Republic of the Philippines

Department of Education
REGION I
SCHOOLS DIVISION OF THE CITY OF BATAC

ACTIVITY SHEETS IN FUNDAMENTALS OF

ACCOUNTANCY, BUSINESS AND MANAGEMENT 1
GRADE 11
QUARTER 3, WEEK 1

INTRODUCTION TO ACCOUNTING
(Nature, Origin and Users of Accounting)

Most Essential Learning Competencies (MELCs):

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 the external users and gives examples (ABM_FABM11- IIIa-7)
5. Define the internal users and give examples (ABM_FABM11- IIIa-8)

Objectives:
1. Define accounting and describe its nature;
2. Explain the functions of accounting in business;
3. Narrate the brief history of accounting;
4. Differentiate the branch of accounting and the kinds/types of service they
render;
5. Define internal and external users and give examples; and
6. Identify the type of decisions and information made by each group of users.

Prepared by:

EASTER A. LUMANG
Teacher II

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Background Information
In today’s business world, accounting is considered the “universal language of
business”, because it is the vehicle for reporting financial information about a business
entity to users such as shareholders and managers. Due to the rapid advancement in
business activities due to industrialization and globalization, the need for people to
know accounting has increased manifold. It is impossible to survive in today’s
advanced business environment without adequate knowledge of basic accounting.
Especially all business students should have some background in accounting to
understand and interpret and present the results of the business.
There are so many definitions given on what is accounting. According to the
American Institute of Certified Public Accountants (‘AICPA’), accounting is “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”.
According to Accounting Theory (http://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.”
Accounting is the process of IDENTIFYING, RECORDING, and
COMMUNICATING economic events of an organization to interested users.”
(Weygandt, J. et. al)

The definition brings out the following as attributes of accounting:

i. Accounting is a service activity. Accounting assists decision-makers by
providing them financial reports that will guide them in coming up with sound
decisions.

ii. 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 or follows some definite
steps like the collection/identifying, recording, classification, summarizing,
finalization, and communication/reporting of financial data. Recording means
systematically writing down the transactions and events in account books soon
after their occurrence. Classifying is the process of grouping transactions or
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 entries of the same type in one place. This is done by opening accounts in a
book called the ledger. Summarizing involves the preparation of reports and
statements from the classified data (ledger), understandable and useful to
management and other interested parties. This involves the preparation of final
accounts namely the profit and loss account and balance sheet.

iii. Accounting is both an art and a discipline. The word ‘art’ refers to the way
something is performed. It is behavioral knowledge involving certain creativity
and skill to help us attain some specific objectives. Accounting is classified as
an art, as it helps us in attaining our aim of ascertaining the financial results,
that is, operating profit and financial position through analysis and interpretation
of financial data in a systematic method which requires special knowledge,
experience and judgment thus require skill and expertise. And because it
follows a certain standard and professional ethics, it is also a discipline.

iv. Accounting deals with financial information and transactions. It records

transactions/data in terms of money. All transactions are recorded in terms of
common measure i.e. money which increases the understanding of the state of
affairs of the business. 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. It records only those
transactions and events which are of financial character. If an event has no
financial character then it will not be capable of being measured in terms of
money; it will not be, therefore, recorded.

v. 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 transactions, and also it is the art of
interpreting the results of operations to determine the financial position of any
entity/enterprise, the progress it has made, and how well it is getting along. This
discipline of knowledge has evolved to meet the need for financial information
as required by various interested groups.

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The following are the main functions of accounting:
(i) Keeping Systematic Records: Accounting is done to keep a systematic
record of financial transactions.
(ii) Protecting and Controlling Business Properties: Accounting helps to see
that there is no unauthorized use or disposal of any assets or property
belonging to the firm because proper records are maintained. The
accounting will furnish information about money due from various persons
and money due to various parties. The firm can see that all amounts due to
it are recovered in due time and that no amount is paid unnecessarily.
(iii) Ascertaining the Operational Profit/Loss: Accounting helps to determine the
results of the activities in a given period, usually a year, i.e. to show how
much profit has been earned or how much loss has been incurred. This is
done by keeping a proper record of revenues and expenses of a particular
period and then matching the revenues with the corresponding costs.
(iv) Ascertaining the Financial Position of the Business: The balance sheet is
prepared to ascertain the financial position of the firm at the end of a
particular period. It shows the values of the assets and the liabilities of the
business entity.
(v) Facilitating Rational Decision Making: Accounting facilitates the collection,
analysis, and reporting of information at the required point of time to the
required levels of authority to facilitate rational decision-making.

History of Accounting
Accounting is as old as civilization. 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.

The following shows the evolution of accounting:

Cradle of Civilization

 Dating back about 10,000 years, the first accounting system probably consisted
of stones used to represent wealth.

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  Accounting began as a simple system of clay tokens to keep track of goods and
animals, before developing complex transactions and other financial information.
 It was initiated in Babylonia and Egypt around 4000 B.C. Clay tablets were used
to record a transaction. Egyptians used the account to record the safe keeping
of gold and valuables in treasures. Day wise reports were sent to wizards’ by the
charges and Month wise report to Kings
 Starting around 3000 B.C., the Chinese developed the abacus, a tool for counting
and calculating.

14th Century – Double –Entry Bookkeeping

 During and after the Crusades, European trade markets opened up to Middle
Eastern trade, and European merchants, especially in Genoa and Venice,
became increasingly wealthy. They needed a better way to keep track of large
amounts of money and complex transactions, and this led to the development
of double-entry bookkeeping by Luca Pacioli (The Father of Accounting) in
1494, who wrote Summa de Arithmetica, the first book published which
contained a description of double-entry bookkeeping, accounting gave
valuable tool for keeping track of detailed financial information. The Italians of
the 14th to 16th centuries widely acknowledged Luca Pacioli as the fathers of
modern accounting and were the first to commonly use Arabic numerals, rather
than Roman, for trucking business accounts.

French Revolution (1700)

 The thorough study of accounting and development of accounting theory begun

during this period. Social upheavals affecting government, finances, laws,
customs

The Industrial Revolution (1760-1830)

 Mass production and the great importance of fixed assets were given attention
during this period

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19th Century – The beginning 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). People
began to specialize in accountancy. Thus becoming the first professional
public accountants

The Present – The Development of Modern Accounting Standards and

Commerce

 Today, accounting is a business unto itself, with thousands of practitioners

worldwide and a large number of professional organizations and official
guidelines to codify practices and requirements.
 The Generally Accepted Accounting Principles, or GAAP, set forth the
standards by which public accountants must do business. Every country has a
similar set of accounting guidelines. Beyond the industry self-regulation, the
government also sets accounting standards, through laws and agencies such
as the Securities and Exchange Commission (SEC). As the economy worldwide
continued to globalize, accounting regulatory bodies required accounting
practitioners to observe International Accounting Standards. This is to assure
transparency and reliability and obtain greater confidence in accounting
information used by global investors.
 Due to the complex nature of today's economic system, specialized branches
of accounting have developed.
 In addition to traditional financial accounting, there are now subdivisions, such
as tax accounting, management accounting, lean accounting, fund accounting,
and project accounting. Professional accountants are required for the
understanding of business needs and accountancy practices.
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 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 observe one single set of global accounting
standards to have greater transparency and comparability of financial data across
borders.

Different Branches of Accounting

There are two main branches of accounting

 Financial Accounting. Financial accounting refers to accounting for revenues,

expenses, assets, and liabilities. It involves the basic accounting processes of
recording, classifying, and summarizing transactions. It also deals with the
preparation of financial statements for the basic purpose of providing
information to various interested groups like creditors, banks, shareholders,
financial institutions, government, consumers, etc. It is charged with the primary
responsibility of external reporting. Thus, primarily concerned with the
preparation of financial statements mainly for outsiders.
 Management/Managerial Accounting. Managerial accounting is the branch of
accounting designed to provide information to various management levels in the
business operation to enhance controls. It is also a ‘tailor-made’ accounting. It
facilitates the management by providing accounting information in such a way
so that it is conducive for policy-making and running the day-to-day operations
of the business. Its basic purpose is to communicate the facts according to the
specific needs of decision-makers by presenting the information in a systematic
and meaningful manner.

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 Let see the difference between the two:

Basis of Financial Accounting Management Accounting

Distinction
1. Primary user Outside parties and manager Business Managers and Top
of the business Managers

2. Decision Accounts are based on Comparison of costs

criterion generally accepted and benefits of
accounting principles proposed action

3. Behavioral Concern about the adequacy Concern about how

implications of disclosure. Behavioral reports will affect
implications are secondary employee and the business
behavior as a whole

4. Time focus Past orientation Future orientation

5. Reports Summary reports regarding Detailed reports on

the whole entity the parts of the entity

Other branches of accounting

 Government Accounting
• It refers to the field of accounting that specifically finds application in the
public sector or government. It is the process of recording, analyzing,
classifying, summarizing communicating, and interpreting financial
information about government in aggregate and in detail reflecting
transactions and other economic events involving the receipt, spending,
transfer, usability, and disposition of assets and liabilities.
 Forensic Accounting
• Is the use of accounting in legal matters, including litigation support,
investigation, and dispute resolution. There are many kinds of forensic
accounting engagements: bankruptcy, matrimonial divorce, falsifications
and manipulations of accounts or inventories, and so forth. Forensic
accountants give investigate and analyze financial evidence, give expert
testimony in court, and quantify damages.
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 Fund accounting
• Is used for non-profit entities, including governments and not-for-profit
corporations. Rather than seek to make a profit, governments, and non-
profits deploy resources to achieve objectives.
 Auditing
• It is the branch of accounting involved in reviewing and evaluating
documents, records, and control systems. Auditing may be external or
internal.
 Tax Accounting
• It is the branch of accounting relating to the preparation and filing of tax
forms with government agencies. Tax planning to minimize tax payments is
a significant part of the tax accountant’s work.
 Cost Accounting
• Is the branch of accounting dealing with the recording, classification,
allocation, and reporting of current and prospective costs. Cost accounting
is an important aspect of management accounting. It emphasizes cost
determination, aiding the planning and control process, and supplying
information for short- and long-run decisions.
 Accounting Education
• It is the education which teaches recording and maintaining books of
accounts
 Accounting Research
• It is research on the effects of economic events on the process
of accounting, and the effects of reported information on economic events.
It encompasses a broad range of research areas including financial
accounting, management accounting, auditing, and taxation.

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USERS OF ACCOUNTING INFORMATION

INTERNAL 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 the managers/owners of the
company who use the accounting information in the interpretation of past performance
and the basis for future decisions. Also, the bottom management people are directly
affected by it as well.

These are the common internal users of Financial Information:

• Owners -They need to see the financial health of the business because they
need to know how much money their investment is generating. Same as with
stockholders, they need to know how long they will need to hold on to stocks,
when to sell them, or when to buy more. Sample of accounting information they
need with their decisions are listed below:

Information needed: profit or income for the period, resources or assets of the
business, liabilities of the business.

Decisions supported: considering an additional investment, expanding the

business, borrowing funds to support any expansion plans.

• Management - These people have a critical need for financial information. The
management needs to assess the company’s efforts by comparing the current
financials to last year’s results for them to make sound decisions in reaction to
what variables they see. They also need to know the cash flow of the company
to know what their limitations are. Sample of accounting information they need
with their decisions are listed below:

Information needed: income/earnings for the period, sales, available cash,

production cost.

Decisions supported: analyze the organization’s performance and position and

take appropriate measures to improve the company results, the sufficiency of
cash to pay dividends to stockholders, pricing decisions

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 • Employees - The workers of the company also need to know how to read
financial statements. It can increase their involvement and understanding of the
business so they can be more motivated. It can also give them the sense of
when is the time to ask for an increase and job security. Sample of accounting
information they need with their decisions are listed below:

Information needed: profit for the period, salaries paid to employees

Decisions supported: job security, considering staying in the employ of the

company or look for other employment opportunities.

EXTERNAL USERS

External users are individuals and organizations outside a company who wants
and has a special interest in the financial information of the company. These users are
not directly involved in managing and operating the business.

These are the common internal users of Financial Information:

 Investors -These people will rely on your company’s financial statements to

see its performance and profitability. As an investor, a good track record can
be a determining factor if they would invest or not. Potential Investors use
accounting information to make decisions to buy shares of a company.

 Creditors/Suppliers –These people determine the creditworthiness of an

organization. These are banks or any supplier that you need to lend you money.
These creditors will assess your liquidity, cash flow, and many more so they
can be confident that you can pay them back the money that you’ll be borrowing
from them.

 Government

Tax Authorities (BIR) –These people determine the credibility of tax returns
filed on behalf of the company and will be the ones to determine and collect the
tax your business will incur.

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 Regulatory Authorities (SEC, DOLE) – These people ensure that a
company's disclosure of accounting information is following the rules and
regulations set to protect the interest of the stakeholders who rely on such
information informing their decisions.

 Customers - Customers also need to study financial information if they are

finding a long-term supplier. They need to make sure that the company is stable
enough to last as long as they need supplies from them.

 Competitors -And lastly, if your competition is lucky enough to gain some

financial information about your business, it can only benefit them so they can
have some form of an advantage over you.

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References:
Accounting Theory (n.d.) Retrieved ffrom http:// Accountingtheory.weebly.com/nature-and-
scope-of-accounting

Commission on Higher Education in collaboration with the Philippine Normal University to

Department of Education. Teaching Guide in Senior High School Fundamentals of
Accountancy Business and Management 2

Valencia, E. G., & Roxas, G. F. Basic Accounting (3rd ed.). Mandaluyong City,
Philippines: Valencia Educational Supply, 2010

Valix, Conrado T. et.al. Financial Accounting, Vol. 1, First part. GIC Enterprises & Co. Inc.
2015

Weygandt, J. et.al (2012) Accounting Principles 10th ed. John Wiley & Sons (Asia) Pte. Ltd.

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Name: ___________________________________________ Date: _____________

Grade/Section: ____________________________________Score: ____________

Let us see what you already know about Accounting. Answer the questions
below.

Activity 1: True or False

Directions: Read the statements carefully then write True if the
statement is correct & write False if it is not. Write your answer on the
space provided.

___________1. Accounting is a private activity which provides information to assist

decision- makers.
___________2. Accounting is considered an art because it is done through skill and
expertise.
___________3. Accounting follows a certain standards and professional ethics.
___________4. According to AICPA, accounting is the process of identifying,
recording, and communicating economic events of an organization to
interested users
___________5. Accounting deals with non-monetary or non-financial aspects of such
information.
___________6. Keeping systematic records is one of the main function of accounting.
___________7. Non-rational decision making is facilitated by Accounting.
___________8. The Income Statement is prepared to ascertain the financial position
of the firm at the end of a particular period
___________9. Accounting is the universal language of business.
___________10. Accounting helps to see that there is no unauthorized use or disposal
of any assets or property belonging to the firm, because proper
records are maintained.

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Name: ___________________________________________ Date: _____________

Grade/Section: ____________________________________Score: ____________

Activity 2: Matching Type

Directions: Match column A to column B. Write your answer on the
space provided.

Answer A B
1. Main branch of accounting which primarily A. Cost accounting
concerned with the preparation of financial
statements mainly for outsiders.
2. Branch of accounting that emphasizes cost B. Regulatory
determination, aiding the planning and control Authorities
process, and supplying information for short- and
long-run decisions.
3. The field of accounting that specifically finds C. Management
application in the public sector
4. Branch of accounting that used for nonprofit D. Government
entities, including governments and not-for-profit accounting
corporations
5. The branch of accounting involved in reviewing E. Creditors
and evaluating documents, records, and control
systems
6. These people need to study financial information if F. Employee
they are finding a long-term supplier.
7. These people want to know whether the company G. Financial
will be able to pay its short-term debts Accounting
8. These people ensure that a company's disclosure H. Customer
of accounting information is following the rules and
regulations set to protect the interest of the
stakeholders who rely on such information informing
their decisions.

9. Accounting information helps these people in the I. Auditing

pricing decision.
10. Profit from the business secures job security J. Fund accounting
among these people.

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Name: ___________________________________________ Date: _____________

Grade/Section: ____________________________________Score: ____________

Activity 3: Making a timeline

Directions: Draw a timeline inside the box about the history of
accounting and discuss it briefly.

RUBRIC FOR THE TIMELINE AND DISCUSSION

Creative and neatly designed using
Creativity
colors and multiple media 5
All events are labeled neatly and in
Content
chronological order. 5
Events are well discussed and easy to
Presentation 5
understand
Total 15

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
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Name: ___________________________________________ Date: _____________

Grade/Section: ____________________________________Score: ____________

Activity 4:
Directions: Choose one business entity in your community and find out
who are the users of their financial information. Illustrate your findings
thru graphics, posters, or any kind of visual arts of your choice. You can
use a separate sheet or the space provided below:

RUBRIC FOR THE ACTIVITY

Creative and neatly designed using
Creativity
colors and multiple media 5
Able to portray the users of financial
Content
information on the output 5
Relationship of business entity to
Presentation users are well presented and easy to 5
understand
Total 15

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