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FABM1-Module-1Handouts-1

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9 views

FABM1-Module-1Handouts-1

Fabm 1

Uploaded by

Cheyne Engay
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FUNDAMENTALS OF ACCOUNTANCY BUSINESS AND MANAGEMENT 1

MODULE 1 Accounting Concepts and Principles


Directions: Choose the letter of the best answer. Write the letter of your choice
on a separate sheet of paper.
1. Which of the following is the definition of accounting by the Accounting Standards Council
(ASC)?
A. It is a service activity, its function is to provide quantitative information, primarily
financial in nature, about economic entities, that are intended to be useful in making
economic decisions.
B. It is the process of identifying, measuring, and communicating economic information
to permit informed judgments and the decision by the users of the information.
C. It is an art of recording, classifying, and summarizing in a significant manner and in
terms of money, transactions, and events which are, in part or at least, of a financial character
and interpreting the results thereof.
D. It is a systematic process of identifying, classifying, measuring, recording,
summarizing, verifying, analyzing, interpreting, and communicating financial information of an
organization to enable users to make decisions.

2. It refers to the recognition or non-recognition of accountable events.


A. Identifying C. Measuring
B. Recording D. Communicating
3. It is described as putting an amount on the accountable events.
A. Identifying C. Measuring
B. Recording D. Communicating
4. It refers to the cost of earning income.
A. Asset C. Equity
B. Liability D. Expense
5. It is an inflow of wealth of the business from dealings with clients or customers.
A. Asset C. Equity
B. Liability D. Income
Directions: On a sheet of paper, write YES if the statement is correct and NO if
otherwise.
6. Accounting is a system that measures business activities.
7. Accounting provides quantitative information, primarily financial in nature.

8. Accounting is part of business operation and operates in isolation.

9. By recording transactions, the information will be of unlimited use.

10. Accounting is both an art and a science.

LESSON

Accounting is relevant in the world of business especially these days that business and
society have become more complicated. No business could operate very long without knowing
how much it was earning and how much it was spending. The core concepts behind accounting
quantify business communication and drive decisions among accounting information users.
Accounting helps internal and external users understand what is happening in the business
and it is for this reason that accounting is called the language of the business.

Definition of Accounting

Accounting has been defined by many scholars, researchers, authors, and Accounting
Institutes differently. Accounting is an information system that measures, processes, and
communicates financial information about an economic entity (Financial Accounting Standards
Board, 1978). It is important to note that the sum and substance of accounting as a systematic
process of identifying, classifying, measuring, recording, summarizing, verifying, analyzing,
interpreting, and communicating financial information of an organization to enable users to
make decisions. American Accounting Association (AAA) defines accounting as “the process of
identifying, measuring, and communicating economic information to permit informed
judgments and decisions by users of the information. Accounting Standard Council (ASC)
defines accounting as “It is a service activity. Its function is to provide quantitative information,
primarily financial in nature, about economic entities, that are intended to be useful in making
economic decisions. American Institute of Certified Public Accountants (AICPA) defines
accounting as “an art of recording, classifying, and summarizing in a significant manner and in
terms of money, transactions, and events which are, in part or at least, of a financial character
and interpreting the results thereof.
The process of accounting underscores the following functions:

1. Identifying – involves assessing whether transactions or events that merit recognition


(recording) or not. Events that merit recognition are known as accountable events. Events are
accountable if they have an effect on the assets, liabilities, and equity of the business
enterprise.

2. Classifying - concerns with grouping together similar types of business transactions in one
place. The transactions recorded in the journals are classified and posted onto ledgers.

3. Measuring - determines the monetary amounts at which the resources, debts, capital,
income, or expenses are to be recognized.

4. Recording – relates business transactions, in monetary terms, are recorded in an orderly


manner in the books of original entry. The accounting term for recording at this stage is
journalizing.

5. Summarizing – presents classified information in a form that is understandable and useful to


users of accounting information. A trial balance is prepared to ascertain the accuracy of
accounts.

6. Analyzing - establishes the relationship between the items in the financial statements. The
purpose of analyzing is to identify the financial strength and weaknesses of the business. It
provides the basis for interpretation.
7. Interpreting – concerns with explaining the meaning and significance of the relationship
established by the analysis. By interpreting, it can tell whether the business performance is
good or bad.

8. Communicates – communicates results obtained from the summarized, analyzed, and


interpreted information to the interested parties.

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