

11






Department of Education – Division of Palawan

 Fundamentals of
Accountancy,
Business and
Introduction to Accounting
Management 1
Third Quarter
Week 1
MELC: Define accounting;
Describe the nature of accounting;
Narrate the history/origin of accounting;
Define external users and gives examples; and
Define internal users and give examples.

Objective/s:
1. To explain what accounting is.
2. To narrate the history of accounting.
3. To identify the users and uses of accounting.
3. Managers, production supervisors, owners, and finance directors
are in this group who are into planning, organizing, and operating
the business. Who are these users?
a. External users c. Internal users
b. Keepers d. Recorders

What is It
Many people have dreamed of opening their own business …
maybe a store, a restaurant, an auto repair shop, or any other
business. While starting a business is relatively easy, keeping the
business alive and healthy is more difficult.
Do you know that accounting is one of the oldest professions in the
world? It has evolved throughout time addressing the needs of
society. In all walks of life, its relevance can be seen. It has a system
and process that help business owners to understand the flow of their
transactions. It truly plays a necessary role in the business.
Let us first define accounting, its nature, history, and users of the
accounting information. Being an ABM student, you wanted to
deepen your knowledge and skill in accounting.
Accounting is a process of identifying, recording, and
communicating economic events such as an organization to
related users (Weygandt, 2005). Economic events include the
purchase of materials, sale of goods, and acquisition of machinery
which are measured in monetary terms and are recorded in the
financial statements.

Identifying – involves the selection of the economic events which are

important to a particular business transaction. Examples of
transactions in a merchandising store are sales of merchandise,
purchases of merchandise, and purchases of the delivery truck.

Recording – is the act of keeping a chronological record of events

that are measurable in accounting documents like journals and
ledgers.

Communicating – refers to the process of communicating financial

reports to the users of financial information.

Communicating

Identifying Recording

Prepare accounting
reports

Select economic Record, classify

events (transactions) and summarize

Analyze and
interpret for users
Nature of Accounting
1. Accounting is a service activity. It helps decision-makers by
giving them financial reports that will guide them in making
sound decisions.
2. Accounting is a process. It refers to the method of performing
any specific job step-by-step according to the objectives. It
performs the specific task of collecting, processing, and
communicating financial information.
3. Accounting is both an art and a discipline. It is considered an
art because one records, classifies, summarizes, and finalizes
financial data. The way something is done is referred to as
“art”. It is behavioral knowledge involving established creativity
and skill to help one achieve distinct objectives.
4. Accounting deals with financial information and transactions. It
records financial transactions and data, categorizes these,
and finalizes the results given for a specified period.
Accounting only deals with financial and not with non-
monetary or non-financial aspects of information.
5. Accounting is known and characterized as a storehouse of
information. It collects, processes, and communicates the
financial information of any entity.
History of Accounting
In history, accounting is as old as civilization. It was developed in
response to various social and economic needs of men. It started as
a simple recording of monotonous exchanges. Its history shares the
similarity with that of finance and business.

Evolution of Accounting

• The Cradle of Civilization (3600 B.C.) – In Mesopotamia, record-

keeping was done through “Clay Tablet” as evidence of
recording transactions. From India and China to Central and
South America, the clay tablet records the business
transactions like accounts receivable and accounts payable.

• Double-Entry Bookkeeping (14th Century) - The most relevant

event in accounting history is generally considered to be the
 dissemination of double-entry bookkeeping-by Luca Pacioli
(Father of Accounting, in 14th century Italy). Pacioli was much
revered in his day and was a friend and fellow of Leonardo da
Vinci. The Italians of the 14th to 16th centuries are recognized
as the fathers of modern accounting and were the first to use
Arabic numerals than Roman, and for following business
accounts. Summa de Arithmetica was written by Luca Pacioli,
the first book issued that contained a detailed chapter on
double-entry bookkeeping.

• French Revolution (the 1700s) – In this period, the development

of accounting theory has begun and was influenced by social
upheavals.

• The Industrial Revolution (1760-1830) – The focus of this era are

fixed assets and mass production.

• The Beginnings of Modern Accounting in Europe and America

(19th Century) - The modern and formal accounting profession
emerged in Scotland in 1854. Most accountants stayed in the
U.S., establishing accounting practices and becoming the
origins of several U.S. accounting firms. The first national U.S.
accounting society was established in 1887.

• The American Association of Public Accountants was the

initiator of the current American Institute of Certified Public
Accountants (AICPA).

• The Present (20th Century) – In the present time, accounting

standards were established, and practitioners follow the rules
of international organizations or groups like AICPA. Modern
accounting standards were given more attention and time.
History of Accounting

The Cradle of Civilization (3600 B. C.)

Clay tablets was used in keeping accounting records.

Double-entry bookkeeping (14th Century)

Double-entry bookkeeping was disseminated by Luca Pacioli
(The Father of Accounting)

French Revolution (1700)

Development of accounting theory began during this period.

The Industrial Revolution (1760-1830)

Fixed assets and mass production were given importance.

The Beginnings of Modern Accounting in Europe and America (19th Century)

Modern Accounting in Europe and America began.

The Present (20th Century)

Development in the accounting profession was developed.

EXTERNAL AND INTERNAL USERS OF ACCOUNTING INFORMATION

External Users – are the individuals or organizations outside the
company who are not involved in operating the business.

The following are the external users of accounting:

1. Creditors – users who need accounting information to

determine the credit integrity, the worthiness of the
organization, and credit terms.
2. Tax Authorities (Bureau of Internal Revenue) – a government
agency that verifies the accuracy of financial data to ensure
the credibility of the tax returns filed by the business.
3. Investors – users who need accounting information to evaluate
and examine the feasibility of investing in a company.
4. Customers – users who evaluate the financial information of
their supplier to keep a stable source of supply in the long term.
 5. Regulatory Authorities -government agencies like the Securities
and Exchange Commission (SEC), Department of Trade and
Industry (DTI), Department of Labor and Employment (DOLE)
were established to supervise if businesses comply with legal
requirements in running a business.
Internal Users – individuals inside the organization who plan,
organize, and run the business. They are directly involved in
managing and operating the business. Internal users are also called
“primary users” of accounting information and some of these users
are the marketing managers, supervisors, finance directors,
company officers, and owners.

The following are the internal users of accounting:

1. Management - to know the income/earnings for the period,

sales, available cash, and production cost are the reasons why
the management needs the accounting information. They also
analyze the organization's performance and position and take
appropriate measures to improve the company results, the
sufficiency of cash to pay dividends to stockholders as well as
the pricing decisions.
2. Employees – for job security, they use financial information as
a factor to consider in staying employment or to look for other
employment opportunities.
3. Owners – they use financial information to know the profit or
income for the period, resources, or assets of the business. The
liabilities of the business are needed by the owners. They also
use financial information in considerations regarding additional
investment, expanding the business, and borrowing funds to
support any expansion plans.
 What I Can Do

Activity 1. Flow Chart

Directions: Arrange the history of accounting in chronological order
using the chart below. Write your answers on a separate sheet of
paper.
A. The clay tablet was used in keeping accounting records.
B. Double-entry bookkeeping was disseminated by Luca Pacioli.
C. Development in the accounting profession happened.
D. Modern accounting in Europe and America began.
E. Fixed assets and mass production were given importance.
F. The development of accounting theory began in this period.

History of Accounting

2 3

4 5 6
 What I Have Learned

Activity 5. Identification
Directions: Read each statement below and choose your answers
from the box. Write your answers on a separate sheet of paper.

French Revolution Customers

Accounting is an information system Creditors
Accounting is a process Owners
Communicating Management
Identifying The Present
1. During this period, the Modern Accounting Standards and
Commerce were developed.
2. This user analyzes the organization’s performance and position
and takes corrective measures to improve the company’s results.
3. These users need accounting information to know the profit for
the period as well as the assets and liabilities of the company.
4. These users need accounting information to determine the credit
integrity, the worthiness of the organization, and credit terms.
5. These are the users of accounting information that need to assess
the financial position of its suppliers which is necessary for them to
maintain a stable source of supply in the long term.
6. This involves selecting economic events that are relevant to a
particular business transaction.
7. This occurs through the preparation and communicating of
financial and other accounting reports.
8. This nature of accounting refers to the method of performing any
specific job step-by-step according to objectives.
9. This nature of accounting tells accounting is known and
characterized as a storehouse of information.

10
10. During this period, social upheavals affect the government,
finances, laws, customs, and business which greatly influenced
the development of accounting.

Assessment

Directions: Choose the letter of the best answer and write it on your
answer sheet.

1. These are individuals and organizations outside a company who

want financial information about the company. These users are
not directly involved in managing and operating the business.
a. external users c. internal users
b. keepers d. Recorders

2. It is known as the language of business because it communicates

financial information to the users.
a. accounting c. recording
b. communicating d. identifying

3. Accounting aids decision-makers by providing them financial

reports that will guide them in coming up with sound decisions.
What nature of accounting is this?
a. finance c. recording
b. recognition d. service

4. This involves keeping a chronological diary of events that are

measured in pesos.
a. evaluating c. recording
b. recognizing d. summarizing

11
 What I Know What I Can Do What I Can Do What’s More
1. D Activity 1 Activity 2 Activity 3
2. C 1. A Answers might 1. False
3. C 2. B vary 2. False
4. A 3. F 3. True
5. A 4. E 4. True
5. D 5. True
6. C
What’s More What I have Learned Assessment
Activity 4. Activity 5 1. A
1. Nature 1. The Present 2. A
2. Nature 2. Management 3. D
3. Process 3. Owners 4. C
4. Process 4. Creditors 5. C
5. Process 5. Customers
6. Identifying
7. Communicating
8. Accounting is a process
9. Accounting is an information
10. French Revolution
Answer Key
b. keepers d. record
a. external users c. internal users
the business. Who are these users?
are in this group who are into planning, organizing, and operating
5. Managers, production supervisors, owners, and finance directors
For inquiries or feedback, please write or call:

Department of Education – SDO Palawan

Curriculum Implementation Division Office

2nd Floor DepED Palawan Building
Telephone no. (048) 433-3292

Learning Resources Management Section

LRMS Building, PEO Compound
Telephone No. (048) 434-0099

13