REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF EDUCATION
DIVISION OF CABADBARAN CITY

NORTHERN MINDANAO COLLEGES, INC.

Atega Street, Barangay 11 Poblacion, Cabadbaran City
8605 Agusan del Norte, Region XIII
NON-SECTARIAN
1946

Self-Learning Module for Fundamentals of Accountancy,

Business and Management 1
Quarter 1, Week 1

Name : ________________________________________
Grade and Section : ________________________________________
Date : ________________________________________

Introduction

This module will help you understand the definition, nature, function and history of
Accounting. Yes, you heard it right ACCOUNTING.

Directions for the User

Here are some reminders to guide as you go through this module:

1. Understand and follow the instructions carefully.

2. Accomplish the pretest to identify your preparedness about the lesson in this module.
3. Be honest in answering and checking your activity.
4. Read each lesson and do activities provided for you.
5. Demonstrate the activities to guide you in comprehending the lessons
6. Answer the posttest measure how much you have gained from the topics.

Pretest
Multiple Choice
Directions: Read each statement and choose the letter of the correct answer. Shade the circle that
corresponds to the correct answer.
OOOO 1. What is the oldest evidence of record-keeping activity in Mesopotamia?
A BCD a. clay tablet b. painting c. notebook d. tape

OOOO 2. Who is the Father of Accounting?

A BCD a. Luciano Pavarotti b. Mayels Bansas c. Lucio d. Luca Pacioli

OOOO 3. What is the title of the first book published that contained a detailed
A BCD chapter on double-entry bookkeeping?
a. Summa Theologica b. Summa de Arithmetica c. Summa Gentiles d. Summa Total
OOOO 4. What is Accounting?
A BCD a. a process b. an art and discipline c. an information system d. all of the above

OOOO 5. In what century double-entry bookkeeping started?

A BCD a. 15th century b. 16th century c. 14th century d. 13th century

Objectives and Competencies

This module is designed for you. At the end of the module, you are expected to have achieved
the following:
1. cite specific examples in which accounting is used in making business
decisions
2. solve exercises and problems on the identification of users of information, type of decisions to
be made, and type of information needed by the users
3. cite users of financial information and identify whether they are external
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 or internal users

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
4. define external users and give examples - ABM_FABM11-IIIa-7
5. define internal users and give examples - ABM_FABM11-IIIa-8

Procedure/Learning Experience

Activity 1: Which is which

Do your parents ask how you spend your allowance every day?
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?
When going home, do you sometimes choose to walk from school rather than riding a jeepney
because you want to save?
All of the questions above needs decision. Whether you spend your money or not. To buy or not.
To walk or not. But before you arrive from that decision, you need to analyze its advantage and
disadvantage. Accounting is just like that.
Accounting is the process of IDENTIFYING, RECORDING, and COMMUNICATING economic
events of an organization to interested users. (Weygandt, J. et. al)

So, let’s have an activity. From the pictures below, I want you to identify of what accounting
processes are they. (Image Source: Teaching Guide for FABM 1)

1. ___________________ 2. __________________ 3. ______________

Lesson 1: Introduction to Accounting

From the activity above, we define Accounting as a process of IDENTIFYING, RECORDING, and
COMMUNICATING economic events of an organization to interested users.

IDENTIFYING because this involves selecting economic events that are relevant to a particular
business transaction
The economic events of an organization are referred to as transactions. Examples of economic
events or transactions - In a bakery business:
 sales of bread and other bakery products
 purchases of flour that will be used for baking
 purchases of trucks needed to deliver the products

RECORDING because 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 which will be discussed in future chapters.

COMMUNICATING because this occurs through the preparation and distribution of financial and
other accounting reports.

Nature of Accounting
According to Accounting Theory (https://www.accountingtheory.weebly.com/nature-and-scope-of-
accounting.html): “Accounting is a systematic recording of financial transactions and the presentation of
the related information to appropriate persons.” Based on this definition we can
derive the following basic features of accounting:
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• Accounting is a service activity: Accounting provides assistance to decision makers by providing
them financial reports that will guide them in coming up with sound decisions.
• Accounting is a process: A process refers to the method of performing any specific job step by step
according to the objectives or targets. Accounting is identified as a process, as it performs the specific
task of collecting, processing and communicating financial information. In doing so, it follows some
definite steps like the collection, recording, classification, summarization, finalization, and reporting of
financial data.
• Accounting is both an art and a discipline: Accounting is the art of recording, classifying,
summarizing and finalizing financial data. The word ‘art’ refers to the way something is performed. It is
behavioral knowledge involving a certain creativity and skill to help us attain some specific objectives.
Accounting is a systematic method consisting of definite techniques and its proper application requires
skill and expertise. So by nature, accounting is an art. And because it follows certain standards and
professional ethics, it is also a discipline.
• Accounting deals with financial information and transactions: Accounting records financial
transactions and data, classifies these and finalizes their results given for a specified period of time, as
needed by their users. At every stage, from start to finish, accounting deals with financial
information and financial information only. It does not deal with non-monetary or non-financial aspects of
such information.
• Accounting is an information system: Accounting is recognized and characterized as a storehouse of
information. As a service function, it collects processes and communicates financial information of any
entity. This discipline of knowledge has evolved to meet the need for financial information as required by
various interested groups.

The History of Accounting

Accounting is as old as civilization itself. It has evolved in response to various social and economic needs
of men. Accounting started as a simple recording of repetitive exchanges. The history of accounting is
often seen as indistinguishable from the history of finance and business. Following is the evolution of
accounting:
• The Cradle of Civilization
Around 3600 B.C., record-keeping was already common from Mesopotamia, China and India to Central
and South America. The oldest evidence of this practice was the “clay tablet” of Mesopotamia which dealt
with commercial transactions at the time such as listing of accounts receivable and accounts payable.
• 14th Century - Double-Entry Bookkeeping
The most important event in accounting history is generally considered to be the dissemination of double
entry bookkeeping by Luca Pacioli (‘The Father of Accounting’) in 14th century Italy. Pacioli was much
revered in his day, and was a friend and contemporary of Leonardo da Vinci. The Italians of the 14th to
16th centuries are widely acknowledged as the fathers of modern accounting and were the first to
commonly use Arabic numerals, rather than Roman, for tracking business accounts. Luca Pacioli wrote
Summa de Arithmetica, the first book published that contained a detailed chapter on double-entry
bookkeeping.

• 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 during this period.
• 19th Century – The Beginnings of Modern Accounting in Europe and America
The modern, formal accounting profession emerged in Scotland in 1854 when Queen Victoria granted a
Royal Charter to the Institute of Accountants in Glasgow, creating the profession of the Chartered
Accountant (CA). In the late 1800s, chartered accountants from Scotland and Britain came to the U.S. to
audit British investments. Some of these accountants stayed in the U.S., setting up accounting practices
and becoming the origins of several U.S. accounting firms. The first national U.S. accounting society was
set up in 1887. The American Association of Public Accountants was the forerunner to the current
American Institute of Certified Public Accountants (AICPA). In this period rapid changes in accounting
practice and reports were made. Accounting standards to be observed by accounting professionals were
promulgated. Notable practices such as mergers, acquisitions and growth of multinational corporations
were developed.
A merger is when one company takes over all the operations of another business entity resulting
in the dissolution of another business. Businesses expanded by acquiring other companies. These types
of transactions have challenged accounting professionals to develop new standards that will address
accounting issues related to these business combinations.
• The Present - The Development of Modern Accounting Standards and Commerce
The accounting profession in the 20th century developed around state requirements for financial
statement audits. Beyond the industry's self-regulation, the government also sets accounting standards,
through laws and agencies such as the Securities and Exchange Commission (SEC). As economies
worldwide continued to globalize, accounting regulatory bodies required accounting practitioners to
observe International Accounting Standards. This is to assure transparency and reliability, and to obtain
greater confidence on accounting information used by global investors.
Nowadays, investors seek investment opportunities all over the world. To remain competitive,
businesses everywhere feel the need to operate globally. The trend now for accounting professionals is to

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observe one single set of global accounting standards in order to have greater transparency and
comparability of financial data across borders.

Self-check 1:
TRUE or FALSE: On the space provided before each number, write TRUE if the statement is correct and
FALSE if the statement is wrong.

_______________ 1. Accounting is a service entity.

_______________ 2. Accounting helps the users of these financial reports to see the true picture of the
business in financial terms.
_______________ 3. The role of accounting in business is to provide money for managers and owners to
use in operating the business.
_______________ 4. Accounting is an information system.
_______________ 5. Prepared accounting reports cannot be compared with industry standards or to a
leading competitor.
_______________ 6. Accounting records financial transactions and data, classifies these and finalizes
their results given for a specified period of time, as needed by their users.
_______________ 7. Accounting is the art of recording, classifying, summarizing and
finalizing financial data.
_______________ 8. The functions of accounting in business can be attributed to the
three fundamental objectives of an information system.
_______________ 9. Accounting is a process.
_______________10. Accounting deals with financial information and transactions.
_______________11. 19th Century is the development of modern accounting standards and commerce.
_______________12. The Industrial Revolution is the mass production and the great importance of fixed
assets era.
_______________13. During the French revolution, the double-entry bookkeeping was introduced.
_______________14. 19th Century is the beginnings of Modern Accounting in Europe and America.
_______________15. The clay tablet is the oldest evidence of record-keeping practice.

Activity 2: Write it down

If you want to start a business, what would it be? In the box below, write your answer
briefly.

If you are the owner, what do you want to know about the business?
Guide questions for information needed:
How much income I earned for a certain period? How much receivables do I have? How much do
I owe to my suppliers? How much is the value of my inventory?

What possible decisions can accounting support?

Guide questions on decision support:
Will I be able to pay my liabilities if I earn this much? Can I expand my business? Will I be
able to afford buying new equipment? Do I need to adjust my selling price? Do I need to
cut costs?

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 Lesson 2: Users of Accounting Information

Who uses accounting data and information? In accounting, there are two users of the accounting
data and information. The Internal Users and External Users.
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. These include marketing managers, production supervisors, finance directors, company officers
and owners.
Internal users comprise of the following:

1. Management
They need the data of income/earnings for the period, sales, available cash, production cost
enable for them to 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
They need the information of the profit for the period, salaries paid to them enable for them to
know their job security and consider staying in the company or look for other employment opportunities.
3. Owners
They need the data and information of profit or income for the period, resources or assets and the
liabilities of the business for them to consider regarding additional investment, expanding the business
and borrowing funds to support any expansion plans.
Accounting information is presented to internal users usually in the form of management
accounts, budgets, forecasts and financial statements. This information will support whatever decision of
the internal users.
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.
Potential Investors use accounting information to make decisions to buy shares of a company.
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).
The Creditors needs the data and information to determine the credit worthiness of an
organization. Terms of credit are set by creditors according to the assessment of their customers'
financial health. Creditors include suppliers as well as lenders of finance such as banks.
Tax Authorities (BIR) to determine the credibility of the tax returns filed on behalf of the
company.
Investors: for analyzing the feasibility of investing in a company. Investors want to make sure
they can earn a reasonable return on their investment before they commit any financial resources to a
company.
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.
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.

Self-check 2
Directions: Unscramble the letters in each item to form words and define it.
1. NGTIAOUNCC –
2. SROSVETIN –
3. LANTERNI ESSUR –
4. ESSRU XETERLAN –
5. REMSTOSUC -
Activity 3: Guess What?
After knowing the definition, nature and history of accounting as well as its users, this time, you
will examine each picture and you will identify if it is EXTERNAL or INTERNAL users of accounting
information. You may write your answer on the space provided below.

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A. Business Owners B. Creditors
Image Source: www.coxblue.com Image Source: www.broussardpoche.com
__________________________________ _________________________________

C. Potential Investors D. Employees

Image Source: www.kelltontech.com Image Source: www.rochester.edu
__________________________________ _________________________________

E. Bureau of Internal Revenue F. Department of Labor

Image Source: www.ffcccii.org Image Source: www.businessmirror.com.ph
__________________________________ _________________________________

G. Suppliers H. Customers
Image Source: www.abctechnologies.com Image Source: www.projectcoach.com
__________________________________ __________________________________

Post Test
A. Multiple Choice
Directions: Read each statement and choose the letter of the correct answer. Shade the circle that
corresponds to the correct answer.

OOOO 1. These are the internal users of financial reports who are interested in
A BCD determining the return of investment in the business.
a. management b. employees c. owners d. creditors
OOOO 2. The following are the external users who make decisions about their relationship
A BCD to the enterprise, except________________.
a. Taxing Authorities b. Regulatory Agencies c. suppliers d. employees
OOOO 3. Which of the following statements about users of accounting information is
A BCD correct?
a. Management is an external user
b. Tax Authorities are internal users
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 c. Creditors are external users
d. Employees are external users
OOOO 4. The responsibility to review the work of the accountants and issue opinions as
A BCD to the fairness of financial statements rests with __________________.
a. external auditor b. the board directors
c. the internal auditors d. management
OOOO 5. Which if the following is an internal user of a company’s financial information?
A BCD a. board of directors
b. stockholders in the company
c. holders of the company’s bonds
d. creditors with long-term contracts with the company
OOOO 6. Because accounting is an art, ____________________.
A BCD a. it refers to something that can be performed
b. it refers to a behavioral knowledge
c. it refers to a skill that can be enhanced
d. all of the above
OOOO 7. _________________ involves keeping a chronological diary of events that are
A BCD measured in pesos.
a. Identifying b. Interrogating c. Recording d. Communicating
OOOO 8. _________________ occurs through the preparation and distribution of financial
A BCD and other accounting reports.
a. Identifying b. Interrogating c. Recording d. Communicating
OOOO 9. _________________ involves selecting economic events that are relevant to a
A BCD particular business transaction.
a. Identifying b. Interrogating c. Recording d. Communicating
OOOO 10. Accounting is a ______________ refers to the method of performing any
A BCD specific job step by step according to the objectives or targets
a. Process b. Art c. System d. Discipline

B. Essay. Answer thoroughly.

1. Define Accounting according to Weygandt.

2. Differentiate internal users from external users of accounting information.

3. Describe the nature of accounting

4. In your own words, summarize the history/origin of accounting

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 References:

Rabo, Tugas, Salendrez. (2016) Fundamentals of Accountancy, Business and Management 1.

Vibal Group Inc.

Commission of Higher Education. (2016) Teaching Guide for Senior High School Fundamentals
of Accountancy, Business and Management 1. K to 12 Transition Program Management Unit - Senior
High School Support Team

Answer Key

Pre-test
1. a
2. d
3. b
4. d
5. c

Activity 1 Activity 2 Activity 3

1. Identifying Answers may vary A. Internal

2. Recording B. External
3. Communicating C. External
D. Internal
E. External
Self-check 1 Self-check 2 F. External
1. False 1. Accounting G. External
2. True 2. Investors H. External
3. False 3. Internal users
4. True 4. External users
5. False 5. Customers
6. True
7. True (definition words may vary)
8. True
9. True
10. True
11.False
12. True
13. False
14. True
15. True

Post Test A. Post Test B

1. d
2. a Answers may vary
3. c

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4. a
5. a
6. a
7. c
8. d
9. a
10. a