1st Quarter

Fundamentals of Accounting 1
Learning Module No. 1

Name: _________________________________ Date: ___________________

Grade level & Section: __________________ Score:__________________
Name of Subject Teacher: NISSAN A. TOSTON Contact Number: 09774675979

Topic: Accounting as an Informative System

Duration: January 10-22, 2022

Content Standard: The learners demonstrate an understanding of

1. Definition, nature, functions, and history of accounting; and
2. The external and internal users of financial informations

Performance Standard: The learners should be able to

1. Cite specific examples in which accounting is used in making business
decisions; and
2. Use financial information

Learning Competencies: 1. define accounting

2.Describe the nature of accounting
3. Narrate the history/origin of accounting
4. Define external users and gives examples
5. Define external users and give examples

Learning Objectives: 1. define accounting and describe the nature of accounting

2.narrate the history and origin of accounting
3.Explain the functions of accounting in business
4. identify the purpose of financial statements
5. identify the users of financial statements and their use of the financial
statements

Institutional Core Values: Sustainability

References: Fundamentals of Accountancy, Business, and management: A textbook in Basic

Accounting 1 by Solita A. Frias, Erlinda C. Pefianco, Ed. D.

INTRODUCTION

Accounting is defined as an information system that measures, processes. and communicates

information, which are primarily financial in nature about an identifiable entity for the purpose of making
economic decisions

Accounting has been referred to as the language of business because it is the communication
link between the entity and the users of financial information. These users of financial information are
decision-makers. These decision-makers are the management of the entity, the employees, the investors,
the lenders, the government, and the consuming public. Some decision-makers are within the company;
others are outside of the company.

Entity or company may refer to a business or non-business organization. It may refer to a sole
proprietorship, a partnership, or a corporation. It may be engaged in service, merchandising, or
manufacturing. It may be a privately owned unit or a government unit.
Accounting is an old discipline that dates back to thousands of years, but the one closest to what we now
have dates back to 1400 in ltaly. The ltalian mathematician, scholar, and philosopher Fra Luca Pacioli
published Summa de Arithmetica, Geometrica, Proportioni et Proporionalita in 1494. It contained
descriptions of the practice of accounting at that time. Because of this work, Pacioli has been referred to
as the "Father of Accounting"

The accounting information system starts with the business activities that are documented. The
documented business activities are measured in terms of money. These are called the supporting
accounting documents for the transactions and economic events. The transactions and economic events
are analyzed and then recorded in the accounting books called accounting journals. The journal entries
are classified and summarized. The classified transactions that have been posted in the accounting
ledgers become the source of the financial reports rendered to the users of financial statements. The
users interpret the financial reports. The accountant is the one responsible for an efficient accounting
information system. He or she is assisted by the bookkeepers.
 PRE-TEST

ldentification. Fill in the blanks with the correct answer.

1. The financial statement that reports assets, liabilities, and owner's equity is called
_____________________________

2. The financial statement that reports the net income or net loss for a period of time is called
_____________________________________.

3. Things owned are called ____________________________________________.

4. Things owed are referred to as _____________________________.

5. An exchange of value is referred to as _________________________________.

Excellent! You did a good job on that task. This time, read “The Content of the Topic”
to know more about the characteristics, processes and ethics of research.

CONTENT

Accounting is the art of analyzing financial transactions and economic events, recording them, classifying
them into accounts, summarizing them, reporting. and interpreting the results. The diagram of the
accounting process is as follows:

1. Analyzing
2. Recording
3. Classifying
4. Summarizing
5 Reporting
6. Interpreting

Analyzing is the first phase of the accounting process. The accountant must look at the
transactions entered into, economic events that have taken place, and determine their effects on the
business. These transactions and events are generally supported by documentary evidences or proofs.
For example, a sale of service or sale of product is evidenced by a sales invoice. This sales invoice is
further supported by a delivery receipt. In most cases, before delivery of service or product is made, a
purchase order is received from the customer.

Recording involves writing the effects of the transactions and events that have been analyzed.
This recording may be done manually, or it may be encoded, with the use of computers or data-
processing machines The recording, whether done manually or with data-processing machines includes
the inputting of information in the accounting books called journals. These journals are general and
special. The special journals are the:

(1) cash receipts book,

(2) cash disbursements book,
(3) sales book, and
(4) purchases book.

As the names of these books indicate, the transactions and events recorded therein already
involved grouping together transactions and events of the same kind. Some transactions and events may
not be conveniently grouped in the special journals. In this case, the general journal is the book to be
used.
Classifying is the sorting or grouping or similar transactions and event into specific account titles.
This process is almost like putting a similar information in boxes. For example, all cash information are
put in the cash box or cash account title; all those about sales are put in the sales box or sales account
title. The journalized transactions and events are classified in ledgers. The ledgers are general ledgers
and subsidiary ledgers. The subsidiary ledgers show the details of those transactions and events
classified in the general ledger.

Summarizing is the process that involves grouping the various accounts referred to in the
classifying process. This is where the accounts are grouped into assets, liabilities, owner's equity,
revenue, and cost and expenses. The summaries are taken from the accounts in the general ledger.

Reporting involves the preparation of financial summaries called financial statements. These are
written or documentary media where the :
(1) results of the operation (income statement),
(2) financial position (balance sheet),
(3) cash flows (cash flows statement) are communicated to the users of information.

The three reports may-be further supported by schedules.

Interpreting is the last step in the accounting process. It is the step that directs attention to the
significance of various matters and relationships. This step involves the computation of relationship of
figures from the financial reports and schedules. Interpreting is a combination of figures and narrations
based on the figures presented. The relationships may be in percent or in ratios, may be within the
Financial report, or may be one report in relation to another report.

Business Entity Concept

There is a need to clearly identify the entity or business entity, for which the accounting is to be done. The
entity may be;

(1) a sole proprietorship,

(2) a partnership, or
(3) a corporation.

It may be;

(1) a profit organization or

(2) a nonprofit organization.

It may be engaged in ;

(1) service,
(2) merchandising or buying and selling, or
(3) manufacturing.

We have to make sure that there is a clear identification or separation of those transactions and
events that are for the entity and those that are personal to the owners of the entity. For example, (1) it is
not proper to record, as a business expense, the restaurant bill of the birthday of the daughter of the sole
proprietor; (2) it is not proper to record, as a business expense, the rental of the house used by the family
of the partner in partnership; and (3) it is not proper to show, as an income of X Corporation, the salaries
from ABC College received by its stockholder Marian Chua, who also happens to be a teacher of the
school.

Double Entry System

The first description of the double entry system appeared more than 500 years ago in a
mathematics book written by Fra Luca Pacioli. Double entry means value received and value parted
with. It means that for every transaction or economic event, there are at least two effects in the
accounting equation.

An increase or decrease in any asset, liability, owner's equity, revenue, or expense is always
accompanied by an offsetting change within the basic accounting elements. Double entry accounting is a
processing system that involves entering the two effects of every transaction. The method is orderly,
simple, and flexible. When records are not balanced, something must be wrong. This gives a warning to
the accountant to review the records, find the error, and make the necessary correction. However "in
balance" does not necessarily mean "free from error"

Purpose of Financial Statements Financial statements consist of;

(1) a balance sheet

(2) an income statement, and
3) a cash flow statement

These three financial statements are presented with the accounting policies, explanatory notes,
and supplementary schedules and information that should be read together with the statements.
The objective of financial statements is to provide information about financial position, result of operation,
and cash flows of enterprises and of individuals. However, financial statements do not provide all
information needed by their users to enable them to make economic decisions Non-financial information
as well as financial information outside of the financial statements may have to be obtained to supplement
the financial statements in.order for the user to have adequate bases for decision-making.

Financial statements also show the results of management's stewardship of the resources entrusted to it.
The financial statements should fairly present the financial position, financial performance, and the cash
flows of an enterprise in accordance with generally accepted accounting principles. These principles
should also be the basis of the accounting policies of the enterprise. Accounting policies are the specific
principles, bases, conventions, rules, and practices adopted by an enterprise in preparing and presenting
financial statements.

Users of Financial Statements

Financial statements are prepared by entities whether for profit or nonprofit. These entities may
be the sole proprietorship, partnerships, or corporations. Financial statements are also prepared for some
individuals.

Common among these financial statements for individuals are statements of assets and liabilities
required from government officials. Management is the one primarily responsible for the preparation and
presentation of financial statements.

The users of financial statements are :

(1) present and potential investors

(2) employees,
(3) lenders,
(4) suppliers,
(5) customers,
(6) government agencies,
(7) the public, and
(8) management.

These users need financial statements for the following reasons:

1. Investors - to determine whether to buy, hold, or sell their investments in equity

ownership in the business, and to assess the ability of the
investor to pay dividends or to pay returns to investors

2 Employees - to determine stability and profitability of employers and the ability of the
employer to pay salaries and fringe benefits

3. Lenders - to determine the ability of the borrowers to be on time in paying the loans
granted to them by the creditors

4. Suppliers - to determine the ability of the customer to pay debts as they fall due,
and the ability of the customer to remain as a continuing buyer

5. Customers - to determine the ability of the enterprise to be a continuing source of

supply, and the ability of the company to exist over a long period
of time to determine the capacity of the

6. Government Agencies - to determine the capacity of the enterprise to pay taxes and its tax
compliance; to provide the bases for monitoring. and regulating
the activities of enterprises and individuals.

7. Public - to determine the activities of the enterprise and contribution to the

economy in the form of (a) number of employees, (b) ownership
of assets (c) prices of their products, (d) patronage of local
suppliers, and (e) patronage by customers

8. Management - to determine the activities of the enterprise for planning, organizing.

leading, and controlling.
 1st Quarter
Fundamentals of Accounting 1
Learning Module No. 1

Name: _________________________________ Date: ___________________

Grade level & Section: __________________ Score:__________________
Name of Subject Teacher: NISSAN A. TOSTON Contact Number: 09774675979

Enrichment Activity

ACTIVITY 1;

ldentification. Fill in the blanks with the correct answer.

1. A period of time, at the end of which financial statements are

prepared__________________________.

2. A document that supports an activity to be recorded in the accounting books

_________________________________.

3. An accounting period that ends on December 31 _______________________________________.

4. An accounting period that ends on a date other than December 31 ____________________________.

5. The person who records transactions is a . He is supervised by an accountant.

_______________________.

ACTIVITY 2;

Answer the following items. Choose the correct answer from the choices below. Write the letter of the
correct answer in the space provided.

a. Analyzing
b. Recording
C. Classifying
d. Summarizing
e. Reporting
f. Interpreting

_______ 1. The process of grouping similar transactions and events together.

_______ 2. The process of explaining the relationships of the different items in the financial statements.

_______ 3. The process of determining the effects on the different accounts of the documented
transactions and economic events.

_______ 4. The process of writing in the journal the effects, whether increases or decreases, of the
analyzed transactions and events

_______ 5. The process of identifying the relationships of various items in the financial statements and
pointing out their effects and importance to decisions to be made by their users

_______ 6. The process of preparing balance sheets, income statements, and statements of cash flows

ACTIVITY 3;

1. Define accounting.

____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________

2. ldentify the different steps in the accounting process.

A.

B.

C.

D.

E.

F.

3. What are analyzed in the first step in the accounting process?

A.
B.
C.
D.
E.
F.
G.
H.

4. Explain the importance of

(a) issuing an official receipt for cash payments, and

____________________________________________________________________________________

(b) getting sales invoices from the seller for things bought.
____________________________________________________________________________________

5. Upon school enrollment, students are issued a registration card. What is the value of the registration
card in the school treasurer's office?

____________________________________________________________________________________
__________________________________________________________________________________

6. What happens when the business entity concept is not observed?

____________________________________________________________________________________
____________________________________________________________________________________
_______________________________________________________________________________

7. Explain the double entry system.

____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
_________________________________________________________________________________

8. Compare the value of the three financial statements. Would you say one is more important than the
others?

____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
_________________________________________________________________________________

9. Identify the financial statement user who may be interested in the following:
a: Taxes to be paid and already paid by taxpayers

_______________________________________________________________________________

b. Price of gasoline

________________________________________________________________________________

C. Tuition paid

_______________________________________________________________________________

d. Net profit for the year

_______________________________________________________________________________

e. Relation of cash available and loans to be paid

_______________________________________________________________________________

f.Volume of production or purchases

_______________________________________________________________________________

g. Fringe benefits

_______________________________________________________________________________

h. Return on capital

_______________________________________________________________________________

i. Ability to pay
_______________________________________________________________________________

J. Value for money

________________________________________________________________________________________

Generalization

1. Why there is a need to summarize transactions and events into balance sheets and income
statements?

2. Explain why net income is added to owner's equity and net loss is deducted from owner's equity.
Prepared by: Checked by:

NISSAN A. TOSTON ROMNICK B. DELAPENA

Subject Teacher Subject Area Coordinator

Noted by:

KATHERINE G. ENCABO
Academic Coordinator

Approved by:

SR. GLENDE ROSE LAWRENCE B. FLORES,CARM,OL.,MAEd

School Principal

1st Quarter
Fundamentals of Accounting 1
Learning Module No. 1
Answer Key:

Pretest:

1. Balance sheet or statement of financial position

2 Statement of income
3. Assets
4. Liabilities
5 Transaction

Activity 1:

1. Accounting period
2. Supporting paper
3 Calendar year
4 Fiscal year
5. Bookkeeper

Activity 2:

1. Classifying
2. Interpreting
3 Analyzing
4. Recording
5. Interpreting
6. Summarizing/reporting

Activity 3:

TOPIC QUESTIONS AND ACTIVITIES

1. Accounting is defined as an information system that measures, processes, and communicates
information-primarily financial in nature, about an identifiable entity tor the purpose of making economic
decisions.

2. Steps in the accounting process are as follows

a. Analyzing is looking at the transactions entered into economic events that have taken
place and determining their effects on the business.
b. Recording involves writing the effects of the transactions and events that have been
C. Classifying is the sorting or grouping of similar transactions and events into specific titles. analyzed.
d. Summarizing is the process that involves grouping together the various accounts referred to in the
classifying process.
e. Reporting includes the preparation of financial summaries called financial statements.
.f. Interpreting directs attention to the significance of various matters and relationships of figures from
financial reports and schedules.

3. Analyzed in the process are the following:

a. Official receipts
b. Sales invoices
C. Suppliers invoices
d. Check disbursement vouchers
e. Petty cash vouchers
f. Bank statements
g. Disbursements check
h. Journal Vouchers and supporting documents

4a. Official receipts are issued as proof of enrollment of payments.

b. Sales invoices are proof of items sold by the seller to the buyer.

5. The school registration card is proof of enrollment of the named students with details like

6. address, courses enrolled, year level, and class schedules. When the business entity concept is not
observed, personal transactions are combined with

7. business transactions thereby leading to erroneous business financial reports. Double entry system
means that for every transaction or economic event, there are at least Two effects in the accounting
equation; increases or decreases in in assets, liabilities, owner equity, revenues, or expenses.

.8. Balance sheet provides information about financial position. Income statement provides result of or
operation, whether profit, loss, or break-even. Cash flows statement shows D period cash balance. All
three financial statements are equally in
9. Financial statements users are interested in the following
a. Taxes-government (BIR), taxpayer
b. Price of gasoline-consumers
C. Tuition paid-school, students
d. Net profit-business management, business owner
e. Relation of cash available and load to be paid-borrower or debtor; lender or creditor
F. VoIume of production or services-production department, purchasing department, and sales
department
g. Fringe benefits-employees and management
h. Return on capital-business owner and investor
i.Ability to pay creditors, lenders, suppliers, employees, government, and investors
j. Value for money-buyer

Generalization:

1. Summarized transactions and economic events of the following:

a. Balance sheet provides comprehensive information of assets, liabilities, and owner s equity.
b. Income statement provides comprehensive information about results of operation whether net profit,
net loss, or break-even.

2.. The business net income is earning on the owner's investment whereas the business net loss is loss
on the owner's investment.