Jose Rizal

Parang Institute
Parang, Orani, Bataan
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LEARNING MODULE
FOR
TLE : BASIC ACCOUNTING – GRADE 10

Prepared by: Mr. RHEYMEL M. OCAMPO

LEARNING MODULE FOR TLE : BASIC ACCOUNTING – GRADE 10

This document is property of JRI. No material may be used, distributed or reproduced in whole or in part without
the prior written consent of the school. All rights reserved.
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MODULE 1 : INTRODUCTION TO ACCOUNTING

Learning Competencies

The learners should be able to..

1. Define Accounting.
2. Describe the nature of accounting.
3. Explain the functions of accounting in business.
4. Narrate the history/origin of accounting.

Definition of accounting

Accounting is a process of identifying, recording and communicating economic information that

is useful in making economic decisions.

Essential elements of the definition of accounting

1. Identifying – The accountant analyzes each business transaction and identifies whether the
transaction is an “accountable event” or “non-accountable event.” This is because only
“accountable events” are recorded in the books of accounts. “Non-accountable events” are not
recorded in the books of accounts.
“Accountable events”(or economic events) are those that affect the assets, liabilities, equity,
income and expenses of a business. Sociological and psychological matters are outside the scope
of accounting.

2. Recording – The accountant recognizes (records) the “accountable events” he has identified.
The process is called “journalizing.”
After journalizing, the accountant then classifies the effects of the event on the “accounts.” This
process is called “posting.”
“Account” is the basic storage of information in accounting, eg., “cash,” “land,” ”sales,” etc.

3. Communicating – At the end of each accounting period, the accountant summarizes the
information processed in the accounting system in order to produce meaningful reports. This is
important because information processed in the accounting system is useless unless it is
communicated to interested users. Accounting information is communicated to interested users
through accounting reports, the most common form of which is the financial statements.

Nature of accounting

Accounting is a process with the basic purpose of providing information about economic
activities intended to be useful in making economic decisions.

Types of information provided by accounting

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1. Quantitative information – information expressed in numbers, quantities, or units.

2. Qualitative information – information expressed in words or descriptive form. Qualitative
information is found in the notes to financial statements as well as on the face of the other
components of financial statements.
3. Financial information – information expressed in money. Financial information is also
quantitative information because monetary amounts are normally expressed in numbers.

Accounting as science and art

1. As a social science, accounting is a body of knowledge which has been systematically

gathered, classified and organized.
2. As a practical art, accounting requires the use of creative skills and judgment.

Accounting as an information system

A system is one that consists of an input, a process, and an output. Similarly, in an accounting
system, the inputs are the accountable events; the processes are recording, classifying and
summarizing; and the output is the accounting report that is communicated to the users.
.
Functions of Accounting in Business

Accounting is often referred to as a “language of business” because it is fundamental to the

communication of financial information.

Accounting has the following two broad functions in a business:

1. To provide non-owners of a business (i.e., external users) with information that is useful in
making, among others, investment and credit decisions; and
2. To provide business owners and managers (i.e., internal users) with information that is useful
in managing the business.

Managing a business

Good management is the key to a business’ success. On the other hand, mismanagement, is one
way or another, the cause of every business’ failure. Management, therefore, is no laughing
matter. It cannot be taken lightly. To be a good manager, one must equip himself or herself with
the right management tools- and one important management tool is accounting.

Management is a process of establishing common objectives, coordinating efforts towards those

objectives, and efficiently and effectively utilizing available resources so as to achieve certain
goals.

Managing a business requires more than just technical skills. A business manager is likened to a
musical conductor who leads a group of musicians to perform a musical piece to the best of their
abilities.

A successful business manager sees the “big picture” and understands each detail. He or she has
the ability to think “inside and outside of the box” and to make both long-term (strategic) and
short-term (tactical) plans.
As a future business professional, you need to understand each of the following major facets of a
business:

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A. Finance – refers to how a business generates and manages its funds. Finance is responsible in
providing adequate resources needed for the other facets to function properly.

B. Production – refers to how goods are produced or services are rendered. Production is
responsible for the quality of goods and services and efficiency by which they are produced or
rendered.

C. Marketing – refers to how goods or services are communicated to customers. Marketing is

responsible in creating value for customers and building strong customer relationships.

D. Accounting – provides a measure of how well the other facets of the business are performing.
Accounting is responsible in providing useful information that aids in making business decisions.

Each of the major facets of business is mutually dependent. They work hand in hand. Without
the other, the business will not fully achieve its goals.

Accounting as a managerial tool

As mentioned earlier, accounting is an essential managerial tool. This is because accounting

provides information that helps a business manager perform his or her management functions.

Functions of a manager

1. Planning – involves the process of mapping out or arranging in detail how a business goal is
to be achieved.

2. Organizing – after plan is formulated, a manager needs to organize his or her personnel and
other resources according to the plan. Organizing involves assigning responsibilities and
granting authority to personnel.

3. Staffing – involves the process of selecting, training and developing employees. This function
is commonly referred to as human resource management.

4. Directing – after a plan is formulated and resources are organized and made available, a
manager needs to lead his personnel to ensure that each is performing his or her responsibilities
towards organization’s common goal to the best of his or her ability.

Directing involves motivating, communicating, guiding, and encouraging personnel.

5. Controlling – after the other elements are in place, a manager needs to continuously monitor
results against goals and take corrective action necessary to ensure that the plan remains on track.

Examples in which accounting is used in investment and credit decisions

External user of information Decision Accounting information

1. Investor Shall I invest in this business? The financial performance of
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Is this a profitable the business.

undertaking?

2. Creditor Shall I lend money to this The ability of the business to

business? Does this business generate revenue and cash
have the ability to pay back flows from its operations.
my loan?

Brief history of Accounting

Accounting can be traced a far back as the prehistoric times. Since the dawn of civilization when
mankind began to engage in trade, perhaps more than 10,000 years ago, methods of record
keeping and accounting have been invented.

As early as 8500 B.C., accounting has already existed. Archaeologists have found clay tokens as
old 8500 B.C. in Mesopotamia which were usually cones, disks, spheres and pellets. These
tokens correspond to commodities like sheep, clothing or bread. They were used in Middle West
in keeping records. After some time, the tokens were replaced by wet clay tablets. During such
time, experts concluded this to be the start or the art of writing.

Other ancient civilizations keeping account records are Babylonia (4500 B.C.), Egypt (2250
B.C.), China and Greece.

In the middle ages (13th and 15th centuries), trade flourished in places such as Florence, Venice
and Genoa. This has brought advancement in account keeping methods. In 1221 A.D., one of the
systems in accounting was kept by a Florence banker. However, system was primitive as the
concept of quality for entries was absent. Double entry records first came out during 1340 A.D.
in Genoa.

In 1494, the first systematic record keeping dealing

with the “double entry recording system” was
formulated by Fra Luca Pacioli, a Franciscan monk
and mathematician. The “double entry recording
system” was included in Pacioli’s book titled “Summa
di Arithmetica Geometria Proportioni and
Proportionalista,” published on November 10, 1494 in
Venice.

The concept of “double entry recording” is being used

to this day. Thus, Fra Luca Pacioli is considered as the
father of modern accounting.

Fra Luca Pacioli

Father of modern accounting

REVIEW QUESTIONS

1. What is accounting?
2. What are the essential elements of the definition of accounting?
3. What is the nature of accounting?
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4. What is the function of accounting in business?

5. What are the functions of a manager? Give examples where accounting information is used as
aid in performing the management functions.

End of Module 1

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