FABM 1: Fundamentals of Accountancy, Business, and Management 1 PDF

 Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management – 1 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8...

 Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management – 1 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 1 – FABM-1 Subject Teacher: Kenny Jones A. Amlos INTRODUCTION TO ACCOUNTING Module Objectives: At the end of the module, the students must be able to: a. Define Accounting and its nature; b. Explain the functions of accounting in business; c. Narrate the origin and history of accounting; d. Differentiate the different branches of accounting; e. Differentiate the forms of business organization. ACCOUNTING, DEFINED “Accounting as an Art”- Accounting is 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 a financial character and interpreting the results thereof (American Institute of Certified Public Accountants- AICPA). It is a service activity, its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions (Accounting Standards Council- ASC). Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of financial information (American Accounting Association- AAA). Note: The most comprehensive definition is the one given by AICPA. It defines the entire process within which the “accounting cycle” is observed. NATURE OF ACCOUNTING 1. Accounting is a service activity- the main purpose of accounting to is to provide financial information which are useful for decision makers. 2. Accounting is an art- It entails a behavioral knowledge which requires creativity and skill on the part of those who will carry out the accounting process or cycle. 3. Accounting is a process- There are series of steps that need to be observed. Certain tasks are needed to be done first before going to the next step. It is important to note that financial information undergoes a delicate and specific step in order to protect their integrity. 4. Accounting only involves quantitative information- only business transactions involving money are taken into account or those events which are in part at least of a financial character. THE ACCOUNTING CYCLE AND FUNCTIONS OF ACCOUNTING 1. Identifying and Measuring accountable transactions and events. The process of identifying involves the assessment of whether a transaction is considered a “Business Transaction or Accountable Event”. An event or transaction is accountable if: a. It is in a sum certain in money; b. It has a two-fold effect on the accounting; and c. It affects at least one accounting element (Asset, Liability, or Capital). The process of measuring involves the determination of the monetary amounts at which the transactions are recorded in the books of the business. Fundamentals of Accountancy, Business & Management - 1 Page 1 of 12  Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management – 1 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 1 – FABM-1 Subject Teacher: Kenny Jones A. Amlos Note: In accordance with the Monetary Unit Principle, the amounts must be in terms of the Philippine Currency. 2. Recording business transactions. Recording involves the process of “Journalizing”. It is the chronological (the transaction which first took place must be first to appear in the journal) recording of transactions and or events in the book of the business. The book of the business is called the “Journal or The Book of Original Entry”. A journal shall look like this: Date Particulars PR Debit Credit 2020 Mar. 31 Cash 01 P 1,000,000- Kenny, Capital 13 P 1,000,000- To record investment by the owner Apr. 1 Supplies 4 20,000- Cash 01 20,000- To record purchase of supplies 3. Classifying transactions and events. The process of classifying involves the grouping of similar transactions and positing them to their respective ledger accounts. Ex. All cash transactions must be posted to “Cash Ledger”. The process is called “Posting to the Ledger” and the tool used is called “Ledger”. A ledger shall look like this: Account Title: Cash Account No. 01 Date Debit Date credit Mar. 31 P 1,000,000- Apr. 1 P 20,000 4. Summarizing transactions and events. The process of summarizing involves the preparation of trial balance and a worksheet. In particular, an Unadjusted Trial Balance is prepared in order to determine the correct ending balances of each accounts. A Worksheet on the other hand, is prepared as a tool to reflect corrections and adjustments made and aid in the preparation of financial statements. 5. Communicating or reporting the results to users of financial information. The process of communicating involves the preparation of Financial Statements. The following are the types of Financial Statements: a. Income Statement/ Statement of Comprehensive Income (SCI)- Shows the financial information related to the operations of the business: Income, Other Comprehensive Incomes, Expense, Other Comprehensive Expenses, and Net income/ Net Loss. Income- refers to any increase in the capital other than those invested or contributed by the owner/s. Increases from the normal operations of the business. Expense- refers to any decrease in the capital other than those drawn by the owner/s. Fundamentals of Accountancy, Business & Management - 1 Page 2 of 12  Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management – 1 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 1 – FABM-1 Subject Teacher: Kenny Jones A. Amlos Net Income= Income- Expense; where Income>Expense Net Loss= Income-Expense; where Income