FABM 1

Fundamentals of
Accountancy, Business
and Management 1
Quarter 3 – LAS 1

Mary Mildred P. De Jesus

Subject Teacher
OPENING
PRAYER
1.To define accounting and
describe its nature;
2.To explain the functions of
accounting in business;
3.To give examples of
business transactions and
decisions requiring the need
for accounting; and narrate
the history of accounting
ABM_FABM11-IIIa-1-2-4-7-8
The information below
will help you be a
successful participant
in this course.
How is the course
designed?
 Lectures
 Video Lectures
 Worksheets
 Activity Game
 Exercises
 Quizzes
 THE DEFINITION,
NATURE, FUNCTION,
AND HISTORY OF
ACCOUNTING
Let’s do some Pre-Test:
Instructions:
True or False. Read each
item carefully write your
answers on a paper.

..\..\..\..\2021-2022\2nd Sem 2021-

2022\FABM 1\Activity\Pre-Test LAS
1.pptx
 Why do we need to study
accounting?
(https://www.ecpi.edu/blog/why-is-accounting-
important-in-everyday-life)
Reconciliation: Making Sure All Your
Charges are Correct

Planning for the Future

Budgeting and Managing Your Spending

Getting Better Grades

Transforming Everyday Skills into a Career

 WHAT IS
ACCOUNTING?
 ACCOUNTING
 Is an art. It is “the language of business”.
 Is a system that helps business tracks events that
affect them. This process involves;
 According to American Institute of Accountants,
accounting defined as 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 financial character and
interpreting the results thereof

I • IDENTIFICATION

R • RECORDING

C • COMMUNICATING
 IDENTIFICATION- this involves selecting economic events
that are relevant to a business transaction. The economic
events of an organization are referred to as transactions.
 RECORDING - this involves keeping a chronological diary
of events that are measured in pesos. The diary referred to
in the definition are the journals and ledgers.
 COMMUNICATING - It occurs through the preparation
and distribution of financial and other accounting reports.

NATURE OF ACCOUNTING

1. Accounting is a process - because it performs the

functions of identifying, recording, communicating
economic events with the end goal of providing information
to internal and external parties.

2. Accounting is an art – It is a combination of techniques

and its application requires skill and expertise. It refers to
a way of performing something. It entails creativity and
skills to help us attain some objectives.
 NATURE OF ACCOUNTING

3. Accounting deals with financial

information and transactions –
It records the financial transactions and date
after classifying the same and finalizes their
result for a definite period
for conveying them to their users.

4. Accounting is a means and not an end. -

It is a tool to achieve specific objectives.

5. Accounting is an information system –

It is a storehouse of information. Meets the
need of financial information required by
different interested groups.
FUNCTIONS OF ACCOUNTING IN BUSINESS

 The function of accounting in business

can be attributed to the three
fundamental objectives of an
information system.

1.To fulfill the stewardship function of

the management (or owners).
2. To help interested users come up
with informed decisions, and
3. To support daily operations of the
business.
DIFFERENCE BETWEEN ACCOUNTING AND
BOOKKEEPING
IN TERMS OF SCOPE:
ACCOUNTING BOOKKEEPING
• It is broader as it • Is just confined with the
included the recording of monetary
bookkeeping function. transactions which is
one part of the
accounting process.
• Is the interpretation and • It focuses on recording
presentation of that and organizing financial
data to business owners data
and investors.
 BRIEF HISTORY OF ACCOUNTING
 It is believed that the history of accounting is thousands of
years old and can even be traced to ancient civilizations.
 A number of history books suggest that the early development
of accounting can be dated back to Ancient Mesopotamia.
 Reign of Emperor Augustus (63 BC – 14 AD)
 The roman government kept detailed financial information
of the deeds of Emperor Augustus regarding the
stewardship of Roman resources.
 This is evidenced by the Res Gastae Divi Augusti (The
Deeds of the Divine Augustus)
 The Roman historians Suetonius and Cassius Dio recorded
that in 23 BC, Augustus prepared a rationarium (account)
which listed public revenues, the amount of cash in the
aerarium (treasury), in the provincial fisci (tax officials), and in
the hands of the publican (public contractors); and that it
included the names of the freedmen and slaves from whom a
detailed account could be obtained.
 BRIEF HISTORY OF ACCOUNTING
 LUCA PACIOLI was known as
“The father of Modern
Accounting” because of his
“double-entry bookkeeping system”
is defined as any bookkeeping
system that has a debit and a
credit for each transaction.
 Luca Pacioli’s Summa de
Arithmetica, Geometria,
Proportioni et Proportionalita
(Review of Arithmetic, Geometry,
Ratio, and Proportion) is the first
book printed with a treatise on
bookkeeping. The double entry
bookkeeping system is the
system being used to this very
day.
 14th Century - Double-Entry
Bookkeeping
 BRIEF HISTORY OF ACCOUNTING
 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.
 Chartered Account (modern profession)
 Chartered – fully qualified as a professional
 Chartered accountant – fully qualified accountant: an
accountant who has passed the examinations of a
governing professional body that has been granted a royal
charter.
 Originated in Scotland during the 19th century
 Queen Victoria granted a royal charter to the Institute of
Accountants in Glasgow
 BRIEF HISTORY OF ACCOUNTING
Chartered Account (modern profession)
 19thCentury – The Beginnings of Modern
Accounting in Europe and America.
 The Present - The Development of Modern
Accounting Standards and Commerce.
 At present time, accounting standards are already
available to guide accountants in their practice of
the profession.
 PFRS – Philippine Financial Reporting Standard
 PAS – Philippine Accounting Standards
USERS OF ACCOUNTING INFORMATION
 USERS OF ACCOUNTING INFORMATION

A. INTERNAL USERS – are those individuals inside a company

who plan, organize, and run the business. These users are
directly involved in managing and operating the business.
 Are the primary users of accounting. Primary means
they are the people within a business organization who
use accounting information to make decisions that
directly affect the internal operations of the business.
THEY ARE CATEGORIZED THE FOLLOWING:
1. OWNERS - is the legal proprietor of a business. An
individual or group that owns the assets of a firm and
profits from them.
2. MANAGER - a person responsible for controlling or
administering all or part of a company or similar
organization.
3. EMPLOYEE - is someone who gets paid to work for a
person or company.
 USERS OF ACCOUNTING INFORMATION

Primary Users of accounting information include the

following:
1. Management
a. Information need: income/earnings for the period, sales,
available cash, production cost
b. Decisions supported: analyze the organization’s
performance and position and take appropriate measures
to improve the company results, sufficiency of cash to
pay dividends to stockholders; pricing decisions.
2. Employees
a. Information need: profit for the period, salaries paid to
employees
b. Decisions supported: job security, consider staying in
the employ of the company or look for other
employment opportunities.
 USERS OF ACCOUNTING INFORMATION

Primary Users of accounting information include the

following:
3. Owners
a. Information need: profit or income for the period,
resources or assets of the business, liabilities of
the business
b. Decisions supported: considerations regarding
additional investment, expanding the business,
borrowing funds to support any expansion plans.
 USERS OF ACCOUNTING INFORMATION
 The INTERNAL USERS use accounting information for
decision purposes that are illustrated in the diagram. Without
the proper accounting information, these types of decisions
would be difficult and impossible to make.

Decision-
Making

Planning Control

INTERNAL
USERS
 USERS OF ACCOUNTING INFORMATION
B. EXTERNAL USERS – are individuals and organizations
outside a company who want financial information about the
company. These users are not directly involved in managing
and operating the business.

THE TWO MOST COMMON TYPES OF EXTERNAL USERS

ARE POTENTIAL INVESTORS AND CREDITORS.
a. Potential Investors use accounting information to make
decisions to buy shares of a company.
b. Creditors (such as suppliers and bankers) use accounting
information to evaluate the risks of granting credit or
lending money. Also included as external users are
government regulatory agencies such as Securities and
Exchange Commission (SEC), Bureau of Internal Revenue
(BIR), Department of Labor and Employment (DOLE), Social
Security System (SSS), and Local Government Units (LGUs).
 USERS OF ACCOUNTING INFORMATION
EXTERNAL USERS (SECONDARY USERS) OF ACCOUNTING
INFORMATION INCLUDE THE FOLLOWING:
1. Creditors
• for determining the credit worthiness of an organization.
• for setting terms of credit are set by creditors according to
the assessment of their customers' financial health.
• include suppliers as well as lenders of finance such as
banks.
2. Tax Authorities (BIR)
• for determining the credibility of the tax returns filed on
behalf of a company.
3. Investors
• for analyzing the feasibility of investing in a company.
• want to make sure they can earn a reasonable return on
their investment before they commit any financial
resources to a company.
 USERS OF ACCOUNTING INFORMATION
EXTERNAL USERS (SECONDARY USERS) OF ACCOUNTING
INFORMATION INCLUDE THE FOLLOWING:

4. Customers
• for assessing the financial position of its suppliers which
is necessary for them to maintain a stable source of
supply in the long term.

5. Regulatory Authorities (SEC, DOLE)

• for ensuring that a company's disclosure of accounting
information is in accordance with the rules and
regulations set in order to protect the interests of the
stakeholders who rely on such information in forming
their decisions.
 REFERENCES:
 Florendo, J. G. (2016). Fundamentals of Accountancy,
Business, and Management 1. Rex Bookstore, Manila,
Philippines.
 Licuanan, P.B. (2016). Teaching Guide for Senior High
School Fundamentals of Accountancy, Business, and
Management 1. Commission on Higher Education. 4th Floor,
Commission on Higher Education, C.P. Garcia Ave.,
Diliman, Quezon City, Philippines
 Valix, Conrado T. et.al. (2015). Financial Accounting, Vol. 1,
First part. GIC Enterprises & Co. Inc • Weygandt, J. et. al.
(2012) Accounting Principles 10th ed.
John Wiley & Sons (Asia) Pte. Ltd.
Ferrer R.C. et.al. (2017). Fundamentals of Accountancy,
Business and Management part 1, Bandolin Enterprise,
(Publishing and Printing) Bakekang Sur, Baguio City
 Accounting Theory (n.d.) Retrieved from
ttp://accountingtheory.weebly. com/nature-and-scope- of—
accounting
“There are no secrets to success. It is the
result of preparation, hard work and
learning from failure”.
-Colin Powell, statesman & 4-star
general-