Senior High School

11
Fundamentals of
Accountancy, Business and
Management 1
Quarter 3 – Module 1:
Introduction to Accounting

1
Fundamentals of ABM 1: Grade 11
Quarter 3 – Module 1: Introduction to Accounting

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Schools Division Superintendent: Loida N. Nidea

Assistant Schools Division Superintendent: Lauro B. Millano

Development Team of the Module

Writer: Stephanie Joy D. Fabricante
Editor: Rachelle C. Laureta
Reviewers: Sarah Christine P. Godoy
Raquel C. Borondia
Sireon C. Tapales
Illustrator: Stephanie Joy D. Fabricante
Cover Art: Jed Adra
Layout Artist: Jhomar B. Jaravata

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Email: deped.camsur@deped.gov.ph
Website: www.depedcamsur.com 2
Telephone No: (telefax) 8713340
ACCOUNTING AND ITS NATURE

As a student, do you receive allowance on a daily basis? How much do your

parents give you? Where do you spend your allowance? Do you keep track of your
expenses? If there is money left from your allowance, what do you do? Do you tell
your parents about the money you spend for the day? With proper accounting
information, these queries will be answered.
Everyday you need money to finance your daily needs and day by day you
make decisions on what to do with your finances.
As you work through the module, you will learn why accounting is needed for
all types of business. You will learn the definition, nature, function and historical
beginnings of accounting.
Are you ready?

At the end of the module, you should be able to:

 Define accounting (ABM_FABM11-IIIa-1)

 Describe the nature of accounting (ABM_FABM11-IIIa-2)
 Narrate the history/origin of accounting (ABM_FABM11-IIIa-4)

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These vocabulary lists will help you understand the terms and concepts used
in this module.

Accountant is a person who records business transaction on

behalf of an organization, reports on company performance of
TERMINOLOGIES
management and issues financial statements.
Accountant
Accounting information is a financial information about
economic activities. Accounting
Assets are resources of value which the business owns. information

Business is an organization that utilizes resources and Assets

information, supplies the wants and needs of customers
Business
through goods or services.
Business
Business transactions are interactions between business
and other stakeholders.
Transactions

Economic entity is an organization or unit within society such Economic entity

as company or agency. Equity
Equity is a residual interest after deducting the liabilities from
Expense
assets.
Financial
Expense is the cost of operations that a company incurs to
Statements
generate revenue.

Financial statements are written reports that reflect the Language

financial standing and economic activities of the business. Liabilities
Language is a means of communicating feeling, emotion,
Profit
views, ideas and willing.
Quantitative
Liabilities are what the business owes.
information
Phases is a particular stage in a process
Revenue
Profit is income of the business after deducting all the
expenses.

Quantitative information is an information that can be

measured numerically and has numerical value.

Revenue is money (or some equivalent) that an individual or

business receives usually in exchange for providing a goods or
service.

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 KNOWLEDGE
CHECK

MULTIPLE CHOICE. Choose the letter that best corresponds to the answer.
1. What statement defines accounting?
A. Accounting is an interaction between the owners and stakeholder
B. Accounting is the process of recording, classifying, summarizing and
interpreting financial information that is useful in making economic
decisions.
C. Accounting is concerned with the transformation of a range of inputs
into the required outputs (products) having the requisite quality level.
D. Accounting is a process whereby resources, flowing within a defined
system, are combined and transformed in a controlled manner to add
value in accordance with policies communicated by management

2. Maria is an accountant of a construction business. Before preparing the financial

statements, she needs first to gather financial information about business
transactions, record and collate them in order to come up with the values to be
presented in the financial report. What nature of accounting best describes the
scenario?
A. Accounting as an art.
B. Accounting as a process.
C. Accounting as a service activity.
D. Accounting deals with financial information and transactions.

3. Why is INTERPRETING important in the phases of accounting?

A. It records business transactions
B. It sorts financial data.
C. It prepares financial statements
D. It analyzes the result of the financial statement.

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4. What is the reason why accounting is the “language of business”?
A. It computes for the income tax.
B. It complies with all legal requirements.
C. It determines the profit or loss of the company.
D. It communicates financial information to help users on decision making.

5. In 1400s, what important event that happened in the history of accounting?

A. The incomes of temples were recorded in lower Mesopotamia
B. The Phoenicians created an alphabet with accounting so that they were
not cheated through trades with ancient Egyptians.
C. Emperor Wang Mang of China instituted the first known income tax.
D. Luca Pacioli introduced the bookkeeping system.

LET’S
ACQUIRE
LEARNINGS

What is accounting?

Accounting is very important in all aspects of life especially in business. It is

said to be the “language of business”. This phrase was associated to Warren
Buffet who advised a young man to study the language of accounting because it is
the best way to understand financial statements. Like any language, accounting has
its own set of terminologies. Interested persons especially those in the field of
business must learn accounting language to effectively use them on a daily basis.
Through accounting, businesses are able to speak about its performance and
interested users make better or worser business prospects or future business plans.

4
Definitions of Accounting

The term accounting has been defined technically by different accounting

associations.

Accounting is a service activity. Its function is to provide quantitative

information primarily financial in nature, about economic entities that is intended to
be useful in making economic decisions. (Accounting Standards Council).

Accounting is an art of recording, classifying, and summarizing in a significant

manner and in terms of money, transactions and events which are at least of
financial character, and interpreting the results thereof. (American Institute of
Certified Public Accountant)

Accounting is the process of identifying, measuring and communicating

economic information to permit informed judgement and decisions by users of the
information. (American Accounting Association)

Accounting is an information system that measures, processes and

communicates financial information about economic entity. (Financial Accounting
Standards Board)

What are the common terms highlighted on the definitions?

Based on the given definitions, accounting therefore is a process of

identifying, measuring, recording financial information to be communicated to
interested users at the right time. This shows that there is a need to identify entity’s
financial transaction or events. The financial transactions will be measured.
Measuring refers to the process of assigning and determining the monetary value of
business transactions or events. Take note that only business transactions that
are quantifiable and have monetary value will be recorded. These quantifiable
financial transactions will be classified into accounts and financial statements will be
prepared. Finally, the complete set of financial statements will be interpreted and
communicated to the interested users of accounting information.

Financial
Information

Fig.1.1: Process of Accounting

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Nature of Accounting

Accounting is a systematic recording of financial transactions and presenting

the information to the different users of accounting information. Based from the
definitions given, the nature of accounting are as follows:

1. Accounting is a process.
A process is a systematic series of action directed towards a particular
outcome. Accounting is identified as a process as it follows logical phases in
the accounting cycle such as recording, classifying, summarizing financial
transactions and communicating the results after.

2. Accounting is an art.
The word “art’ refers to the way of how something can be performed. It
is a behavioral knowledge which involves creativity and skill. Accounting
activity is systematic that requires a definite techniques and application of
accounting expertise and skills. So, by nature, accounting is an art.

3. Accounting is a service activity.

It is concerned with providing service of ensuring that the financial
statements are available to users on a timely basis.

4. Accounting is an information system.

An information system is a set of interrelated components working
together to achieve common goal. Accounting is characterized as a
storehouse of information. A business uses a structure to collect, record,
classify, summarize and communicate financial information of any entity.

5. Accounting deals with financial information and transactions.

Accounting records financial transactions and data, classifies and
summarize the results for a given specific period of time, as needed by the
users. At all times, accounting deals with financial information only and does
not deal with non-monetary or non-financial aspects of information.

6. Accounting is a means not an end.

Accounting finds out the financial results and position of an entity and
the same time, it communicates this information to its users. The users then
take their own decisions on the basis of such information. Thus, accounting
itself is not an objective, it helps attaining a specific objective. So, it is said the
accounting is “a means to an end’ and it is not “an end” in itself. Accounting
serves as a tool to achieve specific objective.

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Phases of Accounting

There are four phases of accounting: recording, classifying, summarizing,

and interpreting. Communication is not considered as part of accounting phases
but, it plays a very important role. After analysing the financial statements, all
accounting information must be communicated properly to the appropriate users of
accounting information. Reports must include financial statements and additional
information such as financial ratios, graphs and other relevant data.

1. Recording
Recording is the basic phase of accounting that is also known as
bookkeeping. In this phase, financial transactions are recorded systematically
and chronologically in the “journal” which is also known as the book of original
entry. Accounting recorders need source documents such as receipts,
invoices, checks to record business transactions. Good and accurate records
allow the owners/managers keep track of the progress of their business.

Isarog Development Bank LINIS LAUNDRY SHOP

GENERAL JOURNAL
Peso Deposit Slip
DATE ACCOUNT TITLE AND EXPLANATION PR DEBIT CREDIT
June 01, 2020 Cash 110 250,000
Savings Account Current Account
Linis, Capital 310 250,000
Account No. 4545-3456-7789 Initial Investment
Account Name Linis Laundry Shop
3 Furniture and Fixtures 160 6,700
Teller's Validation 12456000023444 4545-3456-7789 Cash 110 6,700
June 1, 2020 10:01 am P250,000.000 Bought tables and chairs

Cash Deposit 7 Laundry Supplies 140 3,250

No. of Pieces Denomination Amount Accounts payable 210 3,250
Bought laundry supplies on account from Puti supply Inc.
P 1,000
500 10 Rent Expense 510 5,750
100 Cash 110 5,750
Paid rent for the month
50
Check Deposit 12 Equipment 150 115,000
Cash 110 35,000
Name of Bank Check No. Amount
Accounts payable 210 80,000
Goa ABM-12390 ₱250,000.00 Bought washing machine and dryers from Sunshine Equipment Corp.

15 Cash 110 19,250

Total ₱250,000.00 Laundry Revenue 410 19,250
Total Deposit ₱250,000.00 Revenues earned for the first half of the month

Fig. 1.2: Sample Source Document and Journal

2. Classifying
The classifying phase involves sorting or grouping similar items into
assets, liabilities, equity, income or expenses. This is the phase wherein
recorded data are grouped systematically in one place. The term “ledger
“refers to the book wherein classifications are recorded.

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 LINIS LAUNDRY SHOP
GENERAL LEDGER
Account: CASH Account No. 110
Date Explanation J.R. Debit Credit Balance
June 01, 2020 Initial Investment J-1 ₱250,000 ₱250,000
3 Bought tables and chairs J-1 ₱6,700 243,300
10 Paid rent for the month J-1 5750 237,550
12 Bought washing machine and dryers from Sunshine Equipment Co. J-1 35,000 202,550
15 Revenues earned for the first half of the month J-1 19,250 221,800
17 Bought insurance for one year J-1 5,600 216,200
20 Paid accounts to Sunshine Equipment Corp J-1 7,000 209,200
23 Received and paid electric bill J-1 2,080 207,120
25 Revenues earned for the second half of the month J-1 12,350 219,470
27 Paid salaries of part-time assistant J-1 7,400 212,070
28 Withdrew cash for personal use J-1 5,000 207,070
29 Paid accounts to Subic Supply Inc. J-1 2,750 204,320
30 Paid city government for sidewalk repair assessment J-1 2,800 ₱201,520

Fig. 1.3: Sample Ledger

3. Summarizing
The summarizing phase involves preparing the financial statements
such as statement of financial position (balance sheet), statement of financial
performance (income statement), statement of changes in owner’s equity,
cash flow statement, and notes to financial statement. This is to summarize
the effects of all business transactions that transpired during the accounting
period such as monthly, quarterly, semi-annually, annually.
LINIS LAUNDRY SHOP LINIS LAUNDRY SHOP
Income Statement Statement of Changes in Owner's Equity
For the month ended June 30, 2020
For the month ended, June 30, 2020
Laundry Revenue ₱31,600.00
Less: Linis, Capital, June 1, 2020 ₱ 250,000.00
Salaries Expense ₱ 7,400.00 Add: Net Income 13,570.00
Rent Expense 5,750.00 Less:
Utilities Expense 2,080.00
Withdrawals 5,000.00
Miscellaneous Expense 2,800.00 ₱18,030.00
Net Income ₱13,570.00 Linis, Capital, June 30, 2020 ₱ 258,570.00
LINIS LAUNDRY SHOP
LINIS LAUNDRY SHOP Cash Flow Statement
Balance Sheet For the month ended June 30, 2020

As of June 30, 2020 Cash flows from operating

Cash received from customers ₱ 31,600.00
Payment for rent (5,750.00)
Payment for insurance (5,600.00)
ASSETS Payment for electricity (2,080.00)
Cash ₱ 201,520.00 Payment for salaries (7,400.00)
Payment to suppliers (2,750.00)
Prepaid Insurance 5,600.00 Payment for repairs (2,800.00)
Net cash provided or used by operating activities ₱ 5,220.00
Laundry Supplies 3,250.00
Equipment 115,000.00 Cash flows from Investing
Bought tables and chairs ₱ (6,700.00)
Furniture and Fixture 6,700.00 Bought Equipment Co. (42,000.00)
Net cash provided or used by investing activities ₱ (48,700.00)
TOTAL ASSETS ₱ 332,070.00
Cash flows from Financing
Cash received from Initial investment of owner ₱ 250,000.00
LIABILITIES AND OWNER'S EQUITY Payment for withdrawals of owner (5,000.00)
Net cash provided or used by Financing activities ₱ 245,000.00
Accounts Payable ₱ 73,500.00
Linis, Capital 258,570.00 Net Increase (Decrease) in cash
Cash balance at the beginning of the period ₱ -
TOTAL LIABILITIES AND OWNER'S EQUITY ₱ 332,070.00 Cash balance at the end of the period ₱ 201,520.00

Fig. 1.4: Basic Financial Statements

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4. Interpreting
Interpreting phase is concerned with analyzing the results on the
financial statements to evaluate the liquidity, profitability and solvency of the
business entity. This final function interprets the recorded data in a manner
which enables the users of financial information make a meaningful
judgement and sound decisions of business personal account. This data is
used to prepare future plans and policies of the business entity.

LIQUIDITY
SOLVENCY
PROFITABILITY

Fig. 1.5: This photo presents analyzing financial transactions.

PHASES OF ACCOUNTING

Fig. 1.6: Phases of Accounting

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Functions of Accounting in Business

Why is accounting considered as the language of business?

The function of accounting is very important in business. With accounting

information, there are questions answered which is relevant in making sound
judgement and economic decisions.

1. Accounting is a means by which financial information are

communicated to business owners and other users of financial
information.
Accounting provides relevant information for owners and managers to
use in business operation.

Possible questions answered by accounting information:

 What is the result of the operation?
 Is there a profit? Or loss?
 What is the result of my investment?

2. Accounting information allows business owners or managers assess

the efficiency and effectiveness of business operations.
Financial reports could be compared with other industry standards to
determine how the business is doing. Also, business owners may use
historical financial statements to create trends for analysing and forecasting
future sales.

Possible questions answered by accounting information:

 Is my company profitable?
 Is my company liquid?
 Is my company solvent?

3. Accounting helps the management or owners fulfill its stewardship

function.
With the accounting information, the management must ensure the
assets and other resources of the business are taken care of in behalf of
the owners or stakeholders by keeping proper books of account.

Possible questions answered by accounting information:

 How much is the total assets of the business?
 How much is the total liabilities of the business?
 How much equity do the business have?
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4. Accounting helps interested users come up with informed decisions.
Users of financial information such as potential investors,
banks/creditors, suppliers and government needs financial information to
make decisions. These are some questions answered by accounting
information:

Possible questions answered by accounting information:

 Is it profitable for me to invest in this company? (Potential
Investor)
 If I extend loan to this company, will it able to pay for this
loan? Does the company have sufficient resources to
pay for this loan? (Banks/Creditors)
 Will I extend credits for this company? For how long?
(Suppliers)
 Is the owner paying correct taxes? (Government)

5. Support the daily operations of the business.

In order for a business to survive, business owners or managers must
be well-informed to see the true picture of the business in financial terms.

Possible questions answered by accounting information:

o How much daily sales do I need in order to recover
my expenses?
o Do I need to hire additional worker?
o Can I afford to buy additional equipment?
o Can I afford to pay bank loans?

Fig. 1.7: This photo presents a manager looking through accounting

information.

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 Sample Situation:
Maria is a newly graduate student who is good in making
milk tea. One Day she decides to put up a milk tea house in the
town of Goa. She renovated their garage for her milk tea house.
She purchased equipment and raw materials needed to produce 10
different flavors of milk tea. Maria hired Chelsea to help her with
the milk tea house and at the same time as in- charge with the
sales. Maria pays Chelsea on a monthly basis. Everyday Maria
deposits the cash sales in her business bank account at Metro
Savings Bank. With the help of accounting, what possible decisions
or answers to questions can Maria benefit from?
Is my business earning?
How much daily sales do I need in order to recover my
expenses?
Do I need to hire additional worker?
Can I afford to set up a new store in another place? Where
do I get the funds?
Can I afford to pay bank loans?

History of Accounting

Accounting is old as mankind and civilization itself. It started as a simple

recording of repetitive exchanges. The timeline and history of accounting is
presented below. It maps out the general and contributed to the accounting that we
are studying today.

TIME
EVENTS
PERIOD

4000 B.C. The income of temples was recorded in lower

Mesopotamia.
2500 B.C. Historical accounting records had been found in ancient
civilizations of Egypt and China. During that time,
accounting records were kept by rulers for taxing and
spending on public works.
1000 B.C. The Phoenicians carried an alphabet with accounting so
that they were not cheated through trades with ancient
Egyptians.

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500 B.C. Egyptians carried on with accounting records and even
invented the first bead and wire abacus.
423 B.C. The auditing profession was born to double check
storehouses as to what came in and out of the door. The
reports were taken by these accountants and were given
orally hence the name “auditor”.
10 Emperor Wang Mang (45 B.C. to 23 of Xin Dynasty) of
China instituted the first known income tax at a flat rate of
10% of profits.
1200 to In 1300, accountants were mentioned in historical records
1493 for the first time in the Statute of Westminster indicating
they are considered important

The first requirement for business to keep accounting

records spread across many of the Italian Republics in
the 13th century. These records were mainly taken to
keep track of the day to day transactions and credit
accounts with other businesses.

In 1327, early books from the commune of Genoa

displayed an early form of bookkeeping. The oldest
double-entry books entitled “Massari (Treasury Officials)
Ledgers of Commune of Genoa” were written in 1340. In
today’s accounting system, this is simplified into the T-
Account and expanded into the ledger.

In Florence, writing debts over credits accounted for its

double-entry recording. In today’s accounting system, this
is similar to preparing the journal entries.

In 1400, the Italian trading period saw sophisticated

accounting systems developed within banking houses.
Double entry bookkeeping was discovered.

During this period, there were two prevailing approaches

to reporting. These were the Florentine approach (journal
entries) which was introduced by Amatino Manucci and
the Venetian approach (ledger postings) which was
introduced by Andrea Bargarigo.
1494 Lucia Bartolomes Pacioli, the father of modern
accounting, wrote his famous paper “Summa de
Arithmetica, Geometrica, Proportioni et
Proportionalita.” The treatise that he wrote was mainly a

13
 study that Pacioli performed on the common practices of
merchants in Venice, Florence, and Milan. He revealed
that several merchants kept books of debits which meant
“he owes” as well as credits which meant “he trusts.” With
this early double entry accounting system merchants
were able to maintain records so that they could improve
the efficiency of their businesses. With these records
came the primitive income and balance sheet statements.
1500 to As the time progressed, large and small innovations were
1700 added to the double entry records. For example, the East
India Company developed invested capital and dividend
distribution during the 17th century. This also created the
need for a change in financial accounting and managerial
accounting. The first for presentation to gain investors
and the next was used so that the business could be run
as efficiently as possible.

Jacques Savary, in his Commercial Code of France

(1973), used historical cost as the basis of valuation.
1700 to During the Industrial Revolution, accounting really took off
1900 as industrial companies sought out to gain financing and
maintain efficiency through operations. Several of the
double entry accounting methods was truly developed in
this area as there was a focus on business as never
before. Shortly after the first accounting organization was
developed in New York in the year 1887.

Napoleon Bonaparte, in his Commercial Code (1804) and

its supplement Code of Commerce of France (1807),
asserted that assets must be carried at their market value
and not based on historical cost.

Eugen Schmalenbach utilized price level accounting as

the basis of valuation.
1913 The first income tax law in the Philippines was enacted.
1920 to Accounting in the 1920s became important to reduce the
1940 amount of fraud and scandals that were performed in
business, particularly in the United States of America
(USA).

In 1923 the first Accountancy Law (Republic Act No.

3105) in the Philippines was passed. This law created the
Board of Accountancy (BOA).

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1940-1970 Globalization of business resulted in diverse accounting
practice around the world. Thus, the need for
harmonization.

In 1967, the Accountancy Law in the Philippines was

revised and passed under Republic Act No. 5166. This
law standardized the accounting education and regulated
the practice of accountancy. This law also spelled out the
examination process of CPA registration.
1973 The International Accounting Standard Committee (IASC)
was created through an agreement made by professional
accountancy bodies from Australia, Canada, France,
Germany, Japan, Mexico, the Netherlands, the United
Kingdom and Ireland, and the USA. Headquartered in
London, United Kingdom, the committee is an
independent private sector body, with the objective of
achieving uniformity in the accounting principles which
are used by business and other organizations for financial
reporting around the world. The pronouncements were
designated as International Accounting Standards (IAS).
1975 In the Philippines, the Accountancy Law was revised and
passed under Presidential Decree No. 692
1981-1996 In 1981, the Philippine Institute of Certified Public
Accountants (PICPA) created the Accounting Standards
Council (ASC) to establish and improve accounting
standards generally accepted in the Philippines.

Until 1996, most if not all, of Philippine accounting

standards, called Statement of Financial Accounting
Standards (SFAS), were based on accounting standards
in the USA.
1997 The Philippine started transitioning from applying
American accounting standards to applying IAS.
2001 The International Accounting Standards Board (IASB)
succeeded the IASC. It has still adopted the body of
standards issued by the IASC but moving forward, all
standards were designated as International Financial
Reporting Standards (IFRS).
2002 The European Union (EU) required all EU listed
companies to adopt IFRS starting 2005

2004 In the Philippines, the Professional Regulation

Commission (PRC) created the Financial Reporting

15
 Standard Council (FRSC). This replaced the ASC and
was created to assist the Board of Accountancy (BOA) to
carry out its powers and functions provided under
Republic Act No. 9298, the Philippine Accountancy Act of
2004. Complimenting IAS and IFRS were the Philippine
Accounting Standards (PAS) and the Philippine Financial
Reporting Standards (PFRS).

Republic Act No. 9298, an act regulating the practice of

Accountancy in the Philippines, repealing for the purpose
Presidential Decree No. 692, otherwise known as the
Revised Accountancy Law, was also passed and enacted
in this year.
2005 to The Philippines became fully compliant with IFRS.
present

Let us meet the Father of Accounting

LUCA BARTOLOMES PACIOLI

An Italian monk and mathematician,

Luca Bartolomeo Pacioli is known as the
“Father of Modern Accounting” for his work
in the double entry bookkeeping. He wrote
Summa De Arithmetica, Geometria,
Proportioni et Proportionalita (Everything
about Arithmetic, Geometry, Proportion,
and Proportionality) which was published in
Venice in November 1494. It included a 24-
page treatise on Bookkeeping, Particularis
de Computis et Scripturiz (Details of
Calculation and Recording), specifically on
the subjects of recordkeeping and double- https://www.laphamsquarterly.org/contributors/pacioli

entry accounting.

16
 LET’S RECAP!

1. What is accounting?
Accounting is the process of recording, classifying,
summarizing and interpreting the results of financial information
that is useful in making economic decisions.

2. What is the nature of accounting?

Accounting is a process, an art, a service activity, an

accounting information system, primarily deals with financial
information and transactions, and a means not an end.

3. What are the phases of accounting?

Recording, classifying, summarizing and interpreting

4. What are functions of accounting?

 Communicate financial information to users of
accounting information for decision making.
 Assess effectiveness and efficiency of business
operation
 Fulfill stewardship function of the management
 Accounting helps interested users come up with
informed decisions.
 Support daily operations of the business

5. Who is the father of modern accounting?

Luca Bartolomes Pacioli

Are you ready

to test what
you have
learned?

17
 TEST YOUR KNOWLEDGE

Practice Task 1
MULTIPLE CHOICE. Choose the letter that best corresponds to the answer.

1. Define accounting according to Accounting Standards Council.

A. Accounting is the process of identifying, measuring and communicating
economic information to permit informed judgement and decisions by users of
the information.
B. Accounting is an information system that measures, processes and
communicates financial information about economic entity.
C. Accounting is a service activity. Its function is to provide quantitative
information primarily financial in nature, about economic entities that is
intended to be useful in making economic decisions.
D. Accounting is an art of recording, classifying, and summarizing in a significant
manner and in terms of money, transactions and events which are at least of
financial character, and interpreting the results thereof.

2. What nature of accounting is being describe by this statement?

Accounting activity is systematic that requires a definite technique and

application of accounting expertise and skills

A. Accounting as an art.
B. Accounting as a process.
C. Accounting as a service activity.
D. Accounting deals with financial information and transaction.

3. Arrange chronologically the events that happened between 4000 B.C. to 500 B.C.
I - Egyptians carried on with accounting records and even invented the first bead
and wire abacus.
II - Historical accounting records has been found in ancient civilizations of Egypt
and China. During that time, accounting records were kept by rulers for taxing
and spending on public works.
III - Egyptians carried on with accounting so that they were not cheated through
trades with ancient Egyptians.
IV- The income of temples was recorded in lower Mesopotamia

A. I, II, III, IV C. I, III, II, IV

B. IV, III, II, I D. IV, II, I, III

18
4. Which activity describes the CLASSIFYING phase of accounting?
A. Journalizing transactions in the journal.
B. Posting to the ledger.
C. Preparing the worksheet.
D. Preparing the closing entries

5. Which statement best explains the function of accounting in business?

A. Accounting enables manager to plan, organize, staff, direct and control.
B. Accounting helps management owners fulfil its stewardship function by
protecting the company’s assets on behalf of the owners or stakeholders.
C. Accounting develop new products or services.
D. Accounting gather and analyse market information.

PROCESS WHAT YOU KNOW

Practice Task 2
MATCHING TYPE. Match column A with Column B.

COLUMN A COLUMN B

1. An act regulating the practice of Accountancy A. Potential Investors

in the Philippines
B. Government
2. Nature of accounting that provides
C. R.A No. 9298
quantitative information primarily financial in
nature that is useful in making economic D. Accounting as a
decisions.
service activity
3. All recorded data must be summed up after
each accounting period to be analyzed and E. Summarizing
interpret.
F. R.A. No. 5166

4. This user needs accounting information to

know if the company is paying correct taxes.

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 APPLY YOUR LEARNING

Practice Task 3
Answer the following questions. Write your answer on the space provided.

1. John owns a water refilling station. Every financial transaction is recorded in

the book of accounts. He ensures that these transactions are recorded
correctly and accurately from buying P 100.00 packaging supplies to selling
P 100,000.00 worth of gallons of bottled water. Why is it important for John
to correctly record all business transactions?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________

2. Therese works as an accountant in Isarog Construction Company. Her tasks

are to record business transaction, and report on company performance.
Describe the tasks she will perform under the summarizing phase of
accounting.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________

3. Lyka opened her own bakeshop. She records the financial transactions daily.
At the end of the month, financial information revealed an increase in profit
by 200%. Due to high customer demand for bread and increase in profit, cite
an example of decision or question Lyka would possibly do for her bakeshop
business.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________

20
 Rubrics for rating answers in accounting situation
Description Score
Criteria
4 3 2 1
Content The student The student The student The student
and addresses addresses addresses addresses
explanation each question each question each question each question
(50%) and showed and showed and showed and showed
deep considerable shallow limited
understanding understanding understanding understanding
of the ideas of the ideas of the ideas of the theories
applied to applied to applied to and ideas
analysis of analysis of analysis of applied to
situations situations situations analysis of
situations
Structure Response to Response to Response to Response to
(30%) each question each question each question each question
is well is organized is not so is not
organized and and well organized but organized and
clearly written written. well written unclear
written
Grammar Response is Response Response Response
and free from has minor has frequent has numerous
mechanics grammatical grammatical grammatical grammatical
(20%) writing errors writing errors errors errors

Total Score

Good Job!
You are now
ready
to take the
post-test.

21
 ACHIEVEMENT TEST

MULTIPLE CHOICE. Choose the letter that best corresponds the answer.

1. Define accounting according to American Institute of Certified Public

Accountant (AICPA).
A. Accounting is an information system that measures, processes and
communicates financial information about economic entity.
B. Accounting is the process of identifying, measuring and communicating
economic information to permit informed judgement and decisions by
users of the information.
C. Accounting is an art of recording, classifying, and summarizing in a
significant manner and in terms of money, transactions and events which
are at least of financial character, and interpreting the results thereof.
D. Accounting is a service activity. Its function is to provide quantitative
information primarily financial in nature, about economic entities that is
intended to be useful in making economic decisions.

2. Bee Cool Company, a leading company that produces products made from
honey bee. Due to Covid 19 pandemic, Nelly, the owner, needs to hire an
accountant that would help the company measure, process, and communicate
financial information for the month of May. Her purpose is to know the
financial capacity of the company. This accountant task falls under what
nature of accounting?
A. Accounting as an art.
B. Accounting as a process.
C. Accounting as a service activity.
D. Accounting as a means not an end.

3. Which statement describes the CLASSIFYING phase of accounting?

A. Recording business transactions.
B. Sorting financial data
C. Preparing financial statements
D. Reporting the results to the decision makers

4. From the following statement, choose the one that explains the overall
function of accounting.
A. To measure the periodic income of the economic entity.
B. To provide quantitative financial information about an entity that is useful
in making the company’s economic decision.
C. To compute for the income taxes of the company.
D. To comply with the requirements needed by the government.

22
5. Why is accounting important for the stewardship function of the management?
A. It helps interested users come up with informed decisions.
B. It ensures that the resources of the company are taken with utmost care
C. It supports daily operations of the business.
D. It compares the financial information with other company standards.

6. Which order of events correctly portrays the accounting in the Philippines?

I - Republic Act No. 3105 known as the first Accountancy Law was passed.
The International
II - The Professional Regulation Commission (PRC) created the Financial
Reporting Standards Council (FRSC).
III - The Philippine Institute of Certified Public Accountant (PICPA) created the
Accounting Standards Council (ASC).
IV - The Philippines became compliant with the International Financial
Reporting Standards (IFRS).

A. I, II, III, IV C. I, IV, II, III

B. I, III, II, IV D. IV, III, II, I

7. Loida plans to invest in Jolly Bee Foods Corporation. As potential investor,

why does Loida need to know the financial statement of the company?
A. To know if the company will be profitable to invest in the business.
B. To know if the company has resources to pay for the loan.
C. To know if the company will be able to pay for the supplies.
D. To know if the company is paying correct taxes.

8. Which activity describes the SUMMARIZING phase of accounting?

A. The summarizing phase involves recording business transactions
chronologically.
B. The summarizing phase, involves grouping of similar items under the
designated account such as assets, liabilities, equity, income and
expenses.
C. The summarizing phase involves preparation of the financial statements.
D. The summarizing phase involves analyzing financial data which allows
users to make a meaningful judgement and sound decisions.

23
 9. Why is accounting considered an INFORMATION SYSTEM?
A. Accounting is an information system because it is a storehouse of
information and a structure a business uses to collect, store, process,
retrieve and report financial data.
B. Accounting is an information system because it requires a definite
technique and application of accounting expertise and skills.
C. Accounting is an information system because it is concerned with
quantitative information which is financial in nature.
D. Accounting is an information system because it provides service to
prepare financial information needed for decision making purposes.

10. Gabby owns a local restaurant in their town under the name “Gabby’s
Special Bikol Express”. He hired an accountant to help him in preparing the
financial reports of the business. As an owner of the business, why is it
important for Gabby to know the results of the financial reports?
A. He has to pay the right taxes.
B. He has to comply with the legal requirements.
C. He has to make the right decision for his company.
D. He has to pay his employees well.

ENRICHMENT

AWESOME ACCOUNTING ACROSTIC

You are going to create an acrostic poem using letters found in the word
“ACCOUNTING”. Use your notes and learnings to create this poem. Each line
should include thoughts, ideas or sentences relating to the topic, not a single word.
Your poem should include a drawing that relates to the topic in the introduction to
accounting.

A-
C-
C-
O-
U-
N-
T-
I-
N-
G-

24
 Rubrics for Rating the Acrostic Poem

1. The text used is accurate and creatively written _____/50%

which includes original thoughts, ideas or description.
2. The lines includes correct spelling, capitalization _____/25%
and punctuation.
3. The drawing is relevant to the topic. _____/25%
Total _____/100%

Do not give up,

The beginning is -
always
The hardest
-Kemmy Nola

www.pxfuel.com

25
 REFERENCES

Accounting Tools. (2020, July 3). Retrieved from www.accountingtoos.com:

https://www.accountingtools.com/articles/what-is-an-accountant.html
accountingtheory.weebly.com. (n.d.). Retrieved from
https://accountingtheory.weebly.com/nature-and-scope-of accounting.html
Aduana, N. L. (2015). Financial Statements Preparation, Presentation, Analysis and
Interpretation. C & E Publishing, Inc.
Ballada, W., & Ballada, S. (2015). Basic Accounting Made Easy. Domdane Publisher & Made
Easy Books.
Beticon, J. L., Domingo, J. D., & Yabut, F. D. (2016). Fundamentals of Accountancy, Business
and Management 2. Vibal Group, Inc.
Hogget, J., Edwards , L., & Medlin, J. (n.d.). Accounting in Australia. In Fifth (Ed.).
Investopedia. (2019, June 25). Retrieved from
http://www.investopedia.com/ask/answers/04515/how-does-financial-accounting-
help-decision-making.asp
Investopedia. (2020, January 28). Retrieved from www.investopedia.com:
https://www.inestopedia.com/terms/a/accounting.asp
Natter, E. (2018, November 5). Chron. Retrieved from www.smallbusiness.chron.com:
https://smallbusiness.chron.com/accounting-referred-language-business-
63107.html
Newton, C. (2019, January 25). bizfluent. Retrieved from www.bizfluent.com:
https://bizfluent.com/info-8160831-basic-phases-accounting.html
Ong, F. L. (2017). Fundamentals of Accountancy, Business and Management 1. C & E
Publishing, Inc.
Teaching Guide for Senior High School on Fundamentals of Accountancy, Business and
Management 1. (n.d.). Commision on Higher Education.
Tugas, F. C., Salendrez, H. E., & Rabo, J. S. (2016). Fundamentals of Accountancy, Business
and Management 1. Vibal Publishing Inc.
Wilkinson, J. (n.d.). strategiccfo.com. Retrieved from
https://www.google.com/amp/s/strategiccfo.com/history-of-accounting/amp

Photocredits
Burst. Making finances tracking a business, https://burst.shopify.com/photos/making-a-
budget-tracking-finances?q=making+a+budget
pxfuel.com. (n.d.). Retrieved from www.pxfuel.com
clicker.com. (n.d.). Retrieved from www.clker.com
**********End of the module********

26
 ANSWER KEY

KNOWLEDGE CHECK
1. B
2. B
3. D
4. D
5. D

TEST YOUR KNOWLEDGE

1. D
2. A
3. D
4. B
5. B

PROCESS WHAT YOU KNOW

1. E
2. F
3. G
4. C

APPLY YOUR LEARNINGS

1. John has to record business transactions to keep track of the progress/growth of his business.
2. Under summarizing phase, Therese will prepare financial statements such as statement of
financial position, statement of financial performance, statement of changes in owner’s equity,
cash flow statement, and notes to financial statement.
3. Due to high customer demand for bread and increase in profit, Lyka would probably decide to
hire additional employee, buy additional equipment and raw materials for her bakeshop.

ACHIEVEMENT TEST
1. C
2. D
3. B
4. B
5. B
6. B
7. A
8. C
9. A

27