Chapter 1: Introduction to Accounting

Activity 1: A Chapter Discussion

1. Explain why accounting practice is as old as civilization.

2. What is the significant feature of Massari Ledgers of Commune of Genoa in 1340?

3. What is the Florentine approach of accounting? What did it contribute in the present system of bookkeeping?

4. What are the book discussed in the “Summa de Arithmetica” written by Luca Pacioli in 1494? Explain the
significance of each book.

5. What significant developments in the accounting practice have occurred during the following period?
a. French Revolution (1700s)

b. Industrial Revolution (1760 – 1830)

c. Global Industrial Economy (1900s)

d. International Business Transactions and International Relationships of Government (2000s)

6. Compare the Florentine approach from Venetian approach to reporting business transactions.

7. Compare the Savary Commercial Code from Napoleonic Commercial Code

8. Discuss the significance of Schmalenbach’s contribution to accounting.

9. How to remedy the conflict of Income Taxation and Financial Accounting reporting?

10. What is the difference of merger from consolidation?

11. What are the benefits of global accounting standards?

12. Why do accounting practices vary among countries?

13. What is the main objective of IASB?

14. What are the functions of FRSC?

15. What are the agencies regulate the financial reports and professional activities of CPAs?
Activity 2: True or False

Write TRUE if the statement is correct or FALSE if it is incorrect.

1. Recording of repetitive exchanges was the start of accounting.

2. The oldest Evidence of accounting practice is the “stone tablet” of Mesopotamia which contains
commercial transactions.
3. The “Massari Ledgers of Commune of Genoa” is perfect double-entry form of journal entries.
4. The double-entry bookkeeping in which debits were written over credits was first used in Florence.
5. Under Venetian double-entry system, the memorandum book is the record of original entry.
6. The present ledger posting is the modern adaptation of the Venetian accounting system.
7. Napoleon Bonaparte is the father of modern accounting system.
8. The industrial revolution introduced the development of accounting theory.
9. Internal control system was introduced during the era of global industrial economy.
10. Schmalenbach advocated that changes in prices do not have relevance in accounting policies.
11. The Code of Savary defines historical cost as the basis of valuation.
12. The Code of Commerce is a supplement to the Code of Napoleon. It gives examples that assets must
be valued at fair market value.
13. Schmalenbach believed that price is the basis of value control for investment decisions.
14. Price level is not identical with inflation accounting.
15. Publicly held corporations were introduced during the industrial revolution.

Activity 3: True or False

1. In general, the Savary Code uses market value while the Napoleonic Code uses historical cost as the
basis of valuation.
2. The first income tax law was introduced by China at a rate of 10% of profit.
3. The journal entry which is currently used in recording transactions is derived from Florentine
Approach of record keeping.
4. Lawyers are better tax consultants because they are more familiar in preparation of reports from
accounting to tax reporting.
5. Reconciliation is to be made due discrepancy of Tax Laws and accounting principles.
6. Consolidation gives rise to a new corporate organization.
7. There is greater transparency for using global accounting standards.
8. Accounting is not a product of socio-cultural conditions because it is a product of economic
conditions.
9. Macro-user oriented accounting system is primarily used by investors and managers.
10. A capital market is equity-oriented if companies shell shares of stock through the stock market.
11. The main objective of IASB is to develop a uniform set of high quality, understandable, and
enforceable global accounting standards.
 12. The Philippines adopts IFRS.
13. FRSC is replaced by the ASC.
14. The Department of Finance is primarily responsible in the collection of all national internal revenue
taxes.
15. PICPA protects the credibility of CPA Certificates.

Activity 4: True or False

1. The ledger is simplified T-account

2. The accounting records are used as proofs of the existence of business transactions.
3. Luca Pacioli, being the father of modern accounting, is CPA.
4. The former SFAS of the Philippines was principally based on American accounting standards.
5. The first graduated income tax system was first introduces by the USA.
6. With the presence of international financial markets, some firms are raising capital and trading in
international market.
7. With the use of global accounting standards, all countries would have to use the same accounting
system.
8. The FRSC of the Philippines replaced the ASC, and as such it approves Philippine Financial Reporting
Standards.
9. The BOA was created under the first Accountancy law of the Philippines.
10. When a CPA offers his professional services to clients for a fee, he is said to be in private accounting.
11. Financial accounting is primarily concerned with the preparation and issuance of general purpose of
financial statements.
12. All record-keeping of business transactions uses double-entry bookkeeping
13. The ASC is a regular agency where the financial statements of various entities are filed.
14. The journal entry which is currently used in recording transactions is derived from the Florentine
Approach of record keeping.
15. In general, the Savary Code uses market value while the Napoleonic Code uses historical cost as the
basis of valuation.

Activity 5: Matching Type

Match each description with its related item described by entering the appropriate letter in the space provided.

A. Record-keeping and documents H. FRSC

B. Money, banking and credit I. Accounting system
C. Matthew 25: 19 J. Accounting systems and design
D. Vernice of Nothern Italy K. IASC
E. Historical Cost L. Equity and debt oriented
F. Consolidation M. Accounting
G. Government agencies N. Emperor Wang Mang
O. IASB

1. Key influence in the use of double-entry system in 1400s

 2. It reflects the authentic and factual value of an item
3. He instituted the first income tax at 10% if profits.
4. “The Lord of those servants came to settle accounts…”
5. New corporation arises due to dissolution of others.
6. System of recording business transactions and events
7. Important components in the rise of great civilization
8. Language of business
9. Macro-user oriented systems – principal users
10. Proofs of transactions and events
11. Develops global and high quality accounting standards
12. Establishes Philippine accounting standards.

Activity 6: Multiple Choice

Encircle the letter that corresponds to the best answer.

1. This system of recording transaction is based on the principle of balance, except.

a. Double-entry
b. Dual aspect
c. Bilateral transaction
d. Debit and credit
2. The present Ledger Posting is the modern adaptation of the
a. Montauban method
b. Venetian method
c. Mesopotamian method
d. Florentine method
3. Luca Pacioli, the father of modern accounting is
a. A mathematician
b. A merchant
c. An accountant
d. A priest
4. This period gave attention to accounting for mass production and fixed assets
a. French revolution
b. Industrial revolution
c. International business
d. Global industrial economy
5. What accounting valuation was introduces by the Napoleonic Commercial Code?
a. Market value method
b. Historical cost method
c. Price level method
d. Uniform value method
6. Statement 1: The oldest evidence of records keeping was the clay tablet of Mesopotamia 60% of which dealt
with commercial transactions, accounts payable, and receivables
Statement 2: The T-account or Ledger of our present accounting system has derived its accounting form from
the “Massari Ledger of commune of Genoa”
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statement are incorrect
7. The earliest example of double bookkeeping technique is recorded in
a. Clay tablet in Mosepotamia around 3600 BC
b. Extant books of Andrea Bargargio around 1418
c. Mercantile books of Freris Bonis of Montauban around 1418
d. Summa de Arithmetica of Luca Pacioli around 1418

8. In the Summa arithmetica of Luca Pacioli, the following important books were introduced, except
a. Memorandum Book
b. Journal Book
c. Ledger Book
d. Investor’s Record Book
9. He believed that the Chart of Accounts contains relevant dynamic information affecting the economic flight of
an enterprise
a. Luca Pacioli
b. Jacques Savary
c. Eugene Schmalenbach
d. Emperor Wang Mang
10. This principle of accounting valuation is founded on the theory that the monetary unit is always stable.
a. Historical cost
b. Market value
c. Price level
d. Replacement cost
11. The first Philippine Income Tax Law was made in
a. July 18, 1861
b. March 1, 1913
c. March 15, 1621
d. August 28, 1986
12. The several conflicts of taxation and accounting are remedied through the preparation of
a. Income Tax Returns (ITRs)
b. Financial Statements
c. Reconciliation of ITRs and Financial Statements
d. All of the above
Activity 7: Multiple Choice

1. Which of the following is not included in the Summa de Arithmetica of Pacioli?

a. Memorandum Book
b. Journal Book
c. Ledger Book
d. Trial Balance Book
2. This Commercial Code used historical cost as the basis of valuation
a. Savary Commercial Code
b. Napoleonic Commercial Code
c. France Civil Law in 1804
d. France Code of Commerce in 1807
3. This Commercial Code used historical cost as the basis of valuation
a. Savary Commercial Code
b. Napoleonic Commercial Code
c. France Civil Law Commerce in 1804
d. France Code of Commerce in 1807
4. The first known graduated income tax was instituted in
a. China in 10 AD
b. Great Britain in 1798
c. United States in 1861
d. The Philippines in 1913
5. Which of the following users of financial information is perceived to be the most important user in a macro-
user oriented accounting system?
a. Government Agencies
b. International Financial Market
c. Investors
d. Creditors
6. The field of accounting was born due to the infusion of CPAs in the practice of taxation
a. Tax Accounting
b. Internal Revenue Accounting
c. Tax Advisory Accounting
d. Business Tax Accounting
7. This is believed to be the most complex and controversial areas of accounting because each one is unique and
must be evaluated in terms of its economic substance, irrespective of legal form.
a. Merger
b. Consolidation
c. Business combination
d. Partnership dissolution
8. Its presence gives opportunities to firms to raise funds globally and increase firm’s liquidity
a. International financial markets
 b. Global accounting standards
c. International credit lines
d. Global economic resources
9. The presence of this international market helps multinational firms to raise capital regardless geographic and
national boundaries
a. NASDAQ
b. Global Money Market
c. International Monetary Resources
d. International Financial Market
10. This accounting period introduced the share companies and stock exchanges listed corporations.
a. French Revolution (1700s)
b. Industrial Revolution (17600 – 1830)
c. Global Industrial Economy (1900s)
d. International Business and Government Transactions (2000s)
11. This accounting period showed the rapid changes in accounting practice and reporting including the
participative promulgation of accounting standard
a. French Revolution (1700s)
b. Industrial Revolution (17600 – 1830)
c. Global Industrial Economy (1900s)
d. International Business and Government Transactions (2000s)
12. Statement 1: Countries using the International Accounting and Auditing Standards will certainly have no
variations in their financial reporting
Statement 2: Although historical developments had a uniform effect on accounting systems throughout the
world, there have been at least as many accounting systems as there are countries, and no two systems are
exactly alike.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

Activity 8: Multiple Choices

1. He introduced the use of the three books in doing accounting – memorandum where the transactions are
noted; the journal where the debits and credits of transactions are listed; and the ledger where posting are
done.
a. Jacques Savary
b. Andrea Bargarigo
c. Luca Pacioli
d. Eugen Schmalenbach
2. Statement 1: The main objective of IASB is to develop a uniform set of high quality, understandable, and
enforceable global accounting standards.
 Statement 2: The purpose of IASB is to achieve a higher degree of comparability and transparency of financial
reporting to help the world’s capital markets and other users make economic decisions.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are not correct
3. The accounting standards promulgated by IASB are called
a. IAS
b. IFRS
c. PAS
d. PFRS
4. In 2004, the ASC was recognized into
a. FRSC
b. ASCB
c. FASB
d. PFRB
5. This agency of the Philippines government requires financial reports to ensure compliance of national taxes
a. SEC
b. BSP
c. LGU
d. BIR
6. The present law governing the practice of accounting in the Philippines is
a. The Philippine Accountancy Act of 2004
b. Republic Act 8424
c. Republic Act 9892
d. Republic Act 3105
7. The national organization of CPAs in the Philippines is called
a. PAMA
b. PIMA
c. PICPA
d. JPIA
8. The first national organization of CPAs in the Philippines was formed as PICPA in
a. 1923
b. 1929
c. 1981
d. 1997
9. The policy – making body of the accounting profession is the
a. PICPA
b. PRC
c. ASC
 d. BOA
10. The body that issues the statements and interpretations of accounting practice which will represent generally
accepted accounting principles in the Philippines is the
a. PICPA
b. PRC
c. FRSC
d. BOA