DIANA B.

TOLOPIA, MBA
Grade 12 – 1st semester

a.
a. Core Subject Title: Fundamentals of Accountancy, Business and Management 1 1st Quarter

Introduction to Accounting
TOPIC / LESSON NAME

The learners demonstrate an understanding of……

CONTENT STANDARDS
The definition, nature, function, and history of accounting

The learners shall be able to….

PERFORMANCE STANDARDS
cite specific examples in which accounting is used in making business decisions

The learners….

1.) define accounting ABM_FABM11-111a-1

2.) describe the nature of accounting ABM_FABM11-111a-2
LEARNING COMPETENCIES
3.) explain the functions of accounting in business ABM_FABM11-111a-3
4.) narrate the history/origin of accounting ABM_FABM11-111a-4

At the end of the lesson, the learner are able to:

Demonstrate understanding of the following:
SPECIFIC LEARNING OUTCOMES
a. Definition, nature, function, and history of accounting

TIME ALLOTMENT 8 hours

LESSON OUTLINE:
1. Introduction/Motivation: (10 minutes). Using A-B-C summarize ( a form of review in which each student is assigned a different letter of the alphabet and they must select a word starting
with that letter that is related to the topic being studied)
2. Instruction/Delivery: (30 minutes) Class discussion
3. Evaluation: Problem Solving/ Board work/ assignments (20 minutes)

MATERIALS paper & pencil , chalkboard, eraser

RESOURCES 1.DIWA learning Town/DIWA Senior High School Series

2.Rafael M. Lopez, Jr.(2014-2015) edition
3.Win Ballada, CPA, MBA
DIANA B. TOLOPIA, MBA
Grade 12 – 1st semester

a.
4.Nenita D. Mejorada, ACS,BBA,MAT
5.Internet

4. INTRODUCTION (10 minutes)

5. In order to determine the learners’ awareness and understanding on the Introduction of Accounting ; do this activity to stimulate discussion.

6. Apply the A-B-C Summarize – a form of review in which each student is assigned a different letter of the alphabet and they must select a word starting with that letter
that is related to the alphabet and they must select a word starting with that letter that is related to the topic being studied)

7. Example:
8. Letter A– Accounting

9. INSTRUCTION/DELIVERY (30 MINUTES

Definition of Accounting
The Philippine Institute of Certified Public Accountants (PICPA) defines Accounting as a “system that measures business activities, processes given information into reports,
and communicates findings to decision makers.” With this definition, we can say that accounting in the business context is a science that follows systematic and organized
methods in understanding the financial undertakings of a business establishment.

The American Institute of Certified Public Accountants (AICPA), however, views accounting as an art. For AICPA, it 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. Accounting may be
Called an art because it requires skilful implementation of methods and techniques, just like how skilfully a painter uses a particular method and technique to create a master-
Piece.

Nature of Accounting
Accounting as an art and a science, this very nature of accounting makes it an interesting field of study.
Accounting is also often described as the language of business- It is the tool used to communicate financial information to various parties interested in the financial status
of an economic entity. An economic entity is an organization that uses resources to achieve its goals and objectives. It is also referred to as business entity. An economic
or business entity has two types: the for- profit and the non-profit. The for-profit entity mainly operates to generate income or profit, while the non-profit entity carries out
charitable operations that do not necessarily generate income. For a non-profit entity, the difference between revenue and disbursements is normally termed net surplus.
Both types of business entities, however, make use of accounting to record, analyze, and communicate financial information to interested parties. Accounting is also considered
As an information system. It connects the transmitter of information (accountant) to the set of receivers (users of accounting information) using the medium of communication,
which is the financial statement.

Functions of Accounting in Business

As a language of business, accounting is primarily utilized whenever there are business transactions. Any business activity can affect many interested parties. Thus, it is the
DIANA B. TOLOPIA, MBA
Grade 12 – 1st semester

a.
Main function of accounting to provide quantitative financial information that is useful in making economic decisions. What is the financial information provided in accounting?
The major end products of accounting are the financial statements. Each type of financial statement provides specific information about the economic entity that could be useful
To various internal and external users of financial information.

Types of Financial Statements

1.) Statement of comprehensive Income- This financial statement is also known as the profit and loss statement. It shows the results of the company’s performance as a result
of operations at a particular period of time. Also called income statement, this type of financial statement indicates whether the entity has gained or lost from the operations
by detailing its income and expenses.

2.) Statement of Changes in Equity – Throughout the organization’s existence, its capital changes as it receives investments or as it experiences withdrawal of investments,
generates income, and pays for expenses. These activities are all recorded in the statement of changes in equity. Thus, this type of financial statement provides information
about the entity’s financial and investing activities.

3.) Statement of Financial Position – this type of financial statement is also called balance sheet. This presents the entity’s assets, liabilities, and capital at a given point in time.
The data in this statement provide information about the entity’s financial condition or position in the business.

4.) Statement of Cash Flows – the statement of cash flows provides information about the entity’s cash inflows and outflows resulting from its operations, investments, and
Financing. Thus, it shows the balance of cash flow from the beginning until the end of a given period.

History and Origin of Accounting

Scholars believe that accounting originates from the early ancient civilizations. Scribes in ancient Egypt , for example, were known to keep thorough records of the inventory
of goods for the pharaoh. The same is true in Mesopotamia where records of commerce had been inscribed on clay tablets. However, it was not until the 14 th century that a
system of bookkeeping was introduced. In 1494, Luca Pacioli, an Italian mathematician and a friend of Leonardo da Vinci, published the Summa de Arithmetica, Geometria,
Proportioni et Proportionalita (Everything about Arithmetic, Geometry, and Proportion) which introduced the double-entry bookkeeping. It is the basis of the system of debits
and credits in journals and ledgers used in today’s accounting system. Pacioli also published the book De Computis et Scripturis ( Of Reckonings and Writings) which
covered commerce-related concept aside from double-
entry bookkeeping.

The advancement in commerce brought about by the Industrial Revolution(1760-1840) prompted the need for a more advanced accounting system. Recognizing this need and
the rising status of public accountants, Queen Victoria of England issued a royal charter to the Institute of Accountants in Glasgow in Scotland in 1854, which created the
profession of chartered accountant, the very first recognition of accounting as a profession. These professional accountants from Scotland and Britain went to the United
States in late 1800s to audit British investments there. Some of them stayed in the United States and set up
DIANA B. TOLOPIA, MBA
Grade 12 – 1st semester

a.

uick Ratio- or acid test ratio tells whether the company could pay all its current liabilities even if none of the inventory is sold. Quick assets are those that may be converted
directly into cash within a short period of time. These include cash, trading, investments and receivables .Merchandise inventory is omitted because merchandise is normally
sold on credit and then the receivable must be collected before cash is realized.

Measuring the Ability to Sell Inventory and Collect Receivables

Accounts Receivable Turnover –measures the company’s ability to collect from credit customers. It indicates the number of times that the average balance of accounts
receivable is collected during the period. the ratio is calculated as follow:
Net Credit Sales
Accounts receivable Turnover= Average Net Accounts Receivable

Average Age Receivables –provides a rough approximation of the average time that it takes to collect receivables. Average age of receivables is determined as follows:
365 days
Average Age of Receivables = Accounts Receivable Turnover

Inventory Turnover-is a measure of the number of times a company sold its average level of inventory during the period. A high rate of turnover indicates relative ease in selling
inventory. However, a high value can mean that the business is not keeping enough inventories on hand, and thus may result to lost sales. Inventory turnover is calculated by
dividing cost of goods sold by average merchandise inventory. cost of goods sold is used instead of net sales because both cost of goods sold and merchandise inventory are
stated cost.
Cost of Goods Sold
Inventory Turnover = Average Merchandise Inventory

Average Age of Inventory –provides a rough measure of the length of time it takes to aquire, sell and replace inventory. Average age of inventory is determined as follows:
365 days
Average Age of Inventory = Inventory Turnover

Operating Cycle – this measure the average time between buying the inventory and receiving cash proceeds from its sales. It is determined by adding the average age of
inventory and the average age of receivables.

PROFITABILITY RATIOS
DIANA B. TOLOPIA, MBA
Grade 12 – 1st semester

a.
Return on Total Assets- is a measure of management’s efficiency in using its assets to earn profits. Creditors have loaned money to the company and interest is their return.
shareholders have invested in the company and profit is their source of return. The sum of interest expense and profit if the returnsto the two groups who have financed the
company’s operations. The formula for computing this ratio follows:

Return on Total Assets is a measure of management’s efficiency in using its assets to earn profits. Creditors have loaned money to the company and interest is their return.
Shareholders have invested in the company and profit is their source of return. The sum of interest expense and profit is the returns to the two groups who have financed the
company’s operations. the formula for computing this ratio follows:
Profit + Interest Expense
Return on Total assets= Average Total Assets

Return on Ordinary Equity shows the relationship between profit and ordinary shareholder’s investment in the company. This rate may be higher or lower than the return on total
assets, depending on how judiciously management has combined debt and preference share with ordinary share in financing the company’s resources. The formula for
computing this ratio is:
Profit-Preference Dividends
Return on Ordinary Equity = Average Ordinary Equity

Basic Earnings Per Ordinary Share is a measure of the profit earned on each ordinary share.
Profit-Preference Dividends
BEPS = Average Number of Ordinary shares Outstanding

Price –Earnings Ratio (P/E) indicates the degree to which investors value a company .When investors pay a high price for a given amount of corporate earnings, they increase
the company’s P/E ratio. the price- earnings ratio is the Ratio of the market price per ordinary share to the basic earnings per share. this ratio reflects investor’s assessments of
the company’s future earnings.
Market Price Per Ordinary Share
Price-Earning Ratio = Basic Earnings Per Ordinary share

Dividend Yield is the ratio of dividends per share to the share’s market price. This ratio measures the percentage of a share’s market value that is returned annually as dividends.
This indication of the cash payout rate on an investment allows shareholdings and potential shareholders to compare interest rates on certificates of deposit, corporate bonds,
and other securities with this measure of return on ordinary share
Cash Dividends Per Ordinary Share
Dividend Yield = Market Price Per Ordinary share

Solvency Ratios measure the ability of the company to survive over a long period of time. Long –term creditors and shareholders are interested in the long-run solvency,
particularly its ability to pay interest as it comes due and to repay the principal of the debt at maturity.

time Interest Earned Ratio is a measure of how readily a company can meet interest payments with profit earned from operations. The times interest ratio indicates the margin of
safety provided by current earnings in meeting the company’s interest responsibilities.
DIANA B. TOLOPIA, MBA
Grade 12 – 1st semester

a.
Profit Before Interest Expense and Income Taxes
Times Interest Earned = Annual Interest Expense

Debt to Total Assets Ratio shows the percentage of the company’s assets financed by debt. Higher ratios indicate that a company has financed a large portion of assets with
debt. As debt-asset ratios climb, creditor risk increases because there is less margin available if the company must liquidate assets.
Total Liabilities
Debt to total Assets Ratio= Total Assets

Equity to Total Assets Ratio or equity ratio shows the percentage of the firm’s assets financed by the shareholders. The higher this ratio, the smaller the risk that the company
will be liable to meet its obligations when due.

Equity /ratio = 100% - Debt Ratio

10. EVALUATION (20 minutes)

11. Case Analysis/ Theories

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