Lesson 1.

1
Introduction to
Accounting

Fundamentals of Accountancy, Business,

and Management 1
Accountancy, Business, and Management

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Why is accounting the focus in studying business and
management course?
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Quick Look

Starting a Business
Are you interested in starting your own business? What are your
considerations and hindrances before starting?

Almost all businesses start with the economic capability of the owners.
The first consideration in starting a business is the sufficiency of seed
capital and its effective utilization.

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Quick Look

Starting a Business
Once a business starts operating, other considerations arise and unfold
day-to-day:
● “How did we do today?”
● “How much did we earn?”
● “Will we be able to continue our business?”
● “When will be the right time to invest in other things besides our
current business venture?”

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Quick Look

Starting a Business
Accounting processes deal with regular checks and balances. It includes
manually counting stocks when they arrive, computing the daily sales,
then matching it with expenses to get a simple revenue computation.

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Quick Look

Starting a Business
From these, it will evolve to checking stocks on a bigger perspective,
preparing journal entries that will signify day-to-day operations, making
initial checks and balances through ledgers, then finally preparing
financial statements to reflect the company's financial position and
financial performance in the business scene.

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Quick Look

Questions to Ponder

1. What are the activities associated with accounting?

2. What do you think is the role of accountants in business organizations?
3. Why is proper accounting important in almost all businesses and
organizations?

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Learning Competencies

This lesson aims to target the following DepEd competencies:

● Define accounting (ABM_FABM11- IIIa-1).
● Describe the nature of accounting (ABM_FABM11- IIIa-2).
● Explain the functions of accounting in business
(ABM_FABM11- IIIa-3).
● Narrate the history/origin of accounting (ABM_FABM11- IIIa-
4).

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Learning Objectives

In this lesson, you should be able to do the following:

● Discuss the nature, functions, and history of accounting.
● Determine the functions and importance of accounting in
various personal and business situations.
● Create personal goals for this course with accounting
concepts learned.

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Why is accounting an essential
element in business management?

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Accounting

● the process of identifying, measuring, and communicating

financial information to allow users to make informed
judgments and decisions (American Accounting
Association, 1966)

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Accounting

● the art of recording, classifying, and summarizing

transactions and events which are financial and are
quantifiable in terms of money (American Institute of
Accountants, 1956)

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Accounting

● the purpose of
accounting is to
provide
quantitative
financial
information to help
make decisions

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Accounting as a Process

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 Accounting as a Process

Identifying and Analyzing

● start of the accounting
process
● identify financial
transactions to the
business
● analyze the effects of
transactions on the
business
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 Accounting as a Process

Recording or Journalizing
● record or journalize
filtered out transactions
into different accounting
documents
● also known as bookkeeping

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 Accounting as a Process

Communicating
● the universal language of
business
● the results of the first two
phases are communicated
to internal and external
users through financial
statements

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Bookkeeper Accountant

● responsible for developing ● supplies financial information

and maintaining accounting to make informed judgments
records and better decisions
● addresses the essence of
accounting: the “decision-
usefulness” of data

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 Simple Accounting in Business

John, Carlo, and Marie are co-owners of a vacation rental

home. They agreed to split the business's net profit every
quarter. John is the designated manager.

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 Simple Accounting in Business

Every day, John records

● financial transactions (income from the rental fee and
expenses incurred from utilities, maintenance, repairs,
taxes paid, etc.)
● nonfinancial transactions (record of previous renters,
problems that occurred, clients' feedback, etc.)

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 Simple Accounting in Business

John performs the accounting process:

1. he identifies the information that could be quantified in
terms of money;
2. he then organizes these into a financial report
summarizing the income, expenses, and net profit
3. he shares them with his siblings to show how much each
one would get for the quarter.

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 Check Your Progress

What is the nature of information being identified and

1 analyzed, recorded or journalized, and communicated in
accounting?

Answer area

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Nature of Accounting

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 Nature of Accounting

Service Activity
● All the processes that an accountant undergoes and
accomplishes are used by the business organization and
its units in day-to-day operations.

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 Nature of Accounting

Process
● It is a step-by-step and systematic procedure to produce
results relevant to the management and other potential
users.

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 Nature of Accounting

Art and Discipline

● accountants could still devise their own tactics while
adhering to well-defined procedures and regulations

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 Nature of Accounting

Deals with Financial Information

● If accounting information is useful, it must be expressed
as a common financial denominator.
● Therefore, accountable economic transactions and events
have monetary values.

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 Nature of Accounting

An Information System
● It measures business activities, processes information into
reports, and communicates these to decision-makers.

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 Simple Accounting in Business

All departments and units in a company use accounting

information in their operations:
● marketing department – analyzes the information to
determine the impact of their promotional strategy on
monthly sales
● finance department – needs the information to decide
how much funds would be needed to implement the
expansion plan.

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 Simple Accounting in Business

● production department – uses the information to

determine which of the processes implemented incurred
fewer costs
● human resources department – looks at the information
to determine performance bonuses and other benefits

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 Check Your Progress

2 Why is accounting the focus in studying business and

management?

Answer area

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Functions of Accounting

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 Functions of Accounting

Keeping systematic records

● ensures that the correct and relevant data is organized
and detailed to reflect the business's economic standing
● provides users, such as the management and investors,
with relevant information needed to make informed
decisions

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 Functions of Accounting

Protecting properties of the business

● ensure that the business's assets are monitored and
performing well
● keeps track of assets, most especially cash, must be
thorough to avoid fraud, corruption, and theft

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 Functions of Accounting

Communicating results to various parties

● aims to communicate the financial health and

performance of a company effectively
● produces accurate information essential for internal and
external users to make sound decisions

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 Functions of Accounting

Communicating results to various parties

● Auditing – an independent undertaking where the

information from a completed accounting process is
evaluated to determine whether it abides with established
accounting standards

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 Functions of Accounting

Meeting legal requirements

● ensures that the company meets all the legal

requirements and regulations set forth by the government
● examples:
○ trade and business standards
○ fair employment agreements
○ proper payment of taxes

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 International Financial Reporting Standards

The International Financial Reporting Standards, or IFRS, are

established accounting standards set by the IFRS Foundation
and regulated by the International Accounting Standards
Board (IASB) for businesses to follow in preparing financial
statements.

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 International Financial Reporting Standards

Following the standards ensure that investors are provided

with transparent and reliable information about a company’s
financial position, cash flows, changes in equity, and
performance. The IFRS Accounting Standards are currently
required in 140 jurisdictions worldwide and permitted for use
in many other countries.

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History of Accounting

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 History of Accounting

Mesopotamian Era

● 3,500 B.C.
● informal recording of
money and trade-related
information

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 History of Accounting

Mesopotamian Era

● use of stone tablets to

record sales and loans
● Hammurabi Code: rules
and regulations for
commercial transactions

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 History of Accounting

Luca Pacioli
● 14th Century
● The Father of Accounting
● introduced the double-entry
system of debit and credit
○ paved the way for modern
accounting

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 History of Accounting

Industrial Revolution

● 17th and 18th century

● development of machines
and factories for mass
production of goods

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 History of Accounting

Industrial Revolution
● accounting was emphasized
with utmost importance and
relevance
● system of checks and balance
to monitor the process and
expenses in production

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 History of Accounting

Queen Victoria of British

Empire
● 19th century
● first recorded accounting
standards were formalized
during her reign

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 History of Accounting

Queen Victoria of British

Empire
● monitored the reported
transactions of companies
○ evolved into the modern
process of auditing

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 History of Accounting

● Accounting systems continually adapt to the needs of the

global market and the business environment.
● The existence of multinational and transnational
corporations required uniform accounting standards
across different countries and industries.

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History of Accounting

most credible
accounting
standards today

GAAP IFRS
Generally Accepted
International
Accounting
Financial Accounting
Principles
Standards

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 Controversy Amidst the Pandemic

The health crisis brought about by the COVID-19 pandemic

demanded an urgent distribution of medical supplies and
equipment across the country. The government had to seek
the help of private companies to help supply and distribute
these needs.

Burao and Lava, “Analyzing the Financial Statements of Pharmally,” ABS-CBN News, Sept. 2, 2021, https://news.abs-
cbn.com/business/09/07/21/analyzing-the-financial-statements-of-pharmally , last accessed on November 21, 2021.
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 Controversy Amidst the Pandemic

Several months after implementation, a nationwide

controversy erupted from an analysis of the financial
statement issued by one of the private contractors. It was
discovered that the company only had ₱599,450.00 worth of
funds but won a contract worth ₱7 billion.

Burao and Lava, “Analyzing the Financial Statements of Pharmally,” ABS-CBN News, Sept. 2, 2021, https://news.abs-
cbn.com/business/09/07/21/analyzing-the-financial-statements-of-pharmally , last accessed on November 21, 2021.
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 Controversy Amidst the Pandemic

From the analysis of the company's financial statement, it

appeared that:
● the company was not in a financial position to implement
such a big project; but still got the project
● the financial statement had many discrepancies and
missing information
further brewing the speculation that the enterprise was a
conduit for large-scale corruption.

Burao and Lava, “Analyzing the Financial Statements of Pharmally,” ABS-CBN News, Sept. 2, 2021, https://news.abs-
cbn.com/business/09/07/21/analyzing-the-financial-statements-of-pharmally , last accessed on November 21, 2021.
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 Pharmally Pharmaceuticals Controversy

Financial statements and reports yield crucial information. The

role of accountants and the importance of accounting is once
more emphasized in avoiding fraud and corruption in our
society.

Burao and Lava, “Analyzing the Financial Statements of Pharmally,” ABS-CBN News, Sept. 2, 2021, https://news.abs-
cbn.com/business/09/07/21/analyzing-the-financial-statements-of-pharmally , last accessed on November 21, 2021.
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Keep in Mind

● Accounting is the process of identifying and analyzing, recording or

journalizing, and communicating economic information to permit
informed judgment and decisions by users of information.

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Keep in Mind

● Accounting is a rather complex field. It is in its nature to deal with

financial information and serve as a service activity, a process, an art
and discipline, and an information system.
● Accounting serves many functions such as:
○ keeping a systematic record of business transactions;
○ protecting properties of the business;
○ communicating results to various parties; and
○ meeting legal requirements.

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Keep in Mind

● The early accounting practice dates back to the Mesopotamian Era,

when people used stone tablets to record commercial transactions.
As economic activities progressed, accounting procedures and
standards also evolved. Today, different companies, institutions, and
governments worldwide have generally accepted uniform sets of
accounting standards.

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 Try This
Raise your hand to provide the answers to the following questions:

1. Which part of the accounting process involves the

recognition or nonrecognition of business activities as
accountable events?

Answer area

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 Try This
Raise your hand to provide the answers to the following questions:

2. Which part of the accounting process involves presenting

accounting information to different business stakeholders
who might need them?

Answer area

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 Try This
Raise your hand to provide the answers to the following questions:

3. Which part of the accounting process involves organizing

information into accounting documents such as journals
and/or ledgers?

Answer area

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 Try This
Raise your hand to provide the answers to the following questions:

4. What medium was used by the Mesopotamians in

recording commercial transactions?

Answer area

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 Try This
Raise your hand to provide the answers to the following questions:

5. Aside from the Generally Accepted Accounting Principles

(GAAP), what other credible accounting standard is
recognized worldwide?

Answer area

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 Practice Your Skills
Answer the following questions:

1. Suppose you want to account for your personal financial

transactions to make sure that you are spending your
money wisely. You also want to show it to your parents to
prove that you are being financially responsible. Illustrate
the accounting process you would do through a diagram
and indicate the sample for each phase.

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 Practice Your Skills
Answer the following questions:

Answer area

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 Practice Your Skills
Answer the following questions:

2. What do you think is the most important function of

accounting? Explain your answer.
Answer area

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 Challenge Yourself
Answer the following questions:

1. As an aspiring entrepreneur or business professional, why

is it important for you to learn and understand the
accounting process? Justify your answer.
Answer area

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 Challenge Yourself
Answer the following questions:

2. Should all business owners and professionals learn how

accounting works? Why or why not?

Answer area

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Photo Credits

Slide no. 1: Person Holding Pencil Near Laptop by Scott Graham is free to use under Unsplash license via
Unsplash.com.

Slide no. 13: Calculator, by stevepb is free to use under Pixabay license via Pixabay.

Slide no. 15: Coins, by janjf93 is free to use under Pixabay license via Pixabay.

Slide no. 16: Ledger, by cpastrick is free to use under Pixabay license via Pixabay.

Slide no. 17: Audit report verification, by mohammed_hasan is free to use under Pixabay license via Pixabay.

Slide no. 41-42: List of titles of different occupations, clay tablet from Shuruppak, Southern Mesopotamia, Iraq, on
display in the Pergamon Museum.jpg, by Shukir Muhammed Amin FRCP(Glasg) is licensed under CC BY-SA via
Wikimedia Commons.

Slide no. 44: Jacopo Barbari - Portrait of Fra Luca Pacioli with a Student, by Irina is licensed under Public Domain
Mark 1.0 via Flickr.com.

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Photo Credits

Slide no. 44-45: Euskara: Ehunezko lantegi bat 1835ean by Iñazio Irizar is licensed under CC BY-SA 4.0 via Wikimedia
Commons.

Slide no. 46: La reine Victoria by BiblioArchives / LibraryArchives is licensed under CC BY 2.0 via Wikimedia Commons.

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Bibliography

American Accounting Association Committee to Prepare a Statement of Basic Accounting Theory. “A Statement of
Basic Accounting Theory.” Evanston III: American Accounting Association, 1966.

Committee on Terminology of American Institute of Certified Public Accountants. “Accounting Terminology Bulletin”.
American Institute of Accountants, No. 3. (August 1956).
https://www.sechistorical.org/collection/papers/1950/1956_0801_AccountingBook.pdf

Gilbertson, Claudia, Mark Lehman. Century 21 Accounting. Ohio: South-Western Cengage Learning, 2008.

Omagbon Patrick, “Conceptual Development in Accounting: A Historical Perspective,” (PDF) International Journal of
Management, Accounting and Economics (ResearchGate, 2015), (PDF) Conceptual Development of Accounting: A
Historical Perspective (researchgate.net), last accessed on November 21, 2021

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