Lesson 1: Introduction to Accounting

Most Essential Learning Competencies:

1. Define accounting ABM_FABM11- IIIa-1
2. Describe the nature of accounting ABM_FABM11- IIIa-2
3. Narrate the history/origin of accounting ABM_FABM11- IIIa-4

Engage

Tracking Transactions:
Ask your parents about the family’s budget for the past week and list down all the actual
expenses incurred during that week.

Explore

Questions:
1. What was the basis of the family’s budget?
2. Was the budget sufficient?
3. How did you know if the budget is enough or not?
Budgeting and keeping tracks of the
financial transactions enables someone to
concentrate on cash flows, be able to re-
evaluate on a regular basis and make
necessary and timely adjustments.

Explain

What is Accounting?
 Accounting is the process of identifying, measuring, and communicating economic
information to permit informed judgments and decisions by the users of information.
(The American Accounting Association)
 Accounting is the 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. (The American Institute of Public
Accountants)
”Accouting is relevant in all walks of life and it is absolutely essential in the world of business.
Accouting is the system that measure business activities, processes that information into
reports and communicates the results to decision makers. For this reason, accounting is called
the language of the business.”
Nature of Accounting
The basic features of accounting are as follows:
1. Accounting is a process.
Accounting is a process composed of multi steps that lead to a common end goal and that
goal is to provide information to its users.
2. Accounting is an art
Accounting is the art that entails creativity and skills to help us attain some objectives.
3. Accounting deals with financial information and transactions
Accounting deals only with quantifiable financial transactions. However, non-financial
data may be used to interpret and better estimates some financial data.
4. Accounting is a means and not an end
 Accounting is a tool to achieve specific objectives. It is not the objective itself.
5. Accounting is an information system.
Accounting is the storehouse of information of any entity that collects, processes and
communicates financial information.
History of Accounting
It is believed that the history of accounting is thousand years old and can be traced to
ancient civilizations.
 Early development in Mesopotamia
The origin of keeping accounts has been traced as far back as 8 500 BC, where
archaeologist establish certain key tokens found is Mesopotamia (Iraq) that represents
commodities. The tokes were often sealed in clay balls, bullae, which were broken on
delivery so the shipment could be checked.

 Ancient civilizations of China, Babylonia, Greece and Egypt

People from this civilization maintained various records for business activities and at
around 3 600 BC in Babylonia, clay tablets recorded payment of wages.

 Development in the Roman Empire

During the reign of Emperor Augustus (63 BC – 14 AD) the Roman government kept
detailed financial information of the deed of Emperor Augustus regarding the stewardship
of Roman Resources evidenced by the Res Gestae Divi Augusti (The Deeds of Divine
Augustus)

 Dissemination of double-entry bookkeeping in the14th century Italy

The double-entry accounting system is defined as any bookkeeping system that has a debit
and a credit for each transaction
 The Development of more formal account-keeping methods in Florence, Venice and
Genoa is attributed to merchants and Florentine banker in 1211 AD
 In 1340 AD the double-entry records appeared, this is the outcome of continued efforts
to meet changing necessities of trade.
 In 1494, the first treatise of the art of systematic bookkeeping appeared in Venice,
Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything
about Arithmetic, Geometry, Proportions and Proportionality) was written by the
Franciscan monk, Fra Luca Pacioli. This work was intended to summarize the
exisiying knowledge of mathematics and included in the Arithmetic section explained
in detail the double-entry system of bookkeeping. Although he did not claim to
developing the art of bookkeeping he has been regarded as the Father of Double-
entry accounting.

 Signing of Charter by Queen Victoria

The modern profession of the chartered accountant originated in Scotland in the 19 th
century when Queen Victoria granted a royal charted to the Institute of Accountants in
Glasgow.

 Formation of Accounting Standards such as PAS and PFRS

At present times, accounting standards are available to guide accountants in the practice of
their profession. In the Philippines we have the Philippine Accounting standards and
Philippine Financial Reporting Standard which are patterned from the standards issued by
the international Accounting Standards Board

Elaborate

Discussion Questions:
1. Is accounting vital to the success of a business? Explain.
 2. Do you think non-monetary information is still useful in the accounting process?
3. Give a concrete example on how you can use accounting in your daily life.

Evaluate
Read each statement carefully and write the letter of your answer.
1. Which of the following is not a step in the accounting process?
a. Identification c. Recording
b. Communication d. Verification
2. Which is the most important step in the accounting process?
a. Identification c. Communication
b. Recording d. All the steps are equally important
3. Which nature recognizes accounting as a store house of information?
a. Accounting is a process c. Accounting is a means not an end
b. Accounting is an information system d. Accounting is an art
4. Which nature of accounting best emphasizes that accounting is a tool towards success?
a. Accounting is an art
b. Accounting deals with financial information
c. Accounting is a means not an end
d. Accounting is a process
5. Which order of events correctly portrays the history of accounting?
1. Early development in Mesopotamia
2. Signing of Charter by Queen Victoria
3. Development in the Roman Empire
4. Ancient civilizations of China, Babylonia, Greece and Egypt
5. Formation of Accounting standards such as the PAS and PFRS
6. Dissemination of double-entry bookkeeping in the 14th century Italy
a. 1-2-3-4-5-6 b. 6-2-3-4-5-1 c. 1-3-5-2-4-6 d. 1-4-3-6-2-5
6. The modern profession of the chartered accountant originated in Scotland in the 19
century when __________ granted a royal charter to the Institute of Accountants in
Glasgow.
a. Queen Isabela c. Queen Victoria
b. Queen Elizabeth d. Queen Diana
7. Who is the father of Modern Accounting?
a. Emperor Augustus c. Florentine
b. Fra Luca Pacioli d. Lao Tse
8. Who was the one recognized of developing the double-entry accounting?
a. Emperor Augustus c. Florentine
b. Fra Luca Pacioli d. Lao Tse
9. ______________ provided an evidence to the stewardship of the Roman resources during
his reign.
a. Emperor Augustus c. Florentine
b. Fra Luca Pacioli d. Lao Tse

10. Which part of the ancient world can we trace back the origin of accounting?
a. Babylonia c. Persia
b. Mesopotamia d. Greece
 Lesson 2: Users of Accounting Information
Most Essential Learning Competencies:
1. Define external users and gives examples ABM_FABM11- IIIa-7
2. Define internal users and give examples ABM_FABM11- IIIa-8

Engage

Recall:

Directions: Complete the statement. Write your answer on the lines provided below.

In the previous lesson I learned that ______________________________________

_____________________________________________________________________________________________________________
_________________________

Explore

Planning for the Future

What type of business would you like to venture in the future?
(Example: online selling, bakery, laundry shop)

Questions:
1. What do you want to know about the business?
2. How can accounting help you in setting up and operating the business?

Explain

Who uses accounting data or information?

Two broad categories of users of financial information:
a. Internal users of accounting information are those individuals inside a company who
plan, organize, and run the business. These users are directly involved in managing and
operating the business.
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

Decision made using

accounting
Type of User Definition Example of users
information/Benefits from
accounting information
A. Internal Users
BOD, top management,
Identify problems immediately
Management The brain of the management middle-level managers,
and respond accordingly
supervisors
Persons that works for the Check if the business is
Laborers, filed workers,
Employees company aside from the profitable enough to provide
non-managerial employees
owners and the managers compensation benefits
Owners or Existing investors of the Founders of the company, Returns earned from their
 company and concerned
owners, stockholders,
Stockholders mostly of the profit of the investments
partners, proprietor
company
B. External Users
Main source of income of Whether or not to build
Customers Patrons, clients
business relationship with the business
Providers of additional funds Bank, lending institutions,
Whether or not to lend resources
when the initial investment of wealthy individuals and
to the business try to see if the
Creditors owners is exhausted; lend sometimes the government
business is not very risky before
resources to business usually
lending funds
in the form of money
Providers of additional funds Wealthy individuals and
when the initial investment of other business planning to
Whether or not to invest in the
Potential Investors owners is exhausted; invest invest
business
resources in the business
hoping to earn decent returns
Oversees business operations
with the end goal of improving
Government agencies,
Regulates business and the economy; check the accuracy
Government taxing authorities and
determine the tax payable of the financial statements to
officials
compute for the correct amount
of taxes payable
Academe Researches loopholes and
Uses accounting primarily for Professors, lecturers,
possible improvements in the
academic purposes students, researchers
field of accountancy
General Public Gauge economic conditions Common people not
Estimating economic
connected with the
performance
company

Elaborate

Question:
1. What kind of information do users need that can be answered by accounting?”.
Internal users
a. Employees
b. Managers
External Users
a. Buyers
b. Bureau of Internal Revenue (BIR)

Evaluate

I. Read each statement carefully and write the letter of your answer.
1. Which of the following is considered as an internal user of accounting information?
a. Board of Directors b. Creditors c. Investors d. Customers

2. Jayson is a stockholder of Venus Co. Therefore Jayson is a/n ________

a. External User c. Both a and c
b. Internal User d. None of the above

3. This group of users of accounting information INVESTED resources to the company with
the hopes of earning acceptable returns
a. Creditors b. Government
 c. Potential Investors d. Owners or Stockholders

4. Which of the following is NOT considered an external user of accounting information?

a. BIR Officials c. Production Supervisor
b. Customers d. Government

5. ____________ is an external use that REGULATES the business and determine its tax
payable.
a. General Public c. Employees
b. Management d. Government

II. Classify each of the following as either External user (E) or Internal User (I)
6. Employees
7. Owners
8. Board of Directors
9. Potential Investors
10. Stockholders

References:
Printed Materials:

Florendo, J (2016). Fundamentals of Accountancy, Business and Management 1 st ed.

Philippines: Rex Bookstore Inc.

Ballada, W. Basic Accounting 2020 Issue-1st Edtion. DomDane Publishers & Made Easy Books

Electronic Sources:
https://www.investopedia.com/terms/i/ias.asp
https://accountingtheory.weebly.com/nature-and-scope-of-accounting.html

Prepared by:
Venus A. Banque-Abenion
SHS – TII

Checked by: AMOR O. ABANDO

School Principal