Fundamentals of Accounting 1

Fundamentals of Accountancy,
Business & Management 1

(Third Quarter)
PROF. JUSTINIANO L. SANTOS, CPA, MBA
Session Guide
Fundamentals of Accountancy, Business &
Management 1 – Third Quarter
Session No. Week No. Topic
1 1-2 Accounting and its Environment
•Introduction to Accounting
•Branches of Accounting
•Users of Accounting Information
•Forms of Business Organizations
•Types of Business According to Activities
2 3-6 Recording of Business Transactions: Concepts
•Accounting Concepts And Principles
•The Accounting Equation
•Types of major Accounts
•Books of Accounts
•Rules of Debits and Credits
3 7-10 Accounting Cycle of a Service Business Part 1
•Journalizing
•Posting
•Preparation of a Trial Balance (Unadjusted)
DEPARTMENT OF EDUCATION
CHAPTER 1
INTRODUCTION TO ACCOUNTING
Chapter 1 – Introduction to Accounting
Learning Competencies -
1. Explain accounting, its branches and users
2. Describe the nature of accounting
3. Explain the functions of accounting in business
4. Narrate the history/origin of accounting
Activity
WORD HUNT:
Encircle the words that you know/

think are related to Accounting.
Words can be found horizontally,

vertically and diagonally
Activity – Word Hunt
A D R A I R T T T C A P I T A L X R
B O T M E E N T I T Y B R A T L E Q
C U Y A C C O T R U G L I O T O V P
D B O N S O T T A S S E T E F D E O
E L Y U A R S T T E U W V A T I N N
F E O F E D T T A X A E C L T X T M
G E P A C I O L I T O W N E R S I L
L N B C C N T S S E E G R I A U N K
M T R T F G T E E R W H O N D P V J
N R A U R P A R T N E R S H I P E I
O Y D R T E Z V X A U D I T N L S H
P I D I E L I I O L U M L X G I T G
Q M L N Y N A C C O U N T S O E O F
R T T G G O V E R N M E N T T R R E
Analysis
• How did you find the activity?

• How many words did you encircle?
• What are your bases in deciding whether such words

are related to Accounting?
• What word/s did you not encircle?
• What hindered you from accomplishing this task?
• What common words did the all the groups encircle?
• What enable you to accomplish this task?
• What were your “AHA” moments?
Accounting and Its Environment
Definition
I
N
T
FINANCIAL E
DATA CONVERTED INTO R
P
R
RECORDING E
T
I
CLASSIFYING N
G
SUMMARIZING
Definition
Accounting – is an 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.
(American Institute of Certified Public Accountants-AICPA)
Accounting - 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 decisions. (Financial Reporting Standards Council -
FRSC)
Definition
Accounting – is the process of identifying, measuring and

communicating economic information to permit informed
judgment and decision by users of the information. (American
Accounting Association-AAA)
Definition
Four Aspects of Accounting
1. Recording – writing down of business transactions

chronologically in the books of account as they transpire
2. Classifying – sorting similar and related business transactions
into three categories: Assets, Liabilities & OE
3. Summarizing – preparing the financial statements from the
transactions recorded in the books of accounts designed to
meet the information needs of its users
4. Interpreting – involves the analysis of the financial
statements by developing financial ratios and explaining their
significance to make the statements more meaningful
Types of Information
1. Quantitative information – expressed in numbers, quantities,

or units.
2. Qualitative information – expressed in words or descriptive

form usually found in the notes to financial statements as well
as on the face of the other components of financial statements.
3. Financial information – expressed in money. Financial

information is also quantitative information because monetary
amounts are normally expressed in numbers.
Accounting as science and art
1. As a social science – a body of knowledge which has been

systematically gathered, classified and organized.
2. As a practical art – requires the use of creative skills and

judgment.
Accounting as an information system
INPUT PROCESS OUTPUT

I
N
T
FINANCIAL E
DATA CONVERTED INTO R
P
R
E
RECORDING T
I
N
CLASSIFYING G
SUMMARIZING
Bookkeeping and Accounting
 Bookkeeping – refers to the process of recording the accounts

or transactions of an entity which normally ends with the
preparation of the trial balance. It does not require the
interpretation of the significance of the information processed.
 Accounting – covers the whole process of identifying, recording,

summarizing and communicating information to interested
users.
Accounting as Language in Business
Managing a Business
Finance Production
Marketing Accounting
Accounting as a Managerial Tool
Staffing
Planning
Organizing
Directing
Controlling
Accounting Information Used in Making
Mangement Decision
Function Management Decision Accounting Information
Planning  The need to improve sales and the  The current and past
business’ ability of doing so levels of business’ sales
 Forecast of sales
Organizing  Do we need additional production facilities  The current productive
and equipment to cater the planned capacity of existing
increase in sales? facilities and equipment
 Do we have the ability to spend more on  The marketing costs
our marketing activities? spent in the past in
relation to the sales
generated
 The amount of available
cash the business’ ability
to generate additional
financing.
Accounting Information Used in Making
Mangement Decision
Function Management Decision Accounting Information
Staffing  Do we need to employ additional  The number of current
personnel? employees compared to
the current level of
productivity
 The amount of available
cash needed to employ
additional personnel
Directing  Are the employees properly motivated,  Records of personnel
informed, guided and encouraged in training and
meeting the business’ goal of increasing its development costs.
sales?  Records of daily sales
Controlling  Have we met our goal of increasing our  Variance analysis on
sales? differences between
actual sales and
expected sales.
Brief History
I. Early development in Mesopotamia
 People followed a system of writing and counting money. The
development of accounting may be related to the taxation and trading
activities of temples.
Bulla (plural Bullae) found in

Mesopotamia. Experts consider this
stage of record keeping the beginning
of the art of writing.
The original bulla was a lump of clay molded
around a cord and stamped with a seal. Once
the clay has dried, the container (such as
a vase or money bag) cannot be violated without
visible damage to the bulla, thereby ensuring
the contents remain tamper-proof until they
reach their destination
Brief History
II. Development in the Roman Empire
 The reign of Emperor Augustus (63BC-14AD) provided more evidence

about the development of accounting.
 The Roman government kept detailed financial information of the deed of
Emperor Augustus regarding the stewardship of Roman resources.
 Roman historian Suetonius and Cassius Dio recorded that in 23BC,
Augustus prepared rationarium (account) which listed public revenues,
the amounts 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
III. Dissemination of double-entry bookkeeping the 14th century Italy
 In 1494, the first systematic record

keeping—double entry recording
system by Fra. Luca Pacioli
 Luca Pacioli is acknowledged as the
“father of modern accounting”
because of this. His “Summa de
Arithmetica, Geometria,Proportioni et
Proportionalita” (Everything about
Arithmetic, Geometry and Proportion)
is the first book printed with a
treatise on bookkeeping.
Brief History
IV. Signing of charter by Queen Victoria
 The modern profession of the chartered accountant originated in

Scotland in the 19th century when Queen Victoria granted a royal
charter to the Institute of Accountants in Glasgow.
V. Formation of accounting standards such as PAS and PFRS
CHAPTER 2
BRANCHES OF ACCOUNTING AND USERS

OF ACCOUNTING INFORMATION
Branches of Accounting
Financial Management Government
Accounting Accounting Accounting
Involves the Accounting for
Focuses on
accumulation and government and its
general purpose
communication of instrumentalities,
financial
information for use focusing attention on
statements.
by internal users. Its the custody of public
General purpose
offshoot is MAS funds, the purpose or
financial
which includes purposes to which
statements are
services to clients on such funds are
those that cater
matters of committed, and the
to the common
accounting, finance, responsibility and
needs of a wide
business policies, accountability of the
range of external
and other phases of individuals entrusted
users.
business conduct with such funds.
and operations.
Auditing Tax
Cost
Accounting
Accounting
Objectively Preparation of tax Systematic recording
evaluating evidence returns and and analysis of the
and expressing an rendering of tax costs of materials,
opinion regarding advice, such as the labor, and overhead
the correspondence determination of the incident to the
between consequences of production of goods
management’s certain proposed or rendering services.
assertion and business endeavors.
established criteria.
Accounting Education Accounting Research

Careful analysis of economic
Teaching accounting
events and other variables to
and accounting-
understand their impact on
related courses in an
decisions. Accounting
organized learning
research includes a broad
environment. It is the
range of topics, which may be
process of facilitating
related to one or more of the
the acquisition of
other branches of accounting,
knowledge and skills
the economy as a whole, or
regarding one or more
the market environment
of the other branches
of accounting.
Accounting Research Topic Related Branch of Accounting

 Impact of fair value  Financial Accounting
measurement on the financial
statements.
 Inventory management and its  Management Accounting
effect on earnings.
 Internal controls and modern  Auditing
technology
 Becoming a certified public  Accounting education
accountant
Users of Accounting Information
Directly
YES NO
involved in
managing
the
business?
INTERNAL USER EXTERNAL USER
Users of Accounting Information
Lending Institutions Government Prospective Investors
Management
Owners Suppliers
1. Which area of public accounting deals with the examination of financial

statements by a CPA for the purpose of expressing an opinion as to the
fairness of the statements?
a.Management Advisory Services c. Internal Auditing
b.Taxation d. External Auditing
2. Which of the following are considered as internal users of accounting

information?
a.Suppliers b. Managers c. Creditors d. Customers
3. Which of the following is not a function of financial accounting?
a.Bookkeepingb. Interpreting c. Budgeting d. Summarizing
4. Arrange the following functions of accounting in a sequential manner.

A.Classifying B. Recording C. Interpreting D. Summarizing
a. B,A,D & C b. B,A,C & D c. A,B,D & C d. C,D,A & B

5. What is the basic purpose of Accounting?
a.To provide the information that the managers of an economic entity need
to control its operations.
b.To provide information that the creditors of an economic entity can use
in deciding whether to make additional loans to the entity.
c.To measure the periodic income of the economic entity.
d.To provide quantitative financial information about a business
enterprise that is useful in making rational economic decision.
6. Which branch of accounting aims to transfer knowledge to students in

the field of accountancy?
a.Accounting Education c. Financial Accounting
b.Accounting Research d. Management Accounting
7. Which branch of Accounting focuses on the preparation of reports for

the use of managers in their decision making?
a.Financial Accounting c. Management Accounting
b.Cost Accounting d. Tax Accounting
8. Which order of events correctly portrays the history of Accounting?

a. Early development in Mesopotamia , Development in the Roman Empire,
Dissemination of double-entry bookkeeping in the 14th century Italy, Signing of
Charter by Queen Victoria, Formation of accounting standards such as PAS and
PFRS.
b. Development in the Roman Empire, Early development in Mesopotamia ,
Dissemination of double-entry bookkeeping in the 14 th century Italy, Signing of
Charter by Queen Victoria, Formation of accounting standards such as PAS and
PFRS.
c. Early development in Mesopotamia , Development in the Roman Empire,
Dissemination of double-entry bookkeeping in the 14th century Italy, Formation
of accounting standards such as PAS and PFRS ,Signing of Charter by Queen
Victoria.
d. Early development in Mesopotamia , Development in the Roman Empire, Signing
of Charter by Queen Victoria ,Dissemination of double-entry bookkeeping in the
14th century Italy, Formation of accounting standards such as PAS and PFRS .
9. Who is considered as the father of modern accounting?

a. Lucio Pacioli c. Lucia Pacioli
b. Luca Pacioli d. Luco Pacioli
10. Which group of users of accounting information invested resources to

the company with hopes of earning acceptable returns?
a.creditors c. potential investors
b.government d. owners or shareholders
CHAPTER 3
BUSINESS ORGANIZATIONS
Forms of Business Organization
A business – is an activity where goods or services are

exchanged for money. A person who is engaged in business is
called an entrepreneur or businessman. Businesses come in
different forms and types.
Sole proprietorship – Partnership – owned by two

business owned and or more persons who entered
operated by only one into a contract.
person.
Corporation – business Cooperative- this is business

whose capital is divided into whose capital is owned by
shares of stock and owned by several people called members.
several people called
shareholders or stockholders.
Make a list of existing business entities in your

community and identify the form of business
organization.
Types of Business According to Activities
1. Trading or merchandising – 2. Manufacturing – conversion of
buying and selling of goods raw material into finished goods
Types of Business According to Activities
3. Servicing – rendering of services for a fee
State what type of business activity

is performed by each of the following
establishments.
1. Beauty parlor 12. Airline Company

2. Gift Shop 13. Spa and Wellness Center
3. Law Office 14. Boutique
4. Drugstore 15. Bookstore
5. Furniture Factory 16. Shoemaker
6. Beauty Shop 17. Consultancy Center
7. Dental Clinic 18. Vulcanizing Shop
8. Sari-sari Store 19. Supermarket
9. Medical Clinic 20. Security Agency
10. Grocery 21. Hardware
11. Textile Producer 22. Advertising Agency
Make a list of businesses in your community

according to their activities.
Thank you!

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Fundamentals of Accountancy,

Business & Management 1

1. Explain accounting, its branches and users

2. Describe the nature of accounting

3. Explain the functions of accounting in business

4. Narrate the history/origin of accounting

Encircle the words that you know/

Words can be found horizontally,

• How did you find the activity?

• What are your bases in deciding whether such words

Accounting – is an art of recording, classifying and

Accounting - a service activity whose function is to provide

Accounting – is the process of identifying, measuring and

1. Recording – writing down of business transactions

1. Quantitative information – expressed in numbers, quantities,

2. Qualitative information – expressed in words or descriptive

3. Financial information – expressed in money. Financial

1. As a social science – a body of knowledge which has been

2. As a practical art – requires the use of creative skills and

INPUT PROCESS OUTPUT

 Bookkeeping – refers to the process of recording the accounts

 Accounting – covers the whole process of identifying, recording,

Bulla (plural Bullae) found in

 The reign of Emperor Augustus (63BC-14AD) provided more evidence

 In 1494, the first systematic record

IV. Signing of charter by Queen Victoria

 The modern profession of the chartered accountant originated in

V. Formation of accounting standards such as PAS and PFRS

BRANCHES OF ACCOUNTING AND USERS

Accounting Education Accounting Research

Accounting Research Topic Related Branch of Accounting

INTERNAL USER EXTERNAL USER

1. Which area of public accounting deals with the examination of financial

2. Which of the following are considered as internal users of accounting

4. Arrange the following functions of accounting in a sequential manner.

a. B,A,D & C b. B,A,C & D c. A,B,D & C d. C,D,A & B

6. Which branch of accounting aims to transfer knowledge to students in

7. Which branch of Accounting focuses on the preparation of reports for

8. Which order of events correctly portrays the history of Accounting?

9. Who is considered as the father of modern accounting?

10. Which group of users of accounting information invested resources to

Forms of Business Organization

A business – is an activity where goods or services are

Forms of Business Organization

Sole proprietorship – Partnership – owned by two

Forms of Business Organization

Corporation – business Cooperative- this is business

Make a list of existing business entities in your

3. Servicing – rendering of services for a fee

State what type of business activity

1. Beauty parlor 12. Airline Company

Make a list of businesses in your community

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