keep track of things such as owners, suppliers, and
amounts.
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Another factor was the rise of ruling entities such as royal families and governments. A
particular concern for these sections of society was finding more consistent ways to record and
demand tax.
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The growth of global trade meant commerce was happening on a much larger scale. Trading
with vastly different societies for diverse resources meant that traders could easily lose track of
their activity without detailed records.
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Double entry bookkeeping
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Early forms of double entry bookkeeping arose in various locations at different times, such
as the ‘four-element bookkeeping system’ in Korea in the 11th century. However, the double entry
bookkeeping system we’re familiar with today was first properly described by Luca Pacioli in
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1494. Referred to as ‘the father of bookkeeping and accounting’, he defined much modern day
thinking about debits, credits, journals, and ledgers.
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He set out a comprehensive accounting cycle, which described a clear process for those
involved with accounts to follow. Among other things, he introduced ledgers based on assets
receivables and inventories, liabilities, capital, expenditure, and income accounts.
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For double entry to flourish, a number of factors needed to be established and combined.
This included private property, capital, large-scale commerce, credit, systematized writing, money,
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and arithmetic. In 15th century Europe, these things we coming together in just the right ways to
set the scene for huge advances in accounting.
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Information Age
Dan Brinklin and Bob Frankston wrote VisiCalc for the Apple II, the first electronic
spreadsheet, the most business application for the personal computer. Tremendous advances in
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information technology have further revolutionized accounting in recent years. Task that are time
consuming when done manually can now be done with speed, consistency, precision and reliability
by computers. There is an abundance of accounting applications and modules to suite the
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businesses’ various needs. This will necessarily bring changes to the field of accounting. As they
say, information technology is it, you either breathe it or perish.
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Lesson 3. The scope of practice in accountancy
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An accountant literally is one who understands and applies the scientific principles of
accounting in any of its – recording, presenting and interpreting financial facts. Actually the word
accountant connotes abilities and activities beyond those required for mere recording.
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The following are the different practices in the accounting profession.
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 Practice of Public Accountancy – shall constitute in a person, be it his individual capacity or
as a partner or a staff member in an accounting or auditing firm, holding out himself as on
skilled in the knowledge , science and practice of accounting, and as a qualified person to
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render professional services as a CPA, offering or rendering, to more than one client on a fee
basis , services such as:
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1. Verification of financial transactions;
2. Preparation of income tax returns;
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3. Design, installation or revision of accounting system
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4. Preparation, signing or certification for clients of reports of audit which are to be used for
publication or for credit purposes, or to be filed with the court of government agency or to
be used for any other purposes
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 Practice in Commerce and Industry – shall constitute in a person involved in decision
making requiring professional knowledge in the science of accounting, or when such
employment or position require that the holder thereof must be a CPA.
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 Practice in Academe – shall constitute in a person in an educational institution which
involve teaching of accounting, auditing, management advisory services, taxation and other
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technically related subjects.
 Practice in government – shall constitute in a person who holds, or is appointed to , a

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position in an accounting professional group in government or in a government-owned and
controlled corporation, where decision making requires professional knowledge in the
science of accounting , or where a civil service eligibility as a CPA is a prerequisite.
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Lesson 4. Branches of accounting.
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The work that accountants undertake ranges far beyond that of simply summarizing
information. Although this work is still very important, accountants gradually got involved in other
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types of work because accountants have been quick to absorb new methods and techniques into
their work. Different branches of accounting are:
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 Auditing - the most important branch of accounting. It is the checking of accounts and
reporting them. The auditor’s job is to protect the interests of the shareholder; they answer
to them and not anyone in the entity.
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 Bookkeeping – is the mechanical task involving the collection of basic financial data. The
bookkeeping procedure usually ends when the basic data have been entered I the books of
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accounts and the accuracy of each entry has been tested.
 Cost Accounting – this is similar to bookkeeping except that data are recorded in very much
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greater detail. This forms one of the main sub-branches of management accounting.
 Management Accounting - incorporates cost accounting data and adapts then for specific
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decisions which management may be called upon to make. A management accounting
system incorporates all types of financial and non-financial information form a wide range
of sources.
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 Financial Accounting – the specific term applied to the preparation and subsequent
publication of highly summarized financial information for different users.
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 Financial Management – relatively new branch of accounting that has grown rapidly.
Focuses on setting financial objectives , achieving them and generally safeguarding all the
financial resources of the entity.
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 Taxation – highly complex technical branch of accounting. If accountant is involved in this
branch of accounting, he is responsible for computing the amount of tax payable by both
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business entities and individuals.
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Lesson 5. Users of Financial Statements.
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Accounting is of primary importance to owners and managers but its results may be
interest to others.
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Internal users:
 Owners . A business enterprise is a profit seeking endeavor. The measure of its success and
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its financial condition are of primary importance to its owner/s.
 Managers. The greater the size of the establishment, especially under a corporate form, the
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more the remote the relationship between the owner and the management is apt to be.
Accounting is an indispensable tool of management. Through it the financial records of the
past and present are revealed, the results of the operations disclosed and data supplied on
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which, in part, the future may be anticipated.
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 Employees. They are interested in information which enables them to assess the ability of
the enterprise to provide remuneration, retirement benefits and employment opportunities.
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External Users:
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 Lenders/Investors They are interested in information that enables them to determine
whether to extend loans or whether their loans and related interest will be paid when due.
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 Suppliers. They are interested in information that enables them to determine whether
amounts owing to them will be paid when due.
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 Customers. They are interested on the information about the continuance of an enterprise,
especially if they have long-term involvement with, or are dependent on, the enterprise.
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 Government and their agencies. They require information in order to regulate the activities
of the enterprises, determine taxation policies and as the basis for national income and
similar statistics.
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 Public. Financial statements may assist the public by providing information about the trends
and recent developments in the prosperity of the enterprise and the range of its activities.
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Lesson 6. Forms of Business Organization.
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There are three major legal forms of business entity;
 Sole proprietorship – it has a single owner called the proprietor who generally is also the
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manager. Sole proprietorships tend to be small service-type businesses and retail
establishment.
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 Partnership – A business owned and operated by two or more persons who bind themselves
to contribute money, property or industry to a common fund with the intention of dividing
profits among themselves. Example, SGV, Punongbayan and Araullo
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 Corporation - A business owned by its Stockholders. It is an artificial being created by
operation of law, having the rights of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence. Example. San Miguel Corporation.
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Lesson 7. Business Operations
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There are three types on how a business operates.
 Service Type – selling people’s time. Ex. Accounting Firm
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 Merchandising Type – Buying and selling of products. Ex. Wholesaler.
 Manufacturing Type – Designing products, aggregating components and assembling finished

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products. Ex. Food and Drink
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4. Summary
Accounting is relevant in all walks of life, and it’s absolutely essential in each business
regardless of their form and operation. Accounting is the system that measures business
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activities, processes that information and communicates the results to is users whether
external or internal. For this reason, accounting is called the language of the business. The task of
learning accounting is very similar to the task of learning a new language. As a student you
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should be conscious of the pervasiveness of accounting within the business. Because the accounting
department has relationship with other departments – production, sales, marketing, finance among
others. It records their financial transactions and summarizes them before the management so that
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the functioning of the entire business may be known and directed. Accounting is not, therefore, an
isolated subject to be studied by itself. A full appreciation of its significance and usefulness is not
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possible unless it is studied and developed in connection with the fields of economics, finance,
statistic, industry, the law and other subject in the curriculum.
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5. Learning Reources:
6. Evaluation:
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True of False:
1. Some entities are required by law to publish information about their affairs.
2. Accounting was already in existent when the Egypt’s great pyramids were built.
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3. Financial accounting informationis for the exclusive benefit of the owners of an entity.
4. Cost accounting makes use of data from the cost books of account in providing
information for managerial planning and control.
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5. Learning accounting is like learning a new language in the sense that words used in
accounting mean the same as they are used in everyday, non-accoutning sense.
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Multiple Choice.
1. Which statement is false?
a. Accounting is the language of business.
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b. Accountants are the scorekeepers of business.
c. Accounting is dispensable in the world of business.
d. None of the above.
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2. A mechanical task involving the colelction of basic financial data.
a. Accountancy
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b. Bookkeeping
c. Auditing
d. Taxation
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3. The checking of prepared accounts and reportin them on is called
a. Taxation
b. Bookkeeping
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c. Auditing
d. Costing
4. A CPA is engaged in public accountancy if he renders service to
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a. prepare income tax returns.
b. design, install, and revise accounting system
c. audit or verify financial transactions and accoutning records
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d. all of the above
5. A highly complex technical branch of accounting that involves the computation of tax
payable by both business entities and individuals
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a. Cost Accounting
b. Bookkeeping
c. Financial Accounting
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d. Taxation
For Items 6-10. Identify what industry do the following business belongs.
a. Service b. Merchandising c.Manufacturing.
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6. Pampanga’s Best
7. Airline Company
8. Supermarket
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9. Food Panda
10. Unilab
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7. Assignment.
Answer the end of Chapter 1 multiple choice questions.
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A. References
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Win Ballada, Susan Ballada (2019) Fundamentals of Accounting, Manila Philippines, DomDane Publisher
and Made Easy Books
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Zenaida Vera Cruz Manuel (2018), 21st Century Accounting Process, Basic Concepts and Procedures,, Manila,
Philippines: Zenaida Vera-Cruz Manuel
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MARY THE QUEEN COLLEGE OF PAMPANGA INC.

Gapan-Olongapo Road, Guagua, Pampanga 2003

2. Preparation of income tax returns;

 Practice in government – shall constitute in a person who holds, or is appointed to , a

 Manufacturing Type – Designing products, aggregating components and assembling finished

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