Fundamentals of

Accountancy, Business,
and Management 1
Quarter 3 – Module 1:
Introduction to Accounting
Fundamentals of Accountancy, Business, and Management 1
Alternative Delivery Mode
Quarter 1 – Module 1: Introduction to Accounting
First Edition, 2020

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 Fundamentals of
Accountancy, Business,
and Management 1
Quarter 1 – Module 1:
Introduction to Accounting
Introductory Message
For the facilitator:

Welcome to the Fundamentals of Accountancy, Business, and Management 1

Alternative Delivery Mode (ADM) Module on Introduction to Accounting.

This module was collaboratively designed, developed and reviewed by educators both
from public and private institutions to assist you, the teacher or facilitator in helping
the learners meet the standards set by the K to 12 Curriculum while overcoming
their personal, social, and economic constraints in schooling.

This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.

In addition to the material in the main text, you will also see this box in the body of
the module:

Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to manage
their own learning. Furthermore, you are expected to encourage and assist the
learners as they do the tasks included in the module.

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For the learner:

Welcome to the Fundamentals of Accountancy, Business, and Management 1

Alternative Delivery Mode (ADM) Module on Introduction to Accounting.

The hand is one of the most symbolized part of the human body. It is often used to
depict skill, action and purpose. Through our hands we may learn, create and
accomplish. Hence, the hand in this learning resource signifies that you as a learner
is capable and empowered to successfully achieve the relevant competencies and
skills at your own pace and time. Your academic success lies in your own hands!

This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.

This module has the following parts and corresponding icons:

What I Need to Know This will give you an idea of the skills or
competencies you are expected to learn in the
module.

What I Know This part includes an activity that aims to

check what you already know about the
lesson to take. If you get all the answers
correct (100%), you may decide to skip this
module.

What’s In This is a brief drill or review to help you link

the current lesson with the previous one.

What’s New In this portion, the new lesson will be

introduced to you in various ways such as a
story, a song, a poem, a problem opener, an
activity or a situation.

What is It This section provides a brief discussion of the

lesson. This aims to help you discover and
understand new concepts and skills.

What’s More This comprises activities for independent

practice to solidify your understanding and
skills of the topic. You may check the
answers to the exercises using the Answer
Key at the end of the module.

What I Have Learned This includes questions or blank

sentence/paragraph to be filled in to process
what you learned from the lesson.

What I Can Do This section provides an activity which will

help you transfer your new knowledge or skill
into real life situations or concerns.

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 Assessment This is a task which aims to evaluate your
level of mastery in achieving the learning
competency.

Additional Activities In this portion, another activity will be given

to you to enrich your knowledge or skill of the
lesson learned. This also tends retention of
learned concepts.

Answer Key This contains answers to all activities in the

module.

At the end of this module you will also find:

References This is a list of all sources used in developing

this module.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of the
module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities
included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.

We hope that through this material, you will experience meaningful learning and
gain deep understanding of the relevant competencies. You can do it!

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 What I Need to Know

This module was designed and written with you in mind. It is here to help you
master the introduction to accounting. The scope of this module permits it to be used
in many different learning situations. The language used recognizes the diverse
vocabulary level of students. The lessons are arranged to follow the standard
sequence of the course. But the order in which you read them can be changed to
correspond with the textbook you are now using.

The module is divided into three lessons, namely:

• Lesson 1 – Definition and Nature of Accounting
• Lesson 2 – History of Accounting
• Lesson 3 – External and Internal Users

After going through this module, you are expected to:

1. define accounting; (ABM_FABM11-IIIa-1)
2. describe the nature of accounting; (ABM_FABM11-IIIa-2)
3. narrate the history of/ origin of accounting; (ABM_FABM11-IIIa-4)
4. define external users and gives examples; (ABM_FABM11-IIIa-7) and
5. define internal users and give examples . (ABM_FABM11-IIIa-8)

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 What I Know

The following are statements about the definition and nature of accounting. Write O
if you believe that the statement is part of the definition and nature of accounting
and write X if it does not.

1. Accounting is both a science and an art.

2. Accounting is universal.
3. Accounting deals with both financial and non-financial transactions.
4. Accounting follows certain steps and procedures.
5. Accounting is for large companies only.
6. Bookkeeping encompasses all steps in the accounting process.
7. Accountants prepare but do not interpret financial reports.
8. Identification, recording, and communication are the three steps in the
accounting process.
9. Identifying phase occurs through the preparation and distribution of
financial and other accounting reports.
10. Accounting is a service activity.

Lesson
Definition and Nature of
1 Accounting
In order to effectively communicate and understand each other, people must
use the same language. In a story called business, accounting is known as its
language and the accountant is the storyteller.

What’s In

Mahinhin sold 2 pairs of shoes to Maganda for ₱350.00 each. She bought it
from the supplier for ₱250.00 each.
1. How much is Mahinhin’s total sales?
2. How much is the total cost for the two pairs of shoes?
3. How much is Mahinhin’s total profit?

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 What’s New

What you have just done is an example of simple accounting. To better

understand accounting, let us first know its definition.

✓ The word “accounting” comes from the French word “compter”

meaning to count or score. Other accounting terms are derived from
Latin, such as “debit” – “he owes” and “credit” – “he trusts”.

What is It

Accounting Defined
“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 financial character, and interpreting the results
thereof.”
-American Institute of Certified Public Accountants (AICPA)

“Accounting is the process of identifying, measuring and

communicating economic information to permit informed judgment and
decision by users of the information.”

-American Accounting Association (AAA)

“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 decision.”
-Financial Reporting Standards Council (FRSC)

To summarize the given definitions, accounting is a system that helps

businesses track events that affect them. This process involves identifying the
events that affect a business, recording these, and communicating the
summarized results within a particular period to interested parties.

There are three (3) important activities implied by the given definitions –
identifying, recording, and communicating economic events of the organization to
intended users. These activities make up the accounting process. Take a look at
the illustration below.

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 IDENTIFYING – This involves selecting economic events that are relevant to a
particular business transaction. The economic events of an organization are
referred to as transactions.

RECORDING – This involves keeping a chronological diary of events that are

measured in pesos and cents. The diary referred to in the definition are the
journals and ledgers which will be discussed in future chapters.

COMMUNICATING – This occurs through the preparation and distribution of

financial and other accounting reports it also includes the analysis and
interpretation of data for the users.

You should also note that the accounting process includes the bookkeeping
function, but it only involves the recording of economic events. It is therefore just
one part of the accounting process.

Based on the definition of accounting as we have discussed earlier, we could

derive the following features or natures of accounting:
1. Accounting is a service activity. Accounting aids decision makers by providing
them financial reports that will guide them in coming up with sound decisions.

2. 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.

3. 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. Because it follows
certain standards and professional ethics, it is also a discipline.

4. 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

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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.

5. Accounting is a means and not an end. Accounting is a tool to achieve specific

objectives. It is not the objective itself. Imagine that you dream to go to Paris
someday. Accounting can be thought of as the plane that will bring you to your
destination.

6. 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.

What’s More

Identify whether the activity occurs in the identifying, recording, or

communicating phase of the accounting process. Write your answers on a
separate sheet of paper.

1. Preparing financial and other management reports

2. Classifying events as accountable or non-accountable transactions
3. Assigning amounts to financial transactions
4. Preparing journal entries and posting to the ledger
5. Conducting regular shareholders’ meeting to present results of operations

What I Have Learned

✓ Accounting is a process of identifying, recording, and communicating

financial information to its intended users.
✓ The following statements describe the nature of accounting:
- It is a service activity.
- It is a process.
- It is both an art and a discipline.
- It deals with financial information.
- It is a means and not an end.
- It is an information system.

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 What I Can Do

Answer the following on separate sheet of paper.

A. Identify what organization gave the following definitions of accounting.

1. “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 financial character, and interpreting the results
thereof.”
2. “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 decision.”
3. “Accounting is the process of identifying, measuring and communicating
economic information to permit informed judgment and decision by users of
the information.”

B. Identify the nature of accounting described by the following statements.

1. Accounting helps users of financial report in making decisions.

2. Accounting follows certain standards and professional ethics.
3. It does not deal with non-monetary or non-financial information.
4. Accounting is recognized and characterized as a storehouse of information.
5. Accounting is a tool to achieve specific objectives.
6. In doing accounting, you must follow definite steps.
7. Accounting has a specific technique and it requires skills and expertise

Assessment

Write your thoughts! On a sheet of paper, write a brief description to answer the
following questions in relation to the meaning and nature of accounting.

1. What does “accounting” mean?

2. What statements can describe the nature of accounting? Give three
statements and elaborate each in your own words.
3. Do you agree on the statement, “Accounting is the language of business”?
Why or why not?

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 11
What I Know What I can do
What's More
1. X A.
1. Communicating 1. American Institute of
2. O
2. Identifying Certified Public Accountants
3. X
3. Recording 2. Financial Reporting
4. O
Standards Council
5. X 4. Recording
3. American Accounting
6. X 5. Communicating Association
7. X
B.
8. O 1. service activity
9. X 2. discipline
10. O 3.deals with financial
information
What's In 4. Information system
5. means and not an end
1. ₱700 6.process
2. ₱500 7. art
3. ₱200
Assessment
Answers may vary.
Write explanations that
clearly demonstrates in-
depth understanding of
the concept and give
sufficient details to the
discussion.
Answer Key
understanding of the concept.
watch a video presentation on the definition of accounting that will enhance your
Using this link, https://www.youtube.com/watch?v=dbeEeKA_3UQ&feature=share
Additional Activities
 What I Know

The items below are about the historical developments in accounting. Read
each item carefully and choose the letter of your choice. Write your answers on your
answer sheet.

1. He is known as the Father of Accounting.

a. Jerry of Jericho b. Josiah Wedgwood
c. Frederick Taylor d. Luca Pacioli

2. In which civilization are accountants called the "eyes and ears" of the king?
a. Egyptian b. Babylonian
c. Sumerian d. Roman

3. Which of the following is a significant development in accounting during

the 14th century?
a. Use of tally sticks b. Birth of the Father of
Accounting
c. Use of clay envelopes d. Rise of cost accounting

4. During the 19th century, what significant development happened in

accounting?
a. William Seward Burroughs invented and patented the first
workable adding machine.
b. The book entitled "Summa de Arithmetica, Geometria: Proportioni
et Proportionalita" was written.
c. Queen Victoria granted a royal charter to the Institute of
Accountants in Glasgow.
d. There was an increased dependence on digitalization and smart
technologies.

5. In which century did William Seward Burroughs invent and patent the
first workable adding machine?
a. 17th Century b. 18th Century
c. 19 Century
th d. Present

6. He is the Father of Cost Accounting.

a. Josiah Wedgwood b. William Seward Burroughs
c. Luca Pacioli d. Dr. Gunter Dreyer

7. The oldest evidence of record keeping of Mesopotamia which dealt with

commercial transactions at the time such as listing of accounts
receivable and accounts payable.
a. Tally sticks b. Codex tabulae
c. Clay tablet d. Adversaria

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 8. In which period did the formal accounting profession emerge?
a. 14th Century b. 18th Century
c. 19 Century
th d. Present

9. During this period, social upheavals affecting government, finances, laws,

customs, and business had greatly influenced the development of
accounting.
a. 17th Century b. 18th Century
c. 19th Century d. Present

10. In what country was “tally sticks” used?

a. Greece b. Mesopotamia
c. Egypt d. Rome

Lesson

2 History of Accounting

Theodore Roosevelt once said, “The more you know about the past, the
better prepared you are for the future.” In order to understand the accounting that
we are practicing today and to adapt to future developments, it is a must to know
how it all started.

Accounting started as a simple recording of repetitive exchanges and has

evolved in response to various social and economic needs of men.

This module will give you a glimpse of the past and will help you appreciate
the present.

What’s In

Define Accounting by completing the sentence below.

Accounting is a process of _____________, _____________, _____________,

economic events of an organization to interested users.

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 What’s New

The accounting that we are using today is a result of the developments that
transpired in the past. The complex system of accounting that we have today began
with simple day to day transactions which evolved significantly throughout the
centuries.

What is It

HISTORY OF ACCOUNTING

Evidences show that accounting dates back to as early as the ancient

civilizations. The following section narrates the evolution of accounting.
➢ Jericho
• The first accountant known was “Jerry of Jericho”. He was
someone who needed to keep track of what was stored in the
temple or king’s granary.

➢ Egypt
• Dr. Gunter Dreyer of the German Institute of Archaeology
recently discovered numerous inscribed bone labels attached to
bags of oil and linen in the tomb of King Scorpion I at Abydos,
Egypt.
• The labels dated back 5300 years are the world's earliest
known writing. It describes inventory owners, amounts, and
suppliers.
• In ancient Egypt, the accountant was called the "eyes and ears"
of the king.
• “Zero” was not yet invented.

➢ Sumeria and Mesopotamia

• Token system expanded. This was used as evidence of
transactions.
• Clay “envelopes” or tablets dated from around 4000 BC in
Sumeria
• Complex tokens evolved about 3700 BC
• Use of lines, notches, and other markings used as abstract
representations of wealth and the development of numbers
• These evolved into cuneiform.
• Use of sealing tablets

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➢ Babylonia
• 59 symbols were built from just two symbols.
➢ Greece
• The public economy of the Athenians had a highly developed
system of accounting and auditing.
• Accounts were kept by clerks and controlled by “checking
clerks.”
• Accountability was assured by public exposure of accounts on
stone.
➢ Rome
• Practices of private life led to public accounting process
• Transactions were first entered in a “day book” (memorandum
or “adversaria” in Latin).
• Monthly, the entries were transferred to the ledger (“codex
tabulae”). The codex could be used in court to substantiate
contracts and claims.
• In government, there was separation of responsibilities.
• Use of tally sticks started.

➢ China, India, and Greece - Invention of Money

• Coins appeared to be a simultaneous but independent
development at about the same time in China, India, and
Greece.

➢ 63BC-14AD
• The Roman government kept detailed financial information of
the deeds of Emperor Augustus regarding the stewardship of
Roman resources.
• This is evidenced by Res Gestae Divi Augusti (The Deeds of the
Divine Augustus)
• In 23BC, 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); and that it included the
names of the freedmen and slaves from whom a detailed
account could be obtained.
➢ 14th Century
• The year Luca Pacioli, the Father of Accounting was born.
• He wrote the book entitled "Summa de Arithmetica, Geometria:
Proportioni et Proportionalita".
• One section of the book was devoted to methods of recording
merchant transactions, including ideas about double-entry
bookkeeping.
➢ 17th Century (The French Revolution)
• 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.
• Rise of cost accounting
• Josiah Wedgwood – Entrepreneur & Cost Accountant

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➢ 18th Century
• William Seward Burroughs invented and patented the first
workable adding machine in 1885 in St. Louis, Mo.
• Production increased dramatically after 1900.
➢ 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).
➢ Present
• At present times, accounting standards are already available to
guide accountants in their practice of the profession. Some of
these standards are the GAAP, IFRS/PFRS and the IAS/PAS.
These standards are continually developed and improved to
suit and accommodate the changing needs of businesses and
various organizations.
• The most notable development in the present is the increased
dependence on digitalization and smart technologies, continued
globalization of the accounting profession, and the imposition
of increased regulations on the profession.

What’s More

On a separate sheet of paper, copy, and arrange the following events correctly as
they appear in the timeline of accounting by writing the numbers 1-5 on the space
provided.

________ Development in the Roman Empire

________ Signing of Charter by Queen Victoria

________ Early development in Mesopotamia

________ Formation of accounting standards such as IAS and IFRS

________ Dissemination of double-entry bookkeeping in Italy

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 What I Have Learned

• Accounting is as old as civilization itself.

• Accounting started as a simple recording of repetitive exchanges and has
evolved to Accounting standards used today.
• Bear in mind that accounting is dynamic and will continue to change over
time to address the needs of the society.

What I Can Do

Below is a table with two columns. Listed under column A are the
developments in accounting under column B are the periods in history. Match the
development in accounting with its period by writing the letter of your answer on a
separate sheet of paper.

A. Development in Accounting B. Period

1. Luca Pacioli wrote the book a. Present
entitled "Summa de Arithmetica,
Geometria: Proportioni et b. 14th century
Proportionalita."
2. There is increased dependence c. Rome
on digitalization and smart
technologies. d. 18th Century
3. The first workable adding
machine was invented and e. Greece
patented.
4. Token system was used as f. Mesopotamia
evidence of transaction.
5. During this time, Accountability
was assured by public exposure
of accounts on stone.

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 Assessment

On a separate sheet of paper, copy the table below and narrate the history of
accounting by giving one significant development in each period.

Period Significant Development in

Accounting
Jericho
Egypt
Sumeria and Mesopotamia
Babylonia
Greece
Rome
China, India and Greece
63BC-14AD
14th Century
17th Century
18th Century
19th Century
20th Century - Present

Additional Activities

Using this link, https://www.youtube.com/watch?v=hWK6ilRTGig&feature=share

watch a video presentation on the brief history of accounting. Carefully observe and
list down at least three (3) similarities in the video and in this module.

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 19
Assessment
What I Know What's More
1. D __2___ Development in
2. A the Roman Empire
3. B ___4__ Signing of Charter
4. C by Queen Victoria
5. B
___1__ Early development
6. A
in Mesopotamia
7. C
8. C ___5__ Formation of
9. A accounting standards
10. D such as IAS and IFRS
___3__ Dissemination of
double-entry
bookkeeping in Italy
What’s in
1. Identifying What I Can Do
2. Recording
3. Communicating 1. B
2. A
3. D
4. F
5. E
Answer Key
 What I Know

The following are users of financial information. Classify each of the following as
either external user by writing E, or internal user by writing I. Use a separate sheet
of paper for your answers.

1. Supervisors 2. Department of Trade and

Industry
3. Proprietors 4. Lending institutions
5. Professors 6. Clients
7. Bureau of Internal Revenue 8. Production workers
9. Economists 10. Board of Directors

Lesson
Users of Financial
3 Information

What’s In

On a separate sheet of paper, copy, and arrange the following events correctly as
they appear in the timeline of accounting by writing the numbers 1-5 on the space
provided.

________ Rise of Cost Accounting

________ Use of clay “envelopes” or tablets

________ Increased dependence on digitalization and smart technologies

________ Dissemination of double-entry bookkeeping in Italy

________ Invention of Money

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 What’s New

There is a saying “No man is an island”. There is no known business that is

established just to transact with itself. Every business is influenced by a certain
internal and external factors. Internal parties are those who are directly involved in
the operations of the business. There are also parties, although outside of the
company, who have stake or interest in the business.

In order to build a lasting relationship, communication is key. In business

communicating accounting information to these different parties empowers them to
make better economic decisions.

What is It

The users of accounting information are divided into two (2) broad groups: External
Users and Internal Users.

Internal Users External Users

• Management • Customers
• Creditors
• Employees Financial
• Potential Investors
Information
• Government
• Owners • Academe
• General Public

➢ External Users

External users are parties outside of the organization but affect and are
affected by the organization. They are communicated with accounting
information usually in the form of financial statements. The purpose of
financial statements is to cater for the needs of such diverse users of

21
 accounting information in order to assist them in making sound financial
decisions.

a) Customers – They are the main source of income of businesses and they
acquire goods and services for a fee. Customers have interest in the
accounting information for assessing the financial position of a business,
especially, when they have a long term involvement with, as it enables to
maintain a steady source of business.
b) Creditors – They are the providers of additional funds when the initial
investment of owners is exhausted and lend resources to businesses
usually in the form of money. Creditors are interested in accounting
information because it enables them to determine the credit worthiness
of the business. The credit terms and standards are set on the basis of
the financial health of a business, so, it helps them to analyze by using
the accurate information accordingly.
c) Potential Investors – They are the providers of additional funds when the
initial investment or owners is exhausted and they invest resources in
the business hoping to earn decent returns. They need the information
because they are concerned with the risk inherent in investing and the
returns. Since it is important to assess the feasibility of making
investments in the company, they need to analyze before they provide
any financial resources to the company.
d) Government – This is an external user whose primary role is to regulate
businesses and studies financial statements to determine amount of
taxes payable. Government wants to know earnings or sales for a
particular period for the purpose of taxation.
e) Academe – They use accounting information primarily for academic
purposes. The academe is not confined in the accountancy field but for
other fields of study like banking and finance, entrepreneurship, and
economics similarly make use of financial statements.
f) General Public - The general public is the last group considered to be an
external user. Citizens and residents of the country even though they do
not plan to transact with the business. They use financial statements to
gauge the condition of the economy. By analyzing the financial
statements of the companies, the public can properly respond to the
various economic cycles.

➢ Internal Users

Internal users refer to the members of a company's management and other

individuals who use financial information in running and managing the
business. They work within the company and make decisions for the
business.

a) Management – The management makes decisions for the company and is

considered as the brain of the company. Management needs the
accounting information to evaluate the performance of the organization
and position, so that the necessary measures may be taken to bring

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 improvements in terms of business results. Besides, accounting
information is useful to help managers do their jobs better.
b) Employees – They are persons in the company aside from managers and
owners who do not have authority to implement decisions. Employees
use the accounting information to find out the financial health, amount
of sales and profitability of business to determine their job security, the
possibility of future remuneration, retirement benefits, and employment
opportunities.
c) Owners (or Stockholders) - They are the existing investors of the company
and the ones concerned mostly with the profits of the company. Owners
use the accounting information for analyzing the viability and profitability
of their investments. Accounting information enables the owners to
assess the ability of the business organization to pay dividends. It also
leads them to determine any future course of action.

How these users make use of the accounting information will depend on the
decisions they have to make. Below is a summary of all the users of accounting
information, their examples, and the decisions that they make based on the
accounting information.
Type of Users Example of users Decision made
using the
accounting
information/
Benefits from
accounting
information
Customers Clients, people Whether or not to
acquiring goods or build relationship
services of a with the business
business for a fee.
Creditors Banks, lending Whether or not to
institutions, wealthy lend resources to
individuals and the business; try to
sometimes the see the risks before
government lending funds
Potential investors Wealthy individuals, Whether or not to
other businesses invest in the
planning to invest business, primary
concern is the
ability of the
business to provide
acceptable returns
Government Different Oversees business
government operations with the
agencies and taxing end goal of
authorities improving the
economy, check the
accuracy of financial
statement to ensure
correct amount of
taxes payable

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Academe Professors, Uses accounting
lecturers, students information in
and researchers teaching
accountancy,
researches
loopholes, and
possible
improvements in the
field
General public Common people not Concerned with the
connected with the overall performance
company of the economy, use
financial
information to
estimate economic
performance
Management Board of Directors, Uses financial
Top Management, information in
middle-level making business
managers, decision
supervisors
Employees Laborers, Field Check if the
workers, non- business is
managerial profitable enough to
employees provide
compensation and
other benefits
Owners or Founders of the Concerned with the
stockholders company, owners, returns earned from
stockholders, their investments,
partners, owners taking active
proprietors roles in the
operations of the
business.

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 What’s More

Match the user of accounting information in column A to the decisions made

using the accounting information in column B. Write the letter of you answer only.
Use a separate sheet for your answers.

A B
A. They use accounting information
for studying the field of
1. Employees accountancy and to be able to
produce future accountants and
business managers.
B. They study the financial records
2. Academe of the company to determine the
taxes payable.
C. They check whether the
3. Owners company is profitable enough to
pay salaries and compensation.
D. They look at financial statements
so they will know how much
4. Customers
return on investment they have
earned from the company.
E. They are interested whether a
company will continue to honor
5. Government
product warranties and support
its product lines.
F. They primarily use financial
reports in order to respond
accordingly to the issues of the
company.

What I Have Learned

➢ External users are parties outside of the organization but affect and are
affected by the organization.
Examples
▪ customers
▪ creditors
▪ potential investors
▪ government
▪ academe

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 ▪ general public

➢ Internal Users refer to the members of a company's management and other

individuals who use financial information in running and managing the
business.
Examples
▪ Management
▪ Employees
▪ Owner

What I Can Do

The following are statements about the internal and external users of
financial information. On a separate sheet of paper write TRUE if the statement is
true and FALSE if otherwise.

1. Financial Statements are beneficial to a wide range of internal and external

users.

2. Investors acquire goods and services for a fee.

3. Creditors are less concerned with the riskiness of a company than the
customers.

4. The difference between potential and existing investors is the fact that potential
investors have already taken the risk.

5. External users include creditors, customers, and general public

6. Unlike creditors who are assured to earn the interest and fees, investors may win
or lose in their investment.

7. Management includes Top management, Supervisors, field workers, and board of

directors.

8.The academe is an internal user of accounting information while government is

an external user.

9. Accounting information is not useful to any user if it is communicated in an

untimely manner.

10.The primary reason why employees need accounting information is to enable

them to perform better for the benefit of the company.

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 Assessment

Read each item carefully. Choose the correct answer from the given choices. Write
the letter of your answer on a sheet of paper.
1. Which of the following statements about users of accounting information is
incorrect?
a. Management is an internal user. b. Taxing authorities are external users.
c. Present creditors are external d. Regulatory authorities are internal users.
users.

2. The internal users of financial information include ___________________.

I. Owners
II. Potential Investors
III. Employees
a. I only b. I and II only
c. I and III only d. I, II and III

3. These users require information on risk and return on investment.

a. Employees b. Investors
c. Customers d. Creditors

4. These users are interested in information that enables them to assess whether
the loans owing to them will be paid when due.

a. Employees b. Investors
c. Customers d. Creditors

5. Which of the following is an external user of financial information

a. Government and their b. Supervisors
agencies
c. Stockholders d. Laborers

6. These users are interested in information that will enable them to assess the
ability of an entity to provide retirement benefits and employment opportunities.
a. Employees b. Creditors
c. Clients d. Board of Directors

7. Of all the external users, which group would most least likely examine a
company’s financial statements?
a. Government b. General Public
c. Customers d. Creditors

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8. Statement 1: Potential Investors are Internal users.
Statement 2: Existing Investors are Internal users.
a. Statement 1: True ; Statement 2: True
b. Statement 1: True ; Statement 2: False
c. Statement 1: False ; Statement 2: True
d Statement 1: False ; Statement 2: False

9. Which of the following does NOT fall under the category of customers?

a. Adam, A client of SGV Auditing Firm

b. Ben, a regular purchaser of deodorant in 7/11
c. Carl, an individual collecting annual payments from Z Company
d David, a loyal gamer of a computer shop

10. Ms. Adira is a professor in accountancy in the BS Accountancy program of the

University of the Philippines. She is also a stockholder of TwinSoles Company.
In the point of view of TwinSoles Company, Adira is _____.

a. an external user b. an internal user

c. both an external and d. neither an external and
internal user internal user

Additional Activities

On a separate sheet of paper, answer the following questions about the users of
financial information in not less than five (5) sentences.

1. In your own point of view, which external user benefits the most from
accounting information? Explain.
2. How about among the internal users? Explain.

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 29
What I Know What's In What I can do
1. I
2. E 1. True
3. I 2. False
4. E 3. False
5. E 4. False
6. E 5. True
7. E 6. True
7. False
8. I
8. False
9. E
10. I
What's More 9. True
10. False
1. C
2. A
3. F
4. E
5. B
Assessment
Answers may vary.
Write explanations that
clearly demonstrates in-
depth understanding of
the concept and give
sufficient details to the
discussion.
Answer Key