GERONA CATHOLIC SCHOOL, INC.

Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

CHAPTER 1: INTRODUCTION TO Art is using the skills or techniques of any field.

ACCOUNTING
We can say that art is the study of the
Definition of Accounting implementation of techniques and methods.

“Accounting may be defined as an art and science Accounting can be considered an art because it
of recording business transactions in a methodical requires creative judgment and skills. In order to
manner so as to show: perform accounting functions well, discipline and
training are required.
(a) the true state of affairs of a business for a
particular period of time; and Accounting is an art because it presents the
financial findings by following and implementing
(b) the surplus or deficiency which has accrued
a universally accepted method (GAAP).
during a specific period.” - Taylor & Shearing
Art is the study of implying scientific method to
“Accounting is the science of recording and
practical use. And Accounting is an art as the
classifying business transactions and events
established rules and principles of accounting is
primarily of a financial character, and the art of
applied in the bookkeeping process of an economic
making significant summaries, analysis and
entity.
interpretations of those transactions and events
and communicating the results to persons who • Accounting as a SCIENCE but not a PURE
must make decisions or form judgments.” - C.A. SCIENCE
Smith & J.G. Ashbourne
Science is a systematic body of knowledge based
"Accounting is an art of recording, classifying and on repeated experiments and observations and
summarizing in a significant manner and in terms establishes the cause and effect relationship.
of money, transaction, and events which are, in
Accounting is a science because it involves certain
part at least, of a financial character and
principles which are universally applicable. The
interpreting result thereof.- American Institute of
items which are recorded in the books of accounts
Certified Public Accountants (AICPA)
are based on certain definite principles. It consists
“Accounting is the process of identifying, of concepts, conventions, rules, principles, etc.
measuring and communicating economic
Accounting, like science, is a body of knowledge,
information to permit informed judgments and
but since the rules and principles are constantly
decisions by users of the information.” - American
changing and improving, it is not considered an
Accounting Association (AAA)
exact science.
• Accounting as an ART
Thus, Accounting is an art and science of
The term “Art” means a diverse range of human recording, classifying, and summarizing
activities and studies of these activities. But is transactions for analysis and informing the
most often misused or misunderstood to refer to financial position and performance of the
painting, film, photography, sculpture, and other enterprise to its users.
visual media.
 GERONA CATHOLIC SCHOOL, INC.
Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

The Accounting Process (GENERAL) are lumped together to provide meaningful and
presentable information. This makes the
I. Identification of Economic Events
information understandable to other parties.
Relevant to a Business

What is a Relevant Economic Event?

An Economic Event is an event that is

consequential (important/ significant) to a Nature of Accounting
business entity, resultantly comprising
1. Accounting as a PROCESS
transactions that are measurable in terms of
monetary units. Accounting is a process: A process refers to the
method of performing any specific job step by
To be identified as a relevant economic event,
step according to the objectives, or target.
there should be a transfer of things with value.
Accounting is identified as a process as it
Examples of economic events: performs the specific task of identifying,
collecting, processing/ recording, and
1. Sale of goods
communicating financial information to
2. Provision of services in a hospital
internal and external users.
3. Payment to suppliers
4. Purchase of equipment, etc. 2. Accounting as an ART

Normally, for the purchase of equipment, cash or Accounting is an art: Accounting is the art of
money is exchanged for the equipment. The cash recording, classifying, summarizing, and
and equipment both have a value, making the finalizing financial data. The word ‘art’ refers
purchase a relevant economic event. The same to the way of performing something. It is a
analysis goes for the above examples. behavioral knowledge involving certain
creativity and skill that may help us to attain
II. Recording of Relevant Economic
some specific objectives. Accounting is a
Events
systematic method consisting of definite
Recording economic events should be done techniques and its proper application requires
systematically and chronologically for easier applied skill and expertise. So, by nature
tracking and interpretation. This recording of accounting is an art.
economic events is inputted in the so-called-
3. Accounting deals with Financial
ACCOUNTING BOOKS.
Information and Transactions

Accounting records the financial transactions

III. Summarizing All Recorded Economic and date after classifying the same and
Events finalizes their result for a definite period for
conveying them to their users. So, from start
to the end, at every stage, accounting deals
The report generated by combining all the with financial information. Only financial
recorded economic events is called Financial information is its subject matter. It does not
Statements. All similar events during the period deal with non-monetary information of non-
 GERONA CATHOLIC SCHOOL, INC.
Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

financial aspects. But non-financial data may f. exhibition of the financial position of an
be used to interpret and better estimate organization
financial data. g. communication of necessary
information derived from an
4. Accounting is a MEANS and NOT an END
interpretation
Accounting finds out the financial results and h. analysis of the interested parties,
position of an entity and at the same time, it including the management.
communicates this information to its users.
From the above, the main functions of accounting
The users then take their own decisions on the
can be summarized as follows:
basis of such information. So, it can be said
that mere keeping of accounts can be the 1. Keeping a systematic record of business
primary objective of any person or entity. On transactions
the other hand, the main objective may be Recording transactions does not only
identified as taking decisions on the basis of involve entering the transactions in the
financial information supplied by accounting. accounting books. The records should be
Thus, accounting itself is not an objective, it systematic enough to enable an easy
helps attain a specific objective. So it is said understanding of readers.
that accounting is ‘a means to an end’ and it is
not ‘an end in itself.’ 2. Protecting properties of the business
The accounting records serve as the
5. Accounting is an INFORMATION
evidence that properties of a business do
SYSTEM
exist or how much of a particular resource
Accounting is recognized and characterized as of a company does it have. The accounting
a storehouse of information. As a service system helps in preventing employee fraud
function, it collects processes and and misappropriation of company
communicates financial information of any resources.
entity. This discipline of knowledge has been
evolved to meet the need for financial 3. Communicating Results to Various Parties
information required by different interested in or Connected with the Business
groups. At the end of the period, accounting records
are not only used by external parties
(potential investors, government agencies,
etc.) but also by the management in their
decision-making process.
Functions of Accounting
4. Meeting Legal Requirements
It is clear that the functions of Accounting are:
In the Philippines, the government
a. identification, requires some companies (primarily those
b. recording, with public accountability) to provide
c. classification and financial reports quarterly, semi-annually,
d. summarization of transactions or annually. This procedure aims to protect
e. ascertainment of results the public by providing them with the
 GERONA CATHOLIC SCHOOL, INC.
Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

necessary information to make sound Because there was a natural season for
decisions. The government also requires farming and herding, it was easy to count
reports from heavily regulated industries and determine if a surplus had been gained
such as energy and oil industries. after the crops had been harvested or the
young animals weaned.

History of Accounting Between the 4th millennium BC and the

3rd millennium BC, the ruling leaders and
Accounting records dating back more than priests in ancient Iran had people oversee
7,000 years have been found in financial matters. In Godin Tepe (‫ )گدین تپه‬d
Mesopotamia, and documents from ancient Tepe Yahya (‫)تپه یحيی‬, cylindrical tokens
Mesopotamia show lists of expenditures, that were used for bookkeeping on clay
and goods received and traded. The scripts were found in buildings that had
development of accounting, along with that large rooms for storage of crops. In Godin
of money and numbers, may be related to Tepe's findings, the scripts only contained
the taxation and trading activities of tables with figures, while in Tepe Yahya's
temples: findings, the scripts also contained
"another part of the explanation as to why graphical representations. The invention
accounting employs the numerical of a form of bookkeeping using clay tokens
metaphor is [...] that money, numbers, and represented a huge cognitive leap for
accounting are interrelated and, perhaps, mankind.
inseparable in their origins: all emerged in
the context of controlling goods, stocks, and During the 2nd millennium BC, the
transactions in the temple economy of expansion of commerce and business
Mesopotamia."[1] expanded the role of the accountant. The
Phoenicians invented a phonetic alphabet
The early development of accounting was "probably for bookkeeping purposes",
closely related to developments in writing, based on the Egyptian hieratic script, and
counting, and money. In particular, there there is evidence that an individual in
is evidence that a key step in the ancient Egypt held the title "comptroller of
development of counting—the transition the scribes". There is also evidence for an
from concrete to abstract counting—was early form of accounting in the Old
related to the early development of Testament; for example, the Book of
accounting and money and took place in Exodus describes Moses engaging Ithamar
Mesopotamia. to account for the materials that had been
contributed towards the building of the
Other early accounting records were also tabernacle.
found in the ruins of ancient Babylon,
Assyria and Sumer, which date back more By about the 4th century BC, the ancient
than 7,000 years. The people of that time Egyptians and Babylonians had auditing
relied on primitive accounting methods to systems for checking movement in and out
record the growth of crops and herds. of storehouses, including oral "audit
 GERONA CATHOLIC SCHOOL, INC.
Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

reports", resulting in the term "auditor" Double-entry Bookkeeping

(from audire, “to hear” in Latin). The
importance of taxation had created a need In eighth century Persia, scholars were
for the recording of payments, and the confronted with the Qur’an's requirement
Rosetta Stone also includes a description of that Muslims keep records of their
a tax revolt. indebtedness as a part of their obligation
to account to God on all matters of their
Roman Empire life. This became particularly difficult
By the time of Emperor Augustus (63 BC - when it came to inheritance, which
AD 14), the Roman government had access demanded detailed accounting for the
to detailed financial information as estate after death of an individual. The
evidenced by the Res Gestae Divi Augusti assets is remaining after the payment of
(Latin: "The Deeds of the Divine funeral expenses and debts were allocated
Augustus"). The inscription was account to to every member of the family in fixed
the Roman people of Emperor Augustus' shares, and included wives, children,
stewardship, and listed and quantified his fathers and mothers. This required
public expenditure, including distributions extensive use of ratios, multiplication and
to the people, grants of land or money to division that depended on the mathematics
army veterans, subsidies to the aerarium of Hindu-Arabic numerals.
(treasury), building of temples, religious
offerings, and expenditures on theatrical The inheritance mathematics were solved
shows and gladiatorial games, covering a by a system developed by the medieval
period of about forty years. The scope of the Islamic mathematician Muhammad ibn
accounting information at the emperor's Musa al-Khwarizmi (known in Europe as
disposal suggests that its purpose Algorithmi from which we derive
encompassed planning and decision- "algorithm"). Al-Khwarizmi's opus “The
making. Compendious Book on Calculation by
Completion and Balancing” established
The Roman historians Suetonius and the mathematics of algebra, with the last
Cassius Dio record that in 23 BC, Augustus chapter devoted to the double-entry
prepared a rationarium (account) which bookkeeping required for solution to the
listed public revenues, the amounts of cash Islamic inheritance allocations.[18] Al
in the aerarium (treasury), in the Khwarizmi's work was widely circulated,
provincial fisci (tax officials), and in the at a time that there was substantial active
hands of the publicani (public contractors); discourse and trade between Arabic,
and that it included the names of the Jewish and European scholars. It was
freedmen and slaves from whom a detailed taught in the learning centers of Al-
account could be obtained. The closeness of Andalus in Iberia, and from the tenth
this information to the executive authority century forward, slowly found its way into
of the emperor is attested by Tacitus' European banking, which began slipping
statement that it was written out by Hindo-Arabic numerals into accounting
Augustus himself. books, despite their prohibition as sinful by
 GERONA CATHOLIC SCHOOL, INC.
Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

the medieval church. Bankers in Cairo, for equal sign. Accounting is the balancing
example, used a double-entry bookkeeping and restoration of algebra applied to
system which predated the known usage of wealth accounting.
such a form in Italy, and whose records
remain from the 11th century AD, found
amongst the Cairo Geniza.[19] Fibonacci The Renaissance
included double-entry and Hindo-Arabic
numerals in his Liber Abaci which was The Vatican, and the Italian banking centers
widely read in Italy and Europe. of Genoa, Florence and Venice grew wealthy in
the 14th century. Their operations recorded
Al-Khwarizmı's book introduced al-jabr transactions, made loans, issued receipts and
meaning "restoration” (which European other modern banking activities. Fibbonaci ’s
translated as "algebra") to its inheritance Liber Abaci was widely read in Italy, and the
accounting, leading to three fundamental Italian Giovanni di Bicci de’ Medici introduced
accounting - algebreic concepts: double-entry bookkeeping for the Medici bank
in the 14th century. By the end of the 15th
Debits = Credits: algebraic manipulations century, merchant ventures in Venice used
on the left-hand and right-hand sides of an this system widely. The Vatican was an early
equal sign had to "balance" or they were in customer of German printing technology,
error. This is the algebraic equivalent of which they used to churn out indulgences.
double-entries "bookkeeping equation" for Printing reached a wider audience with widely
error control. available reading glasses from Venetian
glassmakers (medieval Europeans tended to
Real accounts: These included assets for be far-sighted, which made reading difficult
tracking wealth, weighed against before spectacles). Italy became a center for
liabilities from the claims of others against European printing, particularly with the rise
that wealth, and the difference which is the of Aldine Press editions of classics in Greek
owner's net wealth, or owner's equity. This and Latin.
was al-Khwarizmi's "basic accounting It was in this environment that a close friend
equation". of Leonardo da Vinci,

Nominal accounts: This tracked activity Fra Luca Bartolomeo de Pacioli (sometimes
that affected wealth, and the "restoration" Paccioli or Paciolo; c. 1447 – 19 June 1517) an
into the real accounts reflected Italian mathematician, Franciscan friar,
accounting's closing process and the the itinerant tutor, published a book not in
calculation of the owner's increment in Greek or Latin, but in a language that
wealth -- net income. merchants understood well -- Italian
vernacular. Pacioli received an abbaco
Algebra balances and restores formulas on education, i.e., education in the vernacular
the left and right of an equal sign. Double-
rather than Latin, and focused on the
entry bookkeeping similarly balances and
knowledge required of merchants. His
restores debit and credit totals around an
 GERONA CATHOLIC SCHOOL, INC.
Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

pragmatic orientation, widespread promotion and "credit" in accounting, but goes back to the
by his friend da Vinci, and use of vernacular days of single-entry bookkeeping, which had
Italian assured that his 1494 publication, as its chief objective keeping track of amounts
Summa de Arithmetica, Geometria, owed by customers (debtors) and amounts
Proportioni et Proportionalita (Everything owed to creditors. Debit in Latin means "he
About Arithmetic, Geometry and Proportion) owes" and credit in Latin means "he trusts".
would become wildly popular. Pacioli's book
Luca Pacioli's Summa de Arithmetica,
explained the Hindu-Arabic numerals, new
Geometria, Proportioni et Proportionalità
developments in mathematics, and the system
(early Italian: "Review of Arithmetic,
of double-entry was popular with the
Geometry, Ratio and Proportion") was first
increasingly influential merchant class. In
printed and published in Venice in 1494. It
contrast to scholarly abstracts in Latin,
included a 27-page treatise on bookkeeping,
Pacioli's vernacular text was accessible to the
"Particularis de Computis et Scripturis"
common man, and addressed the needs of
(Latin: "Details of Calculation and
businessmen and merchants. His book
Recording"). Pacioli wrote primarily for, and
remained in print for nearly 400 years.
sold mainly to, merchants who used the book
This made Italian Luca Pacioli to be as a reference text, as a source of pleasure
recognized as The Father of Accounting and from the mathematical puzzles it contained,
Bookkeeping. and to aid the education of their sons. His work
represents the first known printed treatise on
bookkeeping; and it is widely believed to be the
forerunner of modern bookkeeping practice. In
Summa de arithmetica, Pacioli introduced
symbols for plus and minus for the first time
in a printed book, symbols that became
standard notation in Italian Renaissance
mathematics. Summa de arithmetica was also
the first known book printed in Italy to contain
algebra.

Ragusan economist Benedetto Cotrugli's 1458

treatise Della mercatura e del mercante
perfetto contained the earliest known
manuscript of a double-entry bookkeeping
system, however Cotrugli's manuscript was
not officially published until 1573. In fact even
at the time of writing his work in 1494 Pacioli
was aware of Cotrugli's efforts and credited
Cortrugli with the origination of the double
Luca’s book popularized the words “credre”
entry book keeping system.
means “to entrust” and “debere” means “to
owe”-- the origin of the use of the words "debit"
 GERONA CATHOLIC SCHOOL, INC.
Poblacion 1, Gerona, Tarlac

School Year 2021-2022

GRADE 11-ABM

FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT I

Although Luca Pacioli did not invent double- century when Queen Victoria granted a royal
entry bookkeeping, his 27-page treatise on charter to the Institute of Accountants in
bookkeeping is an important work because of Glasglow. At present times, accounting
its wide circulation and the fact that it was standards are already available to guide the
printed in the vernacular Italian language. accountants in their practice of profession.
Some of these standards include the PFRS
Pacioli saw accounting as an ad-hoc ordering
(Philippine Financial Reposting Standard)
system devised by the merchant. Its regular
and the PAS (Philippine Accounting
use provides the merchant with continued
Standard).
information about his business, and allows
him to evaluate how things are going and to
act accordingly. Pacioli recommends the
Venetian method of double-entry bookkeeping
above all others. Three major books of account
are at the direct basis of this system:

the memoriale (Italian: memorandum)

the giornale (Journal)

the quaderno (ledger)

The ledger classes as the central document

and is accompanied by an alphabetical index.

Pacioli's treatise gave instructions on

recording barter transactions and References:
transactions in a variety of currencies – both
of which were far more common than today. It Joselito G. Florendo (2016). Fundamentals of
also enabled merchants to audit their own Accountancy, Business, and Management 1:
books and to ensure that the entries in the Rex Bookstore
accounting records made by their bookkeepers
https://accountingtheory.weebly.com/nature-
complied with the method he described.
and-scope-of-accounting.html
Without such a system, all merchants who did
not maintain their own records were at greater https://www.iedunote.com/functions-of-
risk of theft by their employees and agents: it accounting
is not by accident that the first and last items
https://en.wikipedia.org/wiki/History_of_acco
described in his treatise concern maintenance
unting
of an accurate inventory.

The modern profession of the Chartered

Accountants originated in Scotland in the 19th