Name: ________________________________________________________ Date:

Grade/Track/Section: ____________________________________________ Room No.: ________________

ACTIVITY NUMBER :1
SUBJECT : Fundamentals of Accountancy, Business and Management 1
TOPIC : Introduction to Accounting
LEARNING TARGET : The learners demonstrate an understanding of the definition, nature,
function, history of accounting.
REFERENCES : ABM Part 1 Module for Grade 11
ABM in Context Learning Module for Grade 11
TYPE OF ACTIVITY : Concept Notes

CONCEPT NOTES:

DEFINITION

“ACCOUNTING is the process of IDENTIFYING, RECORDING, and COMMUNICATING

economic events of an organization to interested users.
IDENTIFYING – this involves selecting economic events that are relevant to a particular
business transaction
The economic events of an organization are referred to as transactions.
Examples of economic events or transactions - In a bakery business:
• Sales of bread and other bakery products
• Purchases of flour that will be used for baking
• Purchases of trucks needed to deliver the products
RECORDING – this involves keeping a chronological diary of events that are measured in pesos.
COMMUNICATING – occurs through the preparation and distribution of financial and other
accounting reports.

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 provides assistance to decision makers by
providing them financial reports that will guide them in coming up with sound decisions.
• Accounting is a process: A process refers to the method of performing any specific job step
by step according to the objectives or targets.
Accounting is identified as a process, as it 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.
• Accounting is both an art and a discipline. Accounting is the art of recording, classifying,
summarizing and finalizing financial data. The word ‘art’ refers to the way something is
performed. It is behavioural knowledge involving a certain creativity and skill to help us attain
some specific objectives. 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.
• 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.
• Accounting is an information system: Accounting is recognized and characterized as a
storehouse of information. As a service function, it collects processes and communicates
financial information of any entity. This discipline of knowledge has evolved to meet the need for
financial information as required by various interested groups.

Function of Accounting in business

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.

History of Accounting

Accounting is as old as civilization itself. It has evolved in response to various social and
economic needs of men. Accounting started as a simple recording of repetitive exchanges. The
history of accounting is often seen as indistinguishable from the history of finance and business.
Following is the evolution of accounting:
• The Cradle of Civilization
Around 3600 B.C., record-keeping was already common from Mesopotamia, China and India to
Central and South America. The oldest evidence of this practice was the “clay tablet” of
Mesopotamia which dealt with commercial transactions at the time such as listing of accounts
receivable and accounts payable.
• 14th Century - Double-Entry Bookkeeping
The most important event in accounting history is generally considered to be the dissemination
of double entry bookkeeping by Luca Pacioli(‘The Father of Accounting’) in 14th century Italy.
Pacioli was much revered in his day, and was a friend and contemporary of Leonardo da Vinci.
The Italians of the 14th to 16th centuries are widely acknowledged as the fathers of modern
accounting and were the first to commonly use Arabic numerals, rather than Roman, for tracking
business accounts. Luca Pacioli wrote Summa de Arithmetica, the first book published that
contained a detailed chapter on double-entry bookkeeping.
French Revolution (1700s)
The thorough study of accounting and development of accounting theory began during this
period. Social upheavals affecting government, finances, laws, customs and business had greatly
influenced the development of accounting.
• The Industrial Revolution (1760-1830)
Mass production and the great importance of fixed assets were given attention during this
period.
• 19th Century – The Beginnings of Modern Accounting in Europe and America
The modern, formal accounting profession emerged in Scotland in 1854 when Queen Victoria
granted a Royal Charter to the Institute of Accountants in Glasgow, creating the profession of the
Chartered Accountant (CA). In the late 1800s, chartered accountants from Scotland and Britain
came to the U.S. to audit British investments. Some of these accountants stayed in the U.S.,
setting up accounting practices and becoming the origins of several U.S. accounting firms. The
first national U.S. accounting society was set up in 1887. The American Association of Public
Accountants was the forerunner to the current American Institute of Certified Public Accountants
(AICPA). In this period rapid changes in accounting practice and reports were made. Accounting
standards to be observed by accounting professionals were promulgated. Notable practices such
as mergers, acquisitions and growth of multinational corporations were developed.
A merger is when one company takes over all the operations of another business entity resulting
in the dissolution of another business.
Businesses expanded by acquiring other companies. These types of transactions have
challenged accounting professionals to develop new standards that will address accounting
issues related to these business combinations.
• The Present - The Development of Modern Accounting Standards and Commerce
The accounting profession in the 20th century developed around state requirements for financial
statement audits. Beyond the industry's self-regulation, the government also sets accounting
standards, through laws and agencies such as the Securities and Exchange Commission (SEC).
As economies worldwide continued to globalize, accounting regulatory bodies required
accounting practitioners to observe International Accounting Standards. This is to assure
transparency and reliability, and to obtain greater confidence on accounting information used by
global investors.
Nowadays, investors seek investment opportunities all over the world. To remain competitive,
businesses everywhere feel the need to operate globally. The trend now for accounting
professionals is to observe one single set of global accounting standards in order to have greater
transparency and comparability of financial data across borders.

EVALUATION (10 MINS) Answer the following questions:

1. Define accounting (5 pts)
2. Give examples of decisions or questions that can be supported by accounting information. (10
pts)