Fundamentals of

Accountancy, Business
and Management 1 First
Quarter
Module 1:
Definition, Nature,
Functions and History of
Accounting

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 What I Need to Know
Accounting is, broadly speaking, a system that helps businesses
track events that affect them. Almost all companies allot significant
amount of resources to the accounting process since it aids them in
improving their business. Remember, you are to work on this module
independently. It is expected that you will make the most of this
module and perform the activities/tasks given wholeheartedly.

At the end of this lesson, I will be able to:

 define accounting (ABM_FABM11-IIIa-1)
 describe the nature of accounting (ABM_FABM11-IIIa-2)
 explain the functions of accounting in business (ABM_FABM11-IIIa-3)
 narrate the history/origin of accounting (ABM_FABM11-IIIa-4)

What I Know
To find out what you already know about the topic to be
discussed in this module, answer the Pre-test first before you proceed
with the module. Write your answers in your notebook.
MULTIPLE CHOICE. Write the letter that corresponds to your
answer.

1. Which of the following is not a step in the accounting process?

a. Identification b. Communication c. Recording d. Verification

2. Which of the following is not a relevant economic event?

a. An agent who attended to the concern of a complaining customer.
b. Patricia, manager of Company X, who sold an abandoned building
of her company.
c. Company Y which borrowed Php 5M from a bank due to tight
financial conditions.
d. Company Z which paid its employees their salaries for the month of
January.

3. Which of the following does not show one of the main functions of
accounting?
a. Fred prepared a report to be submitted to the taxing authorities.

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 b. John recorded the purchase of an equipment in the accounting
books immediately after purchase.
c. Jason prepares financial reports monthly for the company’s
stakeholders.
d. Allen canvassed the price of a sewing machine to be used in the
company.

4. Which of the following statements describes the accounting

process?
a. It involves identifying relevant economic events.
b. Recording economic events is an essential part of the accounting
process.
c. The accounting process is not complete if the financial information is
not communicated to interested users.
d. All of the above.

5. This nature of accounting is a combination of techniques and its

application requires applied skill and expertise.
a. Accounting is a process. c. Accounting is an information system.
b. Accounting is an Art. d. Accounting is a means and not an end.

6. Which nature of accounting best emphasizes that accounting is

not the objective?
a. Accounting is an Art.
d. Accounting deals with financial information and transactions.
c. Accounting is a means not an end.
d. Accounting is process.

7. Jamie, the chief accountant of company X, is preparing for a

meeting with the top management. This meeting is done monthly
to evaluate the performance of the company. Which step of the
accounting process is most likely being done?
a. Recording b. Communication c. Identification d. Classification

8. Which of the following is mostly used by accountants in

communicating the results of operations to outside parties?
a. Performance Memos c. Public announcements of the results of
operations
b. Bulletin board postings d. Financial statements

9. Who is the person responsible for the process of identifying,

recording, and communicating economic events of an
organization?
a. Manager b. Accountant c. Bookkeeper d. Treasurer

10. Which is the most important step in the accounting process?

a. identification c. communication

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b. recording d. all steps are equally important

11. The double-entry bookkeeping system is defined as any

bookkeeping system that has a debit and a credit for each
transaction. The double-entry bookkeeping system is the system
being used to this very day. It was the first book printed with a
treatise on bookkeeping authored by___.
a. Queen Victoria c. Luca Pacioli
b. Augustus d. Suetonius

12. Which of the following cannot be considered a limitation of

accounting?
a. Accounting is only historical in nature.
b. Accounting provides limited information to the management.
c. The accounting process is tedious to execute.
d. Accounting considers only those transactions which can be
measured in terms of money or those quantitatively expressed.

What’s In

Directions: Answer the given questions and write your

answers in your notebook:
a. Do your parents ask how you spend your allowance every
day?
b. When deciding between buying a bottle of soft drinks or
fruit juice, what is the basis of your decision? Do you
compare the prices of both and then decide?
c. When going home, do you sometimes choose to walk from
school rather than riding a jeepney because you want to save?

Rubrics for rating your answers:

5- If the paragraph consists of 5 or more sentences with correct and
complete information.
4- If the paragraph consists of 3 to 4 sentences with correct information.
3- If the paragraph consists of 2 to 3 sentences with correct information. 2-
If the paragraph consists of 2 sentences with correct information
1- If the paragraph consists of only one sentence with correct information.

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 What’s New
Directions: Examine the picture below and answer the following
questions below. Your answers should be written in your
notebook.
1. Describe what you see in the picture.
2. Explain how you perform each action shown in the picture.

3. What is the process being illustrated?

Rubrics for rating your explanation/answers:

*Respond to the question in a well-organized paragraph with a
clear topic sentence, sufficient relevant evidence, and an
explanation.
Acceptable Good (80 Excellent
(60 pts) pts) (100 pts)
Topic Unclear or Basic topic Clear topic
Sentence lacking topic sentence, sentence
sentences doesn’t fully introducing
introduce
response
Evidence Minimal or One to two Three or more
irrelevant relevant relevant
evidence supporting supporting
details details
Explanation No explanation Minimal Complete
explanation explanation

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 What Is It

DISCUSSION: Read the discussion that follows in order to

understand and gain more knowledge about the lesson.
What is Accounting?
Define what is accounting
A system that helps businesses track events that affect them.
This process involves identifying the events that affect a business,
recording these events, and communicating the summarized results of
all events within a particular period to interested parties.

The Accounting Process

 Identification of economic events relevant to a business
(there should be transfer of things with value)
 Recording of relevant economic events
(should be done systematically and chronologically)
 Summarize all the recorded economic events into accounting
reports (financial statements)

The Nature of Accounting

1. Accounting is a process
 it is composed of multiple steps that lead to a common end goal
 it performs the functions of identifying, recording, and
communicating economic events with the end goal of providing
information to internal and external parties

2. Accounting is an Art
 it entails creativity
 is the art of recording, classifying, summarizing, and finalizing
financial data
 It is a combination of techniques and its application requires
applied skill and expertise

3. Accounting deals with financial information and transactions

 it deals with quantifiable financial transactions
 non-financial transactions are not the focus of the accounting
process

4. Accounting is a means and not an end

 it is a tool to achieve specific objectives
(it can be thought of as the plane that will bring you to your
destination)

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5. Accounting is an information system
 it is recognized and characterized as storehouse information
 it collects processes and communicates financial information of
any entity

Functions of Accounting
The American Institute of Certified Public Accountants (AICPA)
defines accounting as “ the art of recording, classifying, and
summarizing in a significant manner and terms of money,
transactions and events which are in part at least of a financial
character and interpreting the results thereof.”

Functions of Accounting
1. Keeping systematic record of business transactions
2. Protecting properties of the business
3. Communicating results to various parties in or connected with the
business
4. Meeting legal requirements

HISTORY OF ACCOUNTING
The development of accounting maybe related to the taxation
and trading activities of temples.
The reign of Emperor Augustus (63 BC-14 AD) provided more
evidence about the development of accounting.
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 Gestae Divi Augusti (The
Deeds of the Divine Augustus).
The Roman historian Suetonius and Cassius Dio recorded that
in 23 BC, Augustus prepared a 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 publicani
(public contractors).
The double-entry bookkeeping system is defined as any
bookkeeping system that has a debit and a credit for each transaction.
Luca Pacioli’s Review of Arithmetic, Geometry, Ratio and Proportion is
the first book printed with a treatise on bookkeeping. The doubleentry
bookkeeping system is the system being used to this very day.
The modern profession of the chartered accountant originated in
Scotland in the nineteenth century when Queen Victoria granted a
royal charter to the Institute of Accountants in Glasgow. At present
times, accounting standards are already available to guide
accountants in their practice of the profession.

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 What`s More

 Independent Activity 1

Test Your Understanding:

Task: This activity gives you a clear understanding of the
basic concepts of accounting, its nature, functions and history.
Answer the following questions and write your answers in your
notebook:
1. What is accounting?
2. What is the nature of accounting?
3. What are the basic functions of Accounting in business?

 Independent Activity 2
In your notebook, give at least three examples of how people
from earlier periods made use of the accounting process. How
did the accounting process help such persons in their lives?

*Rubrics for rating your explanation/answers:

Respond to the question in a well-organized paragraph with a
clear topic sentence, sufficient relevant evidence, and an
explanation.

Acceptable Good (80 Excellent

(60 pts) pts) (100 pts)
Topic Unclear or Basic topic Clear topic
Sentence lacking topic sentence, sentence
sentences doesn’t fully introducing
introduce
response
Evidence Minimal or One to two Three or more
irrelevant relevant relevant
evidence supporting supporting
details details
Explanation No Minimal Complete
explanation explanation explanation

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 What I Have Learned

I learned that:

 Accounting is a system that identifies, records, and

communicates relevant economic events to interested
users.

 Accounting is a process; an art; deals with financial

information and transactions; a means; not an end; an
information system.

 Keeping systematic record of business transactions;

protecting properties of the business; communicating the
results to various parties interested in or connected in the
business; and meeting legal requirements are the
functions of accounting.

 From its early development in Mesopotamia to the modern

accounting system used in the present day highlights the
accounting history.

What I Can Do

Directions: Answer the given questions briefly and

concisely. Do it in your notebook.

1. Do you agree: “Accounting is vital to the success of a

business”? Explain.

2. Give a concrete example on how you can use accounting

in your daily life.

Rubrics for rating your answers:

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 Assessment

Directions: To test your understanding of the contents presented in

this module, answer the items below. Write T if the statement is TRUE
and F if the statement is FALSE. Do it in your notebook.
1. Accounting is a systematic process of identifying recording
measuring classifies verifying some rising interpreter and
communicating financial information.
2. Accounting information reveals profit for a given period and the
value and the nature of a firm’s assets and liabilities and owners’
equity.
3. Accounting may be defined as identifying, measuring, recording and
communicating of financial information.
4. Accounting is a practice and body of knowledge concerned primarily
with only the method for recording transactions,
5. Accounting has its own principles holes and techniques.
6. The first step in the accounting process is summarising.
7. Accounting has the elements of both science and art.
8. The modern profession of the chartered accountant originated in
England.
9. Every business has to be recorded first so that the other processes
can be carried out effectively.
10. Exposing and disclosing the properties of the business is one of
the functions of accounting.
11. The development of accounting maybe related to the taxation
and trading activities of temples.
12. Non-financial transactions are one of the focuses of the
accounting process.

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