UNIVERSITY OF SAINT LOUIS

Tuguegarao City

SENIOR HIGH SCHOOL

S.Y. 2020-2021

CORRESPONDENCE LEARNING MODULE

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 1

Prepared by:

MARK VINCENT B. BANTOG, LPT

Subject Teacher

Reviewed by:

MA. CARINA VICTORIA M. CATUAAN, MBA

ABM Coordinator

Recommended by:

MARY ANN A. BAQUIRAN, MAEd

Principal

Approved by:

EMMANUEL JAMES P. PATTAGUAN, Ph.D.

Vice President for Academics

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 Midterm – Second Semester Week 1: January 25-29, 2021

I. INTRODUCTION

Good Day! Welcome to the 1st week of our Correspondence Learning Modality for the
midterm. I am Mr. Mark Vincent B. Bantog, your teacher for the subject Fundamentals of
Accountancy, Business, and Management 1. The way we do it is still the same as the previous
semester but I hope that we will still achieve the set objectives of this course. We remain steadfast
to the mission, vision, and objectives of the University as I believe, this too shall pass. Keep the
fire burning in your hearts to learn and grow amidst this pandemic. May God bless you and your
family. Keep safe!

Attached to this 1st week module are the following:

1. Course Outline for the Midterm (You may read from your books, internet sources in
advance.)

I. Introduction to Accounting
 Nature of Accounting
 Functions of Accounting in Business
 History/Origin of Accounting

II. Branches of Accounting

 Financial Accounting
 Management Accounting
 Government Accounting
 Auditing
 Tax Accounting
 Cost Accounting
 Accounting Education
 Accounting Research

III. Users of Accounting Information

 Internal Users
 External Users

IV. Forms of Business Organization

 Sole Proprietorship
 Partnership
 Corporation
 Cooperative

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 V. Types of Business According to Activities
 Service Business
 Merchandising Business
 Manufacturing Business

VI. Accounting Concepts and Principles

VII. The Accounting Equation

VIII. Types of Major Accounts

 Assets
 Liabilities
 Capital
 Income
 Expenses

IX. Books of Accounts

 Journals
 Ledgers

-MIDTERM EXAM-

2. Weekly Study and Assessment Guide

DATE TOPIC ACTIVITIES OR TASKS

Introduction to Accounting Read the definition and nature of
 Nature of Accounting accounting.
January  Functions of Accounting Read the functions of accounting in
25-29, 2021 in Business business.
 History/ Origin of Read the history of accounting.
Accounting Review and familiarize the accounting terms.

For this week, January 25-29,2021 of this term, the following shall be your guide for the
different lessons and tasks that you need to accomplish. Be patient, read it carefully before
proceeding to the tasks expected of you. GOOD LUCK!

Content I. Introduction to Accounting

 Nature of Accounting
 Functions of Accounting in Business
 History/Origin of Accounting

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 Learning Competencies At the end of the lesson, you should be able to:

 define accounting;
 describe the nature of accounting
 explain the functions of accounting in business; and
 narrate the history/origin of accounting.

Activity  Word Hunt (Enrichment Activity)

Essential Questions  What is the significance of accounting to the business?

 How will the manager know if the company is doing well?
 How can we know if additional investment is needed in a
particular segment of the company?

Value Statement  “There are no secrets to success. It is the result of preparation,

hard work, and learning from failure.”
--Colin Powell
 “Managers and investors alike must understand that
accounting numbers are the beginning, not the end, of
business valuation.”
--Warren Buffett

References Textbooks:
Florendo, J. 2016, Fundamentals of Accountancy, Business, and
Management 1, Rex Book Store

Paraan, M. et al. 2018, Fundamentals of Accountancy, Business,

and Management 1 For Senior High School, Books Atbp. Publishing
Corp.

Pineda, A. 2018, Fundamentals of Accounting, Business &

Management 1, Principles and Application, Mindshapers Co., Inc.

Books:
Ballada, W. 2017, Fundamentals of Accountancy Business &
Management 1, Made Easy

Aduana, N. 2016, Fundamentals of Accountancy, Business, and

Management 1 for Senior High School, Procedural Approach, C &
E Publishing, Inc.

Manalaysay, B. 2017, Fundamentals of Accountancy, Business,

and Management 1, Anvil Publishing, Inc.

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 II. LEARNING CONTENT

A NUMBERS GAME

There are numerous successful businesses both locally and internationally. Some top-
of-mind companies include Microsoft, Apple, Coca-Cola, and Procter & Gamble. Here in the
Philippines, surging businesses include Puregold, Petron, Globe, and many others.

Obviously, these businesses offer products which are distinct from one another. Have
you ever wondered about the secret formula for a company’s success? This discussion can go
on and on for days without yielding a definite answer. Nonetheless, there is a common factor
among these businesses that contribute to their success – accounting.

Accounting involves the processes of identifying, recording, and communicating

financial information to internal and external users alike. It helps quantify data for easier
interpretation. Numbers is the language of business. In order to efficiently manage your
business, you need to know numbers. After gathering the data on the performance of the
company, these are summarized and used as a guide for future decision-making. Accounting is
a too used in achieving all these goals.

How will the manager know if the company is doing well? How can he/she know if
additional investment is needed in a particular segment of the company? If not for accounting,
managers will still be making decisions not based on solid foundation.

To have a better understanding of accounting, let us first talk about business.

NATURE OF BUSINESS

What is a business?

Business refers to the regular conduct of legal activities primarily intended to accumulate
profit. The generation of profit is considered as the primary motive of a business entity.

Most, if not all, of business activities undertaken by the management are directed towards
accumulation of profit. The different functions and actions of the management, like the setting
of goals and objectives, the identification of different schemes, the adoption of strategic
approaches, and the evaluation of past performance are all directed towards the common end,
that is, the improvement of business profitability.

A business is also formed to promote the welfare of its members. The different individuals
comprising the business have common objectives, aspirations, accountabilities, and
responsibilities. They usually consider the business to be of assistance to all them of them. In
most instances, business transactions are conducted among the members.
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 Aside from profit motives, businesses also have a responsibility towards the environment
where they operate. Businesses have the responsibility of promoting the welfare of their
employees; providing clean and safe working place; sustaining a healthy environment; respecting
the rights, values, customs and traditions of every employee; and contributing taxes to local and
national governments. The secondary obligation of a business towards society is called social
responsibility.

What are the various classification of business activities?

1. External Business Activities are transactions undertaken by the business with outside parties
or with parties that are not connected with the business. Examples of these activities may
include, among others,
a. selling of goods or products;
b. purchasing raw materials;
c. rendering services to customers; or
d. paying the creditors.

2. Internal Business Activities, on the other hand, are activities that happen within the business
only. Entities outside the business are not involved. Examples of internal business activities
may include, among others,
a. conversion of raw materials to finished products;
b. payment of salaries;
c. processing of voluminous supporting documents;
d. preparation of budgetary requirements; or
e. checking the authenticity of transactions.

Intended
for Profit

Financial
Regularly
in
Undertaken
Character
Attributes of
Business
Activities

Connected
Legally
Undertaken with
Business

Figure 1.1 – Attributes of Business Activities

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 What are the characteristics of a business?

1. Economic Activity
- Business results into generation of employment opportunities thereby leading to growth
of economy.
- The production and distribution of goods.

2. Buying and Selling

- The basic activity of business is trading.
- It involves buying and processing raw materials into finished products for selling.

3. Continuous Process
- Business is not a single time activity.
- It should be conducted regularly in order to grow and gain regular returns.

4. Profit Motive
- The primary goal of a business is usually to obtain the highest possible level of profit
through the production and sale of goods and services.
- Profit serves as the driving force, it is needed for survival, growth & expansion of business.

5. Risk and Uncertainties

- Risk is the effect of uncertainty arising on the objectives of the business.
a. Insurable Risk/Predictable:
o Taxes
o Change in the volume of expected sales
o Cost of supplies and equipment
o Overhead cost
o Salaries
b. Non-insurable:
o Changes in trends and taste of customers.
o Impact of the local economy on customer base.
o Any unexpected action taken by your competitors.

6. Creative and Dynamic

- Has to come out with creative ideas, approaches and concepts for production and
distribution of goods and services.
- To bring things in fresh, new and inventive way.
- Innovation is a key factor for businesses to operate under constantly changing economic,
social and technological environment.

7. Customer Satisfaction
- It is the ultimate aim of all economic activities.
- Providing quality product at a reasonable price.
- The purpose of business is to create and retain the customers.
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 8. Social Activity
- Business is a socio-economic activity.
- Business entity must have their Corporate Social Responsibility (CSR).
- Business has some responsibility towards the society and in turn it needs to support
various social groups.

9. Government Control
- To follow certain rules and regulations enacted by the government.

10. Optimum Utilization of Resources

- The scarce resources are brought to its fullest use for concentrating economic wealth and
satisfying the needs and wants of the consumers.

I believed that you already gained more understanding about business, with that note, let us now
go deeper and discuss accounting.

INTRODUCTION TO ACCOUNTING

Source: http://img.picturequotes.com/2/631/630802/accounting-quote-7-picture-quote-1.jpg

THE ACCOUNTING

Accounting has evolved, as in the case of medicine and law, in response to the social and
economic needs of society. As business and society become more complex, accounting develops
new concepts and techniques to meet the ever-increasing needs for financial information.
Without such information, many complex economic developments and social programs may
never have been undertaken.

In a market economy, information helps decision-makers make informed choices

regarding the allocation of scarce resources under their control. When decision-makers can make
well-informed decisions, resources are allocated in a way that better meets the needs and goals
of those within the market.
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 Accounting is relevant in all walks of life, and it is essential in the world of business.
Accounting is the system that measures business activities, processes that information into
reports and communicates the results to decision-makers. Accounting quantifies business
communication. For this reason, accounting is called the language of business. The task of
learning accounting is very similar to the task of learning a new language.

No business could operate very long without knowing much it was earning and how much
it was spending. Accounting provides the business with this information and more. So,
accountants can be called the scorekeepers of business. Without accounting, a business couldn’t
function optimally; it wouldn’t know where it stands financially, whether it’s making a profit or
not, and it wouldn’t know its financial situation. Also, a sound understanding of this language will
bring about a better management of the financial aspects of living. Personal financial planning,
education expenses, car amortization, business loans, income taxes and investments are based
on the information system that we call accounting.

DEFINITION AND NATURE OF ACCOUNTING

What is accounting?

 Accounting is, broadly speaking, a system that helps businesses track events that affect them.
This process involves identifying the events that affect a business, recording these events, and
communicating the summarized results of all events within a particular period to interested
parties.
 Accounting is a systematic recording of financial transactions and the presentation of the
related information to appropriate persons (Accounting Theory, http://accountingtheory.
weebly.com/nature-and-scope-of-accounting.html).

We can also define accounting as:

 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
decisions (Statement of Financial Accounting Standards No. 1, "Basic Concepts and
Accounting Principles Underlying Financial Statements of Business Enterprises" (Manila:
Accounting Standards Council, 1983), par. 1).
 Accounting is an information system that measures, processes and communicates financial
information about an economic entity (Statement of Financial Accounting Concepts No. 1,
"Objectives of Financial Reporting by Business Enterprises" (Norwalk, Conn.: Financial
Accounting Standards Board, 1978), par. 9).
 Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgments and decisions by users of the information
(American Accounting Association, "A Statement of Basic Accounting Theory" (Evanston, III.:
American Accounting Association, 1966), par. 1; Accounting Principles Board, Statement No.

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 4, "Basic Concepts and Accounting Principles Underlying Financial Statements of Business
Enterprises" (New York: AICPA, 1970), par. 40).
a. Identifying – This accounting process is the recognition or non-recognition of business
activities as “accountable events”.
b. Measuring – This accounting process is the assigning of Peso amounts to the
accountable economic transactions and events.
c. Communicating – This is the process of preparing financial statements and
interpreting the results thereof.
 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 a financial character,
and interpreting the results thereof (American Institute of Certified Public Accountants,
"Review and Resume", Accounting Terminology Bulletin No. 1 (New York: AICPA 1953), par. 9).
 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.

Why is there a need to learn accounting?

Business transactions are accumulated, processed, and communicated to interested users

through accounting. The various accounting information are finally used by different interested
users in making economic decisions.

Figure 1.2 – Flow of Accounting Information

The diagram presents the flow of accounting information. The different business transactions and
events are measured, recorded, and processed and finally communicated to interested users of
financial statements. It is through accounting that one understands how to measure the operating
performance of a business entity.

The following information about the business is usually communicated:

1. The result of its financial operation, that is, whether the business is profitable or not.
2. The status of its financial condition, that is, whether the business is stable and has the capacity
to settle financial obligations.

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 3. The cash inflows and outflows during the period, that is where the business obtains its cash
and where it spends the said cash.
4. Other information that are probable to happen in the future.

FUNCTIONS OF ACCOUNTING

Figure 1.3 – Procedural Steps in Accounting

What are the functions of accounting?

1. Recording
- The routine and mechanical process of writing down business transactions. Only business
transactions and events that are quantifiable or measurable are recorded in the books of
accounts in chronological manner.
- It is otherwise known as journalizing or bookkeeping.
- Business transactions are recorded daily and chronologically.
2. Classifying
- The process of sorting or grouping similar business transactions and events into their
respective kinds or classes. In other words, similar transactions and events should be
grouped together.
- In accounting, this is technically known as posting.
3. Summarizing
- It involves preparation of the financial statements.
- Ordinarily, the summarizing process starts from the preparation of the trial balance,
determination of adjusting entries, and the preparation of the worksheet.
4. Interpreting
- The process of analyzing and evaluating the information presented in the face of the
financial statements and the accompanying notes.
- The data found on the face of the financial statements and other related accounting
information are analyzed to determine the following:
a. Profitability of the business – the ability of the business to realize more revenues
than expenses.
b. Liquidity of the business – the ability of the business to pay its current maturing
obligations or those obligations that are payable within one year.
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 c. Stability of the business – the ability of the business to pay its long-term financial
obligations and remain stable.
d. Management efficiency – reflects how effective and efficient the management is
in utilizing is resources.

Financial statements are formal structured statements serving as the final product of the
accounting process vis-à-vis statement of comprehensive income, statement of financial
position, statement of changes in equity, statement of cash flows, and notes to the financial
statements.
Other functions of accounting include the following:

5. Protecting Properties of the Business.

- The accounting records serve as the evidence that properties of a business do exist or how
much of a particular resource does a company have.
6. Meeting Legal Requirements.
- In the Philippines, the government requires some companies to provide financial reports
quarterly, semi-annually, or annually.
- This procedure aims to protect the public by providing them the necessary information to
make sound decisions.

Let’s take a look in the past – history of accounting.

It is believed that the history of accounting is thousands of years old and can even be
traced to ancient civilizations. A number of history books suggest that the early development of
accounting can be dated back to ancient Mesopotamia. During those times, people followed a
system of writing and counting money. The development of accounting may be related to the
taxation and trading activities of temples.

The reign of Emperor Augustus (63BC—14AD) provided more evidence about the
development of accounting. The Roman government kept detailed financial information of the
deeds of Emperor Augustus regarding the stewardship of Roman resources. This is evidenced by
the Res Gestae Divi Augusti (The Deeds of the Divine Augustus). The Roman historians Suetonius
and Cassius Dio recorded that 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. The closeness of this
information to the executive authority of the emperor is attested by Tacitus' statement that it
was written out by Augustus himself. (Oldroyd 1995)

Many consider the dissemination of the double-entry bookkeeping of Luca Pacioli in the
fourteenth century Italy is the most important event in accounting history. In fact, Luca Pacioli is
acknowledged as the father of modern accounting because of this. The doubleentry bookkeeping
system is defined as any bookkeeping system that has a debit and a credit for each transaction.

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 Luca Pacioli's Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Review of
Arithmetic, Geometry, Ratio, and Proportion) is the first book printed with a treatise on
bookkeeping. The double-entry bookkeeping system is the system being used to this very day.
(Sangster et al. 2007)

The modern profession of the chartered accountant originated in Scotland in the

nineteenth century when Queen Victoria granted a royal charter to the Institute of Accountants
in Glasgow. At present times, accounting standards are already available to guide accountants in
their practice of the profession. Some of these standards include the PFRS (Philippine Financial
Reporting Standard) and the PAS (Philippine Accounting Standards).

ACCOUNTING IN THE PHILIPPINES

From the work of Pacioli, accounting underwent different stages of change. The different
accounting principles, procedures, and practices have been improved, amended, and modified
for several decades. The accounting process is continuously evolving up to the present, and
developments and changes in the field of accounting will continue in the future. Change has
become an ordinary phenomenon in accounting.

In the Philippines, the field of accounting has undergone similar changes and
development, as well. In November 1981, the Philippine Institute of Certified Public Accountants
(PICPA) formed the Accounting Standard Council (ASC). The main function of the ASC was to
establish the generally accepted accounting principles in the Philippines. Prior to the formation
of the Accounting Standard Council in 1981, accounting concepts and principles in the Philippines
were principally based on what were used and applied in the United States. There was no formal
body then to establish generally accepted accounting principles. The different accounting books
outlined accounting principles that were accepted and practiced in the United States. The
financial statements prepared by businesses were based on American standards.

The Accounting Standard Council issued several numbered statements that outlined
generally accepted accounting principles to be observed by businesses in the Philippines. The
approved statements of the ASC were known as Statement of Financial Accounting Standards or
SFASs. The statements issued by ASC, however, were also predominantly based on American
standards and principles.

In 1996, a major change happened in the Philippine accounting system. Philippine

accounting standards began to be based on the approved statements of the International
Accounting Standard Committee (IASC) known as the International Accounting Standards (IAS).
In other words, accounting standards changed from American standards to international
accounting standards.

The IASC was formed in 1973 through the agreement made by professional accounting
bodies from Australia, Canada, France, Japan. Mexico, Germany, the United Kingdom and Ireland,
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 the United States of America, and the Netherlands. The agreement aimed to achieve a uniform
accounting principles around the world. However, it was only in 1996 that the Philippines adopted
the international standards of the IASC.

In 1997, the ASC decided to totally adopt the statements issued by the IASC. However, it
was only in 2000 that major revisions were made in the Philippine accounting standards in order
to conform with the international standards. On May 13, 2004, the President of the Philippines
approved Republic Act No. 9298, otherwise known as the Philippine Accountancy Act of 2004.
This law repealed Presidential Decree No. 692, which used to regulate the practice of accountancy
in the Philippines.

The changes in accounting principles and procedures answered the call for change
because new types of business practices were emerging and happening in the business
community. These changes indicated that developments and growth are happening in the field
of accounting. This is a clear manifestation that accounting is not a dormant field. Changes in
accounting will continue in the future.

Under the implementing rules and regulations of the Accountancy Act, specifically,
Resolution No. 71, series of 2004, the Board of Accountancy established the Financial Reporting
Standards Council (FRSC) in 2006 to replace the ASC. The FRSC has full discretion in developing
and pursuing the technical agenda for setting accounting standards in the Philippines.

The FRSC monitors the technical activities of the International Accounting Standards
Board (IASB) and issues Invitation to Comment on exposure drafts of proposed International
Financial Reporting Standards (IFRS) as these are issued by the IASB. When finalized, these are
issued as Philippine Financial Reporting Standards (PFRSs).

The change in the accounting setting body in the Philippines is parallel to the change
happening at the international level. Internationally, the International Accounting Standard Board
(IASB) replaced the International Accounting Standard Committee (IASC). In the Philippines, the
Accounting Standard Council (ASC) was replaced by the Financial Reporting Standard Council
(FRSC).

In August 2006, the FRSC formed the Philippine Interpretations Committee (PIC) to assist
the FRSC in establishing and improving financial reporting standards in the Philippines. The
principal role of the PIC is to issue implementation guidelines on PFRS. The PIC members were
appointed by the FRSC and include accountants in public practice, the academe, and regulatory
bodies and users of financial statements. The PIC replaced the Interpretations Committee created
by the ASC in year 2000.

Presently, the FRSC issues its Standards in a series of pronouncements called Philippine
Financial Reporting Standards (PFRSs). These consist of:

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 1. Philippine Financial Reporting Standards (PFRSs) which correspond to the International
Financial Reporting Standards (IFRSs);
2. Philippine Accounting Standards (PASs) which correspond to the International Accounting
Standards (IASs); and
a. Philippine Interpretations (PIs) which correspond to interpretations of the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB.

Now that you’re done reading the lesson, let us have a simple game/activity to check your
understanding of the lesson.

Activity: WORD HUNT

Directions: Find the words/phrases below that are related to accounting and encircle them as
many as you can. It can be diagonal, vertical, and horizontal.

I D E N T I F Y I N G T A E C H A N K E
O O I O M B W I S H R A I S O N D E T R
R U T T O I E D A O I I O T A S E A O U
B B O O S L R E P S C R V B R X C T Y S
I L F H Y E E E M A G B E E R I O S N C
V E N P S W R R I D N E Z E N D L A R I
E E U N T H O S S A I N X U A D D E E E
R N N O E O U B I N D D M C O E P N I N
S T I I M U T U L U R M Q O V E H T U C
E R O T A O S T O N O E Q O E U A I L E
I Y L A T B P W S C C R L K N A T T R E
L S L M I O E E T H E I D T S A M Y A D
L Y S R C R T R A E R R M S A R R E Y M
F S T O M O S D R N O A E D A N T E H U
O T N F E Y Y A E C O C K U R O K O G B
W E U N T O B K E A O H G T N O D E E L
Y M O I H N P R P R W E B T R S P O E A
H O C U O I E A P R H T I R E A O S R E
E T C A D N T R P F I N A N C I A L O V
W L A L F A S A H C G N I T C E L L O C

GENERALIZATION:

The primary objectives of the business are to generate profits and to properly manage its limited
and scarce resources. With these objectives, a business must prepare financial reports and
interpret these reports as an aid in decision-making. In making decisions, accounting is used as a
tool for communication. Accounting, being the “language of business,” is used as a tool in
reporting financial information to business stakeholders. Its main functions are to record, classify,
summarize, and interpret business data, transactions, and events. Accounting is believed to be
started way back the ancient Mesopotamia and Luca Pacioli was knows as the father of
accounting.

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