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ABM1 Module Draft

This document provides an introduction to accounting concepts. It discusses how accounting helps businesses manage finances and make confident decisions. The key functions of accounting are to record financial transactions, classify them, summarize results, and provide this information to decision makers. Accounting differs from bookkeeping in that it requires further analysis and interpretation of records. It also provides a brief history of accounting from its earliest records in Mesopotamia to modern standards and regulations.

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Jeffrey Alcedo
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56 views6 pages

ABM1 Module Draft

This document provides an introduction to accounting concepts. It discusses how accounting helps businesses manage finances and make confident decisions. The key functions of accounting are to record financial transactions, classify them, summarize results, and provide this information to decision makers. Accounting differs from bookkeeping in that it requires further analysis and interpretation of records. It also provides a brief history of accounting from its earliest records in Mesopotamia to modern standards and regulations.

Uploaded by

Jeffrey Alcedo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ABM1 Module Draft

Chapter 1: Introduction to Accounting

Think of a successful business corporation you are familiar with. You can
probably name at least one company which offers vastly popular that
products it’s not surprising that they earn millions of pesos yearly. With this
huge amount of money, have you ever wondered how businesses manage
all their finances? How are they not confused with how much to spend, or
how much to price their products that will assure them to gain profits?
How do business people confidently make decisions when millions of their
money are at stake? A simple answer to these questions is through the help
of the information provided by an accounting system. This module will
introduce you to the basic concepts of accounting, its functions, and its
roles in the decision making of all business organizations.

Learning Objectives

After studying this lesson, you will be able to acquire the following
competencies:

 Define accounting
 Describe the nature of accounting
 Explain the functions of accounting in business
 Differentiate accounting from bookkeeping and
 Narrate the brief history of accounting.

EXPLORE

Activity 1- When it all began

Known as the ‘father of accounting’, Luca Pacioli was the first person to
publish a book about double-entry accounting. Try to figure out the year in
which this book was published by answering this activity.

Each number in the calculator below contains an accounting jargon that


you will learn throughout the course of this semester. Listed on the right
are non-accounting definitions of some of these words. The numbers
corresponding the right answers represent the year in which the first book
of accounting was published.
First number: Something used
as a medium of exchange.

Second number: The quality of


being fair or impartial.

Third Number: to inspect; to


1 2 3
examine.
Cash Asset Debit
Fourth number: lack of
4 5 6 favoritism towards one side or
Equity Credit Plant another.

7 8 9
Ledger Debt Audit

FIRM UP

What is Accounting?

Accounting is defined by American Institute of Certified Public


Accountants (AICPA) as ‘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. Accounting has been referred to as the language of business
because it is the communication link between the business entity and the
users of financial information. These users are decision makers, such as the
management of the business, investors, the government or the consuming
public.

The Nature of Accounting

Accounting is a systematic recording of financial transactions and the


presentation of the related information to appropriate persons. Based on
this definition we can derive the following basic features of accounting: 

 Accounting is a service activity.


 Accounting is a process.
 Accounting is both an art and a discipline.
 Accounting deals with financial information and transactions.
 Accounting is an information system.

Activity 2

Refer to the video tutorial as you answer this activity. Identify which nature
of accounting is described by each statement as discussed in the video.

______________ 1. Accounting 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.

______________ 2. Accounting records financial transactions and data,


classifies these and finalizes their results given for a specified period of
time, as needed by their users. It does not deal with non-monetary or non-
financial aspects of such information.

______________ 3. Accounting provides assistance to decision makers by


providing them financial reports that will guide them in coming up with
sound decisions. 

______________ 4. Accounting is recognized and characterized as a


storehouse of information. As a service function, it collects processes and
communicates financial information of any entity.

______________ 5. Accounting is a systematic method consisting of


definite techniques and its proper application requires skill and expertise.
So by nature, accounting is an art. And because it follows certain standards
and professional ethics, it is also a discipline.

The Function of Accounting

Accounting is the means by which business information is


communicated to business owners and stakeholders. The role of
accounting in business is to provide information for managers and owners
to use in operating the business. In addition, accounting information allows
business owners to assess the efficiency and effectiveness of their business
operations. Prepared accounting reports can be compared with industry
standards or to a leading competitor to determine how the business is
doing. Business owners may also use historical financial accounting
statements to create trends for analyzing and forecasting future sales.

Activity 3

Discussed in the video tutorial is the process on how accounting helps in


the operation and decision making of business entities. Fill the chart below
of the proper sequence as explained in the video. The first one is filled for
you!

Accountants analyze,
The business
The business record and summarize
operates and financial information
operates and
transacts
transacts arising from business
transaction into
reports.

The business is Accountants relay


ready to operate conclusions acquired
with better from completed
strategies and reports to decision-
methodology makers

Decision- Makers create


and implement well-
informed and justified
decisions.

Accountant analyze, record and summarize financial information arising


from business transaction into reports

Accountant relay conclusions acquired from completed reports to decision


makers

Decision makers create and implement well informed and justified


decisions

The business is ready to operate with better strategies and methodologies

Accounting vs. Bookkeeping


Accounting and bookkeeping have very similar definition that they
are often used interchangeably. Basically, their difference is only a matter
of complexity, such that bookkeeping is an element of accounting.
Bookkeeping deals primarily with the systematic method of recording and
classifying financial transaction of business. Accounting, meanwhile, needs
further summarization, analysis, reporting and interpreting of the records
generated by bookkeeping. In short, bookkeeping is only one of the steps in
an accounting process.

A Brief History of Accounting

https://fremont.edu/history-of-accounting/

 Accounting has been around for centuries. It’s a critical part of the
business, record-keeping, and life in general. The first record of accounting
occurred thousands of years ago in Mesopotamia and has evolved into the
intricate element of business and life that it is today.

Earliest Record of Accounting


The earliest accounting records were found over 7,000 years ago (3600
B.C.) among the ruins of Ancient Mesopotamia. At the time, people relied
on accounting to keep a record of crop and herd growth.

In 1494, Pacioli wrote Summa de Arithmetica, Geometria, Proportioni et


Proportionalita

Pacioli’s book became the reference text and teaching tool on the subjects
of bookkeeping and accounting for the next several hundred years. 

Accounting During the Middle Ages

During the Middle Ages, bartering was the primary form of money-
changing, but when Europe changed to a monetary economy is the 13th
Century, merchants began relying on bookkeeping to keep a record of
multiple transactions. This is when double-entry bookkeeping got its
start, which provided them with constant information about their
businesses that they could use in decision-making to grow their business as
they saw fit.

Accounting Methods Today

Nowadays, there are accounting standards, auditing regulations, and


ethical standards for accountants to follow. . Beyond the industry's self-
regulation, the government also sets accounting standards, through laws
and agencies such as the Securities and Exchange Commission (SEC).
Nowadays, investors seek investment opportunities all over the world. To
remain competitive, businesses everywhere feel the need to operate
globally.

DEEPEN

Activity 4

In the Venn Diagram below, cite at least two similarities and two
differences between accounting and bookkeeping

Activity 5

Complete the timeline below by writing a brief summary of the history of


accounting in each respective period.

TRANSFER

Activity 6

Mr. Fafay, owner of a bakery, didn’t expect the sudden popularity of his
business. Without much planning, he decided to double the amount of
products his store produce daily. To his dismay, though, this resulted to
some problems, like doubled amounts of money to buy for ingredients, or
the capacity of the workers to produce twice the normal amount they yield.
A friend suggested that he needs to start incorporating proper accounting
system. Give at least three benefits Mr. Fafay would have if he followed his
friend’s advice.

Write a short reflection about how important accounting is to our


economy. What do you think would happen if the concept of accounting
was never created? How do you think will it affect the lives of an ordinary
student like you?

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