TMaam Jennifer Esteban FABM - 1

Fundamentals of
Accountancy, Business and
Management 1
1. Avoid being late in class
2. Everyone deserves
respect, both students and
teachers.
3. Raise your hand if you
want to speak/talk.
4. Hall Pass (wash room)
5. Avoid writing lectures
during the discussions.I will Its More Fun in
give you a certain time to ABM !!!
write all our discussions
6. Data Confidentiality
TMaam Jennifer Esteban FABM - 1

Fundamentals of
Accountancy, Business and
Management 1
 FABM - 1

LEARNING OBJECTIVES
At the end of the lesson, the student
should be able to:

1. Understand the definition, nature,

function, and history of accounting
2. Define external and internal users
and gives examples
3. Explain the varied accounting
concepts and principles
4. Solve exercises on accounting
principles as applied in various
cases
MOTIVATION
What comes into
your mind when
you hear the word
ACCOUNTING?

Let’s watch this video

Lesson Overview
❏Language of Business
❏Language of Financial
Decisions.
❏Transactions
DISCUSSIONS
The main purpose of accounting is to
ascertain profit or loss during a specified
period, to show financial condition of the
business on a particular date and to have
control over the firm's property. Such
accounting records are required to be
maintained to measure the income of the
business and communicate the
information so that it may be used by
managers, owners and other interested
parties.
Definition of Accounting
According to American Accounting
Association (AAA) is a process of identifying,
measuring, and communicating economic
information to permit informed judgment
and decisions by users of the information

American Institute of Certified Public

Accountants (AICPA) accounting as the art
of recording, classifying, and summarizing in
a significant manner the terms of money,
transactions and events parts of financial
character
Definition of Accounting
According to Accounting
Standards Council (ASC)
accounting as a service activity.
Its functions provide quantitative
information, primarily financial in
nature. Economics entities that
are intended in making economic
decisions.
Attributes of accounting
1. Identifying and Analyzing
Business Transactions.

1. Recording - It is concerned
with the recording of
financial transactions in an
orderly manner, soon after
their occurrence in the
proper journal or books of
accounts or book of original
entry.
 Attributes of accounting
3. Classifying - It Is concerned with the systematic
analysis of the recorded data so as to
accumulate the transactions of similar type at
one place. This function is performed by
maintaining the ledger or book of final entry in
which different accounts are opened to which
related transactions are posted.
 Attributes of accounting
5. Summarizing - It is concerned with the preparation
and presentation of the classified data in a manner
useful to the users. This function involves the
preparation of financial statements such as Income
Statement (Statement of Comprehensive Income),
Balance Sheet (Statement of Financial Position),
Statement of Changes in Equity and Statement of
Cash Flow.
 Attributes of accounting
4. Interpreting - Nowadays, the aforesaid three functions
are performed by electronic data processing devices and
the accountant has to concentrate mainly on the
interpretation aspects of accounting. The accountants
should interpret the statements in a manner useful to action.
The accountant should explain not only what has
happened but also

a. why it happened
b. what is likely to happen under specified conditions
Financial Statement
Sample
 The Nature of Accounting
According to Accounting Theory
“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:
 The Nature of Accounting
❏ Accounting is an art. 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 it
TMaam Jennifer Esteban FABM - 1

Fundamentals of
Accountancy, Business and
Management 1
 FABM - 1

LEARNING OBJECTIVES
At the end of the lesson, the student
should be able to:
1. Understand the definition, nature,
function, and history of accounting
2. Define external and internal users
and gives examples
3. Explain the varied accounting
concepts and principles
4. Solve exercises on accounting
principles as applied in various
cases
 The Nature 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.
 The Nature of Accounting
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.
 The Nature of Accounting
❏ 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.
 The Nature of Accounting
❏ 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.
 Business
transactions
generated in
quickbooks
(sample)
 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)
 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
 Written Works &
Performance Task
Written Works
A.- BTS/EXO/TXT - Write the BTS if the statement is correct, and
EXO if is incorrect, TXT if is maybe

1. Accounting is the process of identifying,

measuring and communicating economic
decisions.

2. The accounting process are in the following order:

recording, identification and communicating.
3. The oldest evidence of this practice of accounting
was in clay tablet

4. The Philippines created their own accounting

principles without regarding the international
standards since there are a lot of international
standards not applicable in the Philippine setting.

5. Mass production and the great importance

of fixed assets were given attention during the
period of french revolution
6. Luca Pacioli is the Father of Accountancy

7. The AICPA mentioned four phases of accounting in its

definition namely: recording, classifying, summarizing and
communicating.

8. Accounting is an end and not the means

9. Double -entry bookkeeping was introduced in the 19th
Century.

10. Accounting is recognized and characterized as a

storehouse of information system
B. Directions: Identify which feature of accounting being
described. Write the letter of the correct answer before each
number
A. Accounting is a process 1. Accounting provides
B. Accounting is an art assistance to decision
C. Accounting is a service makers by providing
activity them financial reports
D. Accounting is an
that will guide them in
information systems
coming up with sound
E. Accounting financial
information and decisions.
transactions
 A. Accounting is a process D. Accounting is an
B. Accounting is an art information systems
C. Accounting is a service activity
E. Accounting financial information and transactions

2. A process that refers to the method of performing any

specific job step by step according to the objectives or
targets.

3. It is behavioural knowledge involving a certain

creativity and skill that help us attain some specific
objectives.
 A. Accounting is a process D. Accounting is an
B. Accounting is an art information systems
C. Accounting is a service activity
E. Accounting financial information and transactions

4. It is recognized and characterized as a

storehouse of information.

5. It does not deal with non-monetary or

non-financial aspects of such information.
 PERFORMANCE TASK
A. Fill in the Blanks: Fill in the missing words in the blank provided.

Accounting as defined by (1)____ (AICPA) as the art of

(2)______,(3) ______,(4) ____, in a significant manner and in
terms of (5) _____, (6)_____ and events parts of financial
character.

Accounting as defined by American Accounting

Association is the process of (7)_____,(8)____and
(9)_____economic information to permit informed
judgement and decision by (10)______ of the information.
B. (11-15) Accounting Cycle

Draw an accounting cycle concept

on how you understand it based from the
attribution kindly indicate the label
 Users of
Accounting
Information
Users of Accounting Information
Providing information to the various interested
parties or stakeholders is one of the most important
objectives of accounting. It helps them in making
good financial decisions.
All those who use accounting information about the
business to make decisions are called users of
accounting information. These are the different
parties in the business who have some stake in the
business. Users have a stake in the business in the form
of:
Users of Accounting Information
❖ Investment in the business
❖ Loans to the business
❖ Goods sold on credit to the business
❖ Job in the business
❖ Consumers of goods and services produced
by the business
But the main purpose of all the users is that all of them
want to know about the performance, progress, and
working of the business organization. The users of
accounting information are divided broadly into two
categories: (Internal & External)
A. Internal Users

Management is composed of people who are responsible for

the overall operations of the business. They are the ones who
run the business, thus, they need to know the performance of
the business for them to be guided on the decisions they will
make. They are interested in the profitability and solvency of
the business. Profitability pertains to the ability of the business
to earn income to attract and hold investment capital while
solvency is the ability of the company to pay their debts or
obligations when they fall due. Liquidity is the ability of the
business to meet their short-term obligations while stability is
their ability to meet long-term obligations or debts.
1.Owners/Proprietor/Partners - they provide the
capital to the business. Owners need these
accounting information to help them to decide
whether they should withdraw or increase their
investment.

2. Managers - plan, organ, and run the business

3. Employees and Workers- they assess the

company’s profitability and stability,its
consequences on their future salary and job security
The common information needs of the internal
users:

- Do we have enough cash pay bills?

- Can the company afford to give salary increase?
- How much is the cost of producing each unit of
product?
- Which product line is profitable?
- How much is the company’s sales growth for the
month?
- How much is the tax payable to the government?
B. External Users
All those parties and individuals who are not directly involved
in the management and operation of the business. They are the
following:
1. Potential investors - they need the information to help
decide whether they should invest or not in the business.

2. Creditors and potential creditors - they assess the

creditworthiness and capability of the business to pay its
obligation including interests and maturity date
5. Tax authorities - they use financial reports to
determine the credibility of the tax returns filed on the
behalf of the company.

6. Regulatory Bodies - they want to ensure that the

company’s disclosure of accounting information is in
the accordance with the rules and regulations set in
order to protect the interest of the stakeholders who
rely information.
Example: SEC, Bangko Sentral ng Pilipinas (BSP)
3. Customers and clients - they assess the financial
position of their suppliers which is necessary for them to
maintain a stable source of supply in the long term.

4. Suppliers - they use the financial statements of their

customers to determine whether the debts owed to
them will paid when due or whether the customers has
enough funds or resources to pay the goods to be
delivers or the services rendered.
7. Public - they use the financial
information to know how the business helps
the economy and whether employment is
available in the company
Classify each of the following users of accounting
information

1. Creditor 6. BSP

1. Employees 7. Enrique Zobel

1. Government agencies 8. Siltos Mart

1. Stockholder 9. BIR

1. Management 10. Ferson

TMaam Jennifer Esteban FABM - 1

Fundamentals of
Accountancy, Business and
Management 1
 FABM - 1

LEARNING OBJECTIVES
At the end of the lesson, the student
should be able to:

1. Understand the definition, nature,

function, and history of accounting
2. Define external and internal users
and gives examples
3. Explain the varied accounting
concepts and principles
4. Solve exercises on accounting
principles as applied in various
cases
 For set of rules, concepts and principles referred to as the General
Accepted Accounting Principles (GAAP) governs the application of
accounting problems. The GAAP has been developed by the
accounting profession to guide preparers of financial statements in
recording and reporting financial information regarding business
enterprise

The current set of principles that accountants use rests upon some
underlying assumptions. The basic assumptions and principles are
considered GAAP and apply to most financial statements.

The accounting standards used in the Philippines are the Philippine

Accounting Standards (PASs) and Philippine Financial Reporting
Standards (PRFSs) now they are adopt by Financial Reporting Standards
Committee (FRSC)
Accounting concept refers to the basic assumptions, rules
and principles which work as the foundation for the
accounting process. It serves as the basis of recording
business transactions and preparing financial statements.

Concepts are the basic notions or fundamental premises

on which the accounting process is based.

Conventions are guidelines that arise from practical

applications of accounting principles.
UNDERLYING
ACCOUNTING
ASSUMPTIONS
1. Accrual Basis Assumption - It requires that all business
transactions and other events are recognized in the
accounting records when they occur, rather than when
the cash or equivalent is received or paid.
Here are some common examples of expenses that can be
accrued:

Interest on loan(s) Goods received Services

received
Wages for Taxes Commissions
employees
Utilities Rent
2. Going Concern Assumption - or also called as the
“Continuity Assumption” states that a business will continue
its operations indefinitely into the future. This means that the
operations of a business will not stop in the near future and it
will not be forced to liquidate its assets to pay off its liabilities

FOR EXAMPLE:
Company A rents a building ₱ 100,000 per month. On January 1,
2016 the company paid the rent for two years in the amount of
₱ 2,400,000. Under the going concern assumption, the company can
recognize the part of the ₱ 2,400,000. that's not yet incurred. On
January 1, 2016 the company has not yet used the building but
already paid rent
3. Economic Entity Assumption - It assumes that all of the
business transactions are separated from the business
owner’s personal transactions.
A business is considered a distinct entity from the owner
and therefore the two should be separately.

FOR EXAMPLE:
Mr. RM, the owner of Bilis Serbisyo Repair Shop,
bought supplies for the school project of his son. This is a
personal transaction of the owner should not be
recorded in the accounting books
4. Monetary Unit Assumption- Economic activities of a
Philippine entity are measured and reported in Phil. peso.
It assumes that only transactions that can be expressed in
terms of money are recorded.
a. Quantifiability means that the assets, liabilities, capital, income
and expense should be stated in terms of a common unit of
measure of the currency of the country in which the business trades.

b. Stability of the peso-it means that the purchasing power of

the peso is stable and constant and that its instability is
insignificant and therefore may be ignored.
5. Time-Period Assumption- the life of an economic entity
can be divided into artificial time periods for the purpose of
of providing reports on the economic activities of the entity.
It means that financial statements are prepared at equal
time intervals.
a. Calendar year is a 12 month period that starts on January 1 and ends on
December 31.
b. Fiscal year is a period of 12 successive calendar months ending with
the last day of any month other than December 31

c. Natural business twelve month period ends on the month when the
company is its lowest.
1. Conservatism principle - also known as prudence. It is exercise of
care decisions regarding the recognition of items in the
accounting records which ensures that income and assets are not
overstated and liabilities and expenses are not understated. The
conservatism principle is the foundation for the lower cost or
market value which states that “record inventory at the lower of
either its acquisition cost or its current market value”.

❖ Losses are recorded when they are expected to

occur
❖ Gains are only recognized once they are certain
to happen
Example:
1. A business owns inventory (winter coat) that was bought for $
12,000. It has gone down in value and now is worth just $ 8,000
winter coat in January.

1. A business owns a building that is originally cost $ 500,000. But

growth in the property of market means the building is now
valued at $ 600,000. If were sold
Should the firm value the building at $ 600,000 and record a
revenue at $ 100,000
2. Cost principle- The fixed assets of a business are
recorded on the basis of their original cost in the first
year of accounting. These assets are then recorded in
the next years with their depreciation
Example:
Repair Shop bought one computer 42,000, but we can
purchased at 40,000 on another vendor. The shop transaction
recorded would be ________
3. Full Disclosure Principle -In preparation for financial
statements, the accountant should include sufficient
information to permit the stakeholders to make an
informed judgement about financial condition of the
enterprise.
If the certain information is important to an investor
using the financial statements, the information should
be disclosed within the statement.
4. Matching Principle - This principles requires that
expenses be matched with revenues. It means that in a
given accounting period, the revenue recorded should
have an equivalent expenses record in order to show
to the true profit of the business.

Example:
Electricity consumed in December 2014 paid on
January 7, 2015 should be reported in ____ utility
expenses income statement and amount unpaid at
December 31, 2014
5. Revenue Recognition Principle - Revenues are
recognized as soon as goods have been sold (delivered to
the customers) or services has been rendered, regardless
of when the money is actually received. Revenue is
recognized when the earning process is virtually complete
and an exchange transaction has occurred.

Example:
On June 25, Repair Shop rendered service to a client for ₱
15,000. The service fee was collected on July 4. The entity
should be record the revenue of 15,000, the time of service
was rendered to the customers, and not the time cash was
received
6. Materiality Principle -business transactions that may
affect the decision of a user of financial information are
considered important or material, and thus record
properly.

Example:
The purchase of a ₱ 300 paper puncher by a company.
The estimated useful life of the puncher is five years. The
justification is that no one would consider it misleading if ₱
300 is expensed in the first year instead of ₱ 60 being it
misleading expensed in each of the five years that is used.
7. Objectivity Principle - financial statements must be
presented with supporting evidence.

Example:
When the customer paid Jollibee for their order, Jollibee
should have a copy of the receipt to represent as
evidence.
Other Characteristics of Accounting Information:

When financial reports are generated by professionals

accountants, users expect that the accounting information
presented is reliable and verifiable.
To be useful, financial information must be relevant, reliable
and prepared in a consistent manner. Relevant information
helps a decision maker to understands a company’s past
performance, present condition and future outlook so that
informed decisions can be made in timely manner. Internal
users often need more detailed information that external users.
External users might only be interested on the company’s
value or its ability to repay loans,
Watch the video Uniqlo of
JAPAN
Identify the following terms:
1. “GAAP” refers to:

1. The indefinite life of a company can be divided

into periods of equal length for the preparation
of financial reports

1. Assume that the company will continue

indefinitely.
4. HYBE Entertainment Company issues financial
statements its stockholders every year so that
stockholders will have an idea on how the
company performed for a particular year.

5. When Harvard School buys a laptop for school

use, it should be recorded at the price it was
bought.
 Accounting principles. Indicate which principles are violated.

1. The owner-manager bought a computer for personal use. The

invoice was given to the accountant who recorded it as an
asset of the business.

1. Magic Club Incorporated bought 1,000 pieces of Meiji

chocolate coated biscuit sticks from Japan for ￥69,975
Japanese Yen. It was reported at that amount in the statement
of financial position while all the other assets were reported in
Philippine pesos
3. Jimin Shin Construction Company purchased a
hammer at a cost of ₱ 550. This was recorded as an
asset. Depreciation expense to decrease its value by ₱55
per year for 10 years
3. Jimin Shin Construction Company purchased a
hammer at a cost of ₱ 550. This was recorded as an
asset. Depreciation expense to decrease its value by ₱55
per year for 10 years
HOMEWORK 2

1. What is accounting equation?

2. What are the elements of accounting
equation? give examples:
 THANK YOU

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