This is not For Sale

Module in
Technology and Livelihood
Education 10
Accounting
Second Quarter

Name: _______________________________________
Section: ______________________________
 DRAFT ONLY
TLE- Grade 10
Alternative Delivery Mode
Quarter 1- Module 1: Week 1 Introduction to Accounting

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Introductory Message

For the facilitator:

Welcome to the Technology and Livelihood Education Grade10 Alternative

Delivery Mode (ADM) Module on Accounting: Introduction to Accounting.
This module was collaboratively designed, developed and reviewed by educators
both from public and private institutions to assist you, the teacher or facilitator
in helping the learners meet the standards set by the K to 12 Curriculum while
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For the learner:

Welcome to the Technology and Livelihood Education Grade 10 Alternative

Delivery Mode (ADM) Module on Accounting: Introduction to Accounting!

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 Lesson
ACCOUNTING CONCEPTS AND
2 PRINCIPLES

What I Need to Know

In this lesson, the learners will be able to enumerate the principles of accounting; differentiate
each principle; and apply the accounting principle in a business setting.

Learning Objectives:
1. Explain the varied accounting concepts and principles
2. Solve exercises on accounting principles as applied in various cases.

Let’s Try

Pre-Assessment

Directions: Choose the best answer from the choices given inside the box.
Write the answer on the space provided before the number.
1. The opposite of accrual accounting is the ________________.
a. cash basis accounting c. prudence
b. matching principle d. substance over form
2. It is an item in the accounting records that requires the use of estimates.
a. warranty expense b. prudence c. cash d. expenses
3. Albeit prudence is the perfect course of action when making judgments; deliberately
being too conservative is not an allowed practice.
a. cash basis accounting c. albeit prudence
b. matching principle d. substance over form
4. IASC stands for: _____________________________________
a. International Accounts Standing Company
b. International Accounting Standards Committee (IASC).
c. Intercontinental Accounts Stand Committee
d. International Accounting Strategies Company
5. The Philippine Reporting Standards Council (FRSC) issues standards to be used in the
Philippines in the form of
a. Philippine Financial Reporting Standards (PFRS).
b. Philippine Report Standards Council (FRSC)
c. Philippine Reporting Standards Council (FRSC)
d. Philippine Reporting Standards Company (FRSC)
6. Prudence in the accounting sense is also called _______________.
a. cash basis b. cost c. prudence d. conservatism
7. A transaction where the substance differs from the legal form is a ______. .
a. lease b. cost c. assets d. liability
8. The _____________ states that the operations of a business will continue indefinitely into
the future.
a. cash basis accounting c. prudence
b. going concern assumption d. substance over form
9. The __________ states that the indefinite life of a company can be divided into periods
of equal length for the preparation of financial reports
a. cash basis accounting c. prudence
b. time period assumption d. substance over form
10. The pronouncements of the IASC are called ______________________________.
a. International Account Standards (IAS)
b. International Accounting Standards (IAS)
c. International Accountings Standards (IAS)\
d. International Accounts Standards (IAS)\

Let’s Recall
Study the table below. Complete the missing information needed.
Value
Transactions Received Parted with
1. Payment for office rent. Cash
2. Sale of merchandise on credit Accounts
Receivables
3. Received cash as payment of service Service
rendered.
4. Payment of salaries of worker Cash
 Let’s Explore
Jackie’s First Petshop
Juan dela Cruz opened his pet shop business called Jackie’s First Petshop. He opened a bank account for
his business and deposited PHP500,000. The business earned PHP50,000 but he had doubts with the
recorded expense of PHP60,000. He is not sure if he should include the following items as expenses:
Salary expense 20,000 Utilities expense (at the store) 10,000
Rent expense 10,000 Insurance expense 5,000
Utilities expense (at home) 15,000 Withdrawals 10,000

Complete the table below. Put a sign if the expense is included in business
operation sign if the expense should not be included in business operation. Write a short
explanation on the space provided.

Expenses Included Not Included Explanation

Salary Expense
Rent Expense
Utilities Expense (at home)
Utilities Expense (at the store)
Insurance Expenses
Withdrawals

Let’s Elaborate

INTRODUCTION

Accounting concepts, principles, and assumptions are essential in the

practice of accountancy. Financial statements become more comparable and
more useful to users if these concepts, principles, and assumptions are
followed y businesses. We can look at these as a set of rules that govern the
accounting process.
Accounting concepts, principles, and assumptions serve as the
foundation of accounting in order to avoid misunderstanding and enhance
the understanding and usefulness of the financial statements. (Valix et al.
2013)
 A. ACCRUAL ACCOUNTING
The fundamental idea of accrual accounting can be stated as follows: “The effects of
business transactions should be recognized in the period in which they occurred. Income should
be recognized in the period when it is earned regardless of when the payment is received.
Expenses should be recognized in the period when it is incurred regardless of when the expenses
are paid”.

Suppose Andrew, a budding entrepreneur, established a merchandising

business that sells ready-to-wear clothes to different ukay-ukay stores in
the country. The income from Andrew’s business primarily comes from
selling goods to customers. Sales to customers can be for cash or on credit.
If the business was able to sell goods for cash, this will be recorded in the
accounting records of the company. On the other hand, if the goods were
sold on credit, the transaction should still be recorded in the accounting
records as accounts receivable.

This is the essence of accrual accounting. An accountant does not have to wait for cash to be
received or for cash to be paid before he or she records a business transaction. Because of accrual
accounting, use of accounts such as accounts receivable, accounts payable, prepaid expenses,
accrued expenses deferred income, and accrued income are possible.
The opposite of accrual accounting is the cash basis accounting. Under the cash basis of
accounting, income is recognized when cash is received and expenses are recognized when cash
is paid. As its name implies, under the cash basis of accounting, the receipt and/or payment of
cash is a requisite before transactions are recorded in the accounting records of a company.
MATCHING PRINCIPLE
The matching principle is closely related to accrual accounting. Under the matching
principle, expenses are recognized in the same period as the related revenue. Revenues of a
business always come with expenses. The matching principles states that related revenues and
expenses should always go together. In other words, if the revenues are recorded in period 1, the
related expenses should also be recorded in period1.
Remember that under the matching principle, expenses follow the related revenues. Like
accrual accounting, the matching principle also provides more accurate and more reliable
information in the financial statements. It prevents understatement of expenses in one period
while overstating expenses in the next period.
Moreover, under the matching principle, there is a cause-and-effect relationship between
revenues and expenses. If this relationship does not exist between revenues and expenses, the
expenses should be recognized immediately in the accounting records of the company.
Advertising and marketing expenses are the most common examples of this kind of expense.
Since the related benefit that is expected to be derived from advertising and marketing cannot be
measured reliably, these expenses are recognized immediately.
USE OF JUDGMENT AND ESTIMATES
Accounting estimates are approximations made by accountants or the management in the
preparation of financial statements. Not all items in a company’s accounting records can be
determined precisely. This is the reason why estimates are used. Estimates are determined using
professional judgment, study of historical data, and through research.
Warranty expense is an item in the accounting records that requires the use of estimates. A
warranty is a guarantee made by the seller to the buyer promising to repair or replace the thing
sold if necessary within a specified period of time. When a seller sells goods, there are revenues
generated that are recorded in the company’s accounting records. According to the matching
principle, all related expenses should also be recorded in the same period the revenues are
recognized. Warranty expense is related to the revenues generated from the sale of goods. The
problem is what amount of warranty the company should recognize in the accounting records.
However, the use of accounting estimates cannot be abused by an entity by purposely
overestimating expenses. Some companies overestimate expenses to decrease net income and
decrease the taxes payable. Judgment used in making accounting estimates should be backed up
by a reasonable basis. It is more desirable to use less judgment in the accounting process because
the use of judgment leas to more subjective financial statements.
PRUDENCE
Prudence in the accounting sense is also called conservatism. When applying the concept of
prudence, an accountant makes sure that income and assets are not overstated and liabilities and
expenses are not overstated.
According to Valix et al. (2013), “In the simplest words, conservatism means in case of
doubt, record any loss and do not record any gain.” For example, when an accountant is unsure
whether or not to recognize an expense, the concept of prudence states that he or she should
recognize it in the accounting records. On the other hand, if an accountant is unsure or not to
recognize income, prudence states that he or she should not recognize it.
Albeit prudence is the perfect course of action when making judgments; deliberately being
too conservative is not an allowed practice. Like what is stated in the foregoing, companies
might claim that they are just exercising prudence when recognizing expenses even though the
main purpose is to bloat expenses for lower tax payments.
SUBSTANCE OVER FORM
Information presented in the financial statements of a company should truthfully and
faithfully represent the financial condition and financial performance of the company. For this to
be possible, an accountant should look at the substance of every financial transaction rather than
its legal form.
 A transaction where the substance differs from the legal form is a lease. In a lease, the lessor
allows the lessee to use the former’s property in exchange of a periodic fee. However, when
ownership of the property transfers to the lessee at the end of the lease, the substance differs
from the legal form. In this case, the transaction is really a sale of property with installment
payments instead of a lease. The lessee will record an asset and a liability in his or her
accounting records instead of recognizing an expense.
When the substance differs from the legal form, follow the substance of the transaction. In
the example give, the substance is a sale of property in installment payments while the legal form
is a lease. This transaction should be treated as a sale of property in installments since substance
prevails over legal form.
GOING CONCERN ASSUMPTION
The going concern assumption states that the operations of a business will continue
indefinitely into the future. This means that the operations of a business will not stop in the near
future and it will not be forced to liquidate its assets to pay off its liabilities. The going concern
assumption allows accountants to defer recognition of expenses in the future.

For example, Company A rents a building for P100 000 per month. On January
1, 2019, the company paid the rent for two years in the amount of
P2 400 000. Under the going concern assumption, the company recognize the
part of the P2 400 000 that is not yet incurred. On January 1, 2019, the company
has not yet used the building but already paid the rent. In this case, the
accountant can record an asset (I.e., prepaid expense) instead of recognizing an
expense immediately. If the entity is not a going concern, there is no point
recognizing the payment as an asset since the company will not derive all
benefits from it. A company that is not a going concern will halt operations in the
near future, so the payment of P2 400 000 will be recognized wholly as an
expense instead of recording an asset.
However, if there is substantial doubt about the ability of a company to continue as a going
concern, the company can abandon this assumption. The following items are evidences that a
company is not a going concern:
1. The results of operations consistently show losses.
2. Inability to pay the obligations of the company in time
3. Loan defaults
4. Supplies do not sell on credit to the company
5. Legal proceedings against the company
ACCOUNTING ENTITY ASSUMPTION
According to the accounting entity assumption, the business (which can be a sole
proprietorship, partnership, or corporation) is separate from the owners, managers, and
employees operating the business. Likewise, if a person owns multiple businesses, each business
is distinct from all the others. This means that if a person has three businesses, then each
business will keep its own accounting records. The assets and liabilities of the three businesses
should not be mixed with one another.
The main purpose of the accounting entity assumption is for the fair presentation of the financial
statements of the company. If the personal transactions of owners, managers, and employees are
recognized in the accounting records of the business, the financial statements will not accurately
represent the results of operations of the business.
TIME PERIOD ASSUMPTION
The time period assumption states that the indefinite life of a company can be divided into
periods of equal length for the preparation of financial reports. Normally, the periods span for
one year. Every year, most businesses produce financial reports for the benefit of the users of
accounting information. Still, there are businesses that produce financial reports on periods less
than or in excess of one year. The frequency of financial reporting also depends on the normal
operating cycle of a business.
The accounting period of a business may be a calendar year or fiscal year. A calendar year
is a 12-month period that ends on December 31. A fiscal year is a 12-monthperiod that ends on
any month of the year. Some companies use the fiscal year since the peak of their operations
does not occur in December. Companies usually want to present good results for the fourth
quarter of their operations--that is why some companies prefer to use the fiscal year.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Generally Accepted Principles (GAAP) consists of accounting principles, standards,
rules, and guidelines that companies follow to achieve consistency and comparability in their
financial statements. Companies that applies GAAP help not only external users of accounting
information, but also the management as well. Since the GAAP enhances the consistency and
comparability of a company’s financial statements, it will be easier for external users to examine
if the company is doing well currently or in relation to its past performance. Simultaneously,
GAAP also helps the management in understanding trends persistent in the company.
Management can also compare past and current performance to check the strong and weak points
of company operations. Another feature of the GAAP is that it is agreed upon by practitioners.
Individuals in the accountancy profession are the ones who create accounting standards such as
the GAAP. The formulation, development, and modification of the GAAP go through a rigorous
process involving professional judgment and research.
• Business entity principle – a business enterprise is separate and distinct from its
owner or investor.
Examples : o If the owner has a barber shop, the cash of the barber shop should
be reported separately from personal cash. o The owner had a business meeting
with a prospective client. The expenses that come with that meeting should be
part of the company’s expenses. If the owner paid for gas for his personal use, it
should not be included as part of the company’s expenses.
• Going concern principle – business is expected to continue indefinitely.
Example: When preparing financial statements, you should assume that the entity
will continue indefinitely.
• Time period principle – financial statements are to be divided into specific time
intervals.
Example : o Philippine companies are required to report financial statements
annually. o The salary expenses from January to December 2015 should only be
reported in 2015.
• Monetary unit principle – amounts are stated into a single monetary unit
Example : o Jollibee should report financial statements in pesos even if they have
a store in the United States. o IHOP should report financial statements in dollars
even if they have a branch here in the Philippines
• Objectivity principle – financial statements must be presented with supporting
evidence. Example : o When the customer paid Jollibee for their order, Jollibee
should have a copy of the receipt to represent as evidence.
o When a company incurred a transportation expense, a voucher should be
prepared as evidence.
• Cost principle – accounts should be recorded initially at cost.
Example : o When Jollibee buys a cash register, it should record the cash register
at its price when they bought it. o When a company purchases a laptop, it should
be recorded at the price it was purchased.
• Accrual Accounting Principle – revenue should be recognized when earned
regardless of collection and expenses should be recognized when incurred
regardless of payment. On the other hand, the cash basis principle in which
revenue is recorded when collected and expenses should be recorded when paid.
Cash basis is not the generally accepted principle today.
Example: When a barber finishes performing his services he should record it as
revenue. When the barber shop receives an electricity bill, it should record it as
an expense even if it is unpaid.
• Matching principle – cost should be matched with the revenue generated.
Example: When you provide tutorial services to a customer and there is a
transportation cost incurred related to the tutorial services, it should be recorded as
an expense for that period.
• Disclosure principle – all relevant and material information should be reported.
Example: The company should report all relevant information.
 • Conservatism principle – also known as prudence. In case of doubt, assets and
income should not be overstated while liabilities and expenses should not be
understated.
Example: In case of doubt, expenses should be recorded at a higher amount.
Revenue should be recorded at a lower amount.
• Materiality principle – in case of assets that are immaterial to make a difference
in the financial statements, the company should instead record it as an expense.
Example: A school purchased an eraser with an estimated useful life of three
years. Since an eraser is immaterial relative to assets, it should be recorded as an
expense.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
The International Financial Reporting Standards (IFRS) are pronouncements issued by the
International Accounting Standards Board (IASB) that intend to enhance the comparability of the
financial statements of all companies around the world. In light of globalization, the IFRS will
provide a way for users of accounting information to easily understand the results of operations
of companies all around the globe.
In the past, the function of the IASB is performed by the International Accounting Standards
Committee (IASC). The pronouncements of the IASC are called International Accounting
Standards (IAS). Up to this day, the IASB still adheres to the IAS in addition to their own
pronouncements - the IFRS. The Philippines is fully compliant with the IFRS effective January
2005.
The following factors are considered in the decision to adapt the IFRS (Valix et al.2013):
1. Philippine organization’s support of international accounting standards
2. Increasing internalization of business which greatly calls for a common
language for financial reporting
3. Improvement of international accounting standards or removal of free choices
of accounting treatments
4. International accounting standards being recognized by the World Bank,
Asian Development Bank, and World Trade Organization
PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS)
The Philippine Reporting Standards Council (FRSC) issues standards to be used in the
Philippines in the form of Philippine Financial Reporting Standards (PFRS).
The PFRS include the following:
1. Philippine Financial Reporting Standards (PFRS) which corresponds to
International Financial Reporting Standards (IFRS)
2. Philippine Accounting Standards (PAS) which corresponds to
International Accounting Standards (IAS)
 3. Interpretations of accounting standards issued by the Philippine
Interpretations Committee in accordance with interpretations of the
International Financial Reporting Interpretations Committee (IFRIC) and
the Standing Interpretations Committee

Let’s Dig In

TLE 10 - ACCOUNTING
SY 2020-2021
Name: _________________________ Date: ________________
Gr. & Section: __________________
ACCOUNTING CONCEPTS AND PRINCIPLES
ACTIVITY #1
Directions: Below are accounting concepts and principles. Match each description to
the correct accounting concept and principle. Write your answer on the space provided.
A. Going concern principle E. Time period principle H. Monetary unit principle
B. Objectivity principle F. Cost principle I. Accrual accounting principle
C. Matching principle G. Disclosure principle J. Conservatism principle
D. Materiality principle
___________________1. All relevant information should be included in the financial
reports
___________________2. In case of doubt, assets and income should not be overstated.
___________________3. Assume that the company will continue indefinitely.
__________________4. All transactions should be supported by unbiased evidence.
___________________5. Expenses should be recorded in the period when the revenue is
generated.
___________________6. Minimal costs incurred should be recorded as an expense.
___________________7. A Philippine company should report financial statements in
pesos.
___________________8. A barber who performs services for a client should record
revenue.
___________________9. Statement of Financial position should be recorded as of
December 31, 2015.
___________________10. A company that purchases furniture should record it at its
acquisition price.
 TLE 10 - ACCOUNTING
SY 2020-2021
Name: _________________________ Date: ________________
Gr. & Section: __________________
ACCOUNTING CONCEPTS AND PRINCIPLES
ACTIVITY #2
Directions: Indicate which principles are presented for the following examples. Write the
letter on the space provided.

A. Objectivity B. Business entity C. Monetary unit

D. Materiality E. Time period F. Business entity

_____1. The owner-manager bought a computer for personal use. The invoice was given
to the accountant who recorded it as an asset of the business.
_____2. The statement of financial position of a company included an equipment
purchased from Japan for 350,000 yen. It was reported at that amount in the statement of
financial position while all the other assets were reported in Philippine pesos.
_____3. No financial statements were prepared by Michael Go for his business. He
explained that he will prepare the statements when he closes the business, which he
predicts to take place after 20 years.
_____4. Aside from owning a shoe store, Albert operates a canteen. The assets of the
canteen are reported in the statement of financial position of the shoe store.
_____5. Purchased a hammer at a cost of PHP500. This was recorded as an asset and
expense to decrease its value by PHP50 per year for 10 years.
_____6. A food company ordered a machine needed in the assembly line of its
production department. Upon order, the machine was immediately listed as one of its
assets.
 TLE 10 - ACCOUNTING
SY 2020-2021

Name: _________________________ Date: ________________

Gr. & Section: __________________
ACCOUNTING CONCEPTS AND PRINCIPLES
ACTIVITY #3
Direction: Read the following statements. Write T if the statement is correct about accounting principles
and concepts, F if the statement is false about accounting principles and concepts. Write your answer
inside the box provided.

Questions True False

1. Cash basis considers the revenue as realized when the goods
are produced.
2. Accounting Principle is general law or rule followed in the
preparation of financial statements
3. In keeping with the principle of materiality, important items
must be recorded instead of being left out or merged with other
items
4. Since the life of the business is assumed to be indefinite, the
financial statement of the business should be prepare only when
it goes into liquidation
5. Accrual Accounting Principle states that revenue should be
recognized when earned regardless of collection and expenses
should be recognized when incurred regardless of payment

6. Disclosure principle is also known as prudence. In case of

doubt, assets and income should not be overstated while
 liabilities and expenses should not be understated

Supplementary Video Link

Watch the short video about accounting principles and concepts. This additional/supplementary
learning material will help you understanding the accounting principles and concepts. The link
provided will direct you to the video.
https://www.youtube.com/watch?v=eDFNyoN-uPI

Answer the following questions:

1. What are accounting principles?
________________________________________________________________________
_______________________________________________________________________.
2. What is GAAP?
_______________________________________________________________________.
3. What is IFRS?
_______________________________________________________________________.
4. What are the top 6 list of accounting principles?
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________.

Let’s Remember

Directions: Supply the missing statement related to accounting principles and concept to
complete the idea or thought of the following paragraph.
1. The fundamental idea of accrual accounting can be stated as follows:
“____________________________________________________________________
____________________________________________________________________”
2. The going concern assumption states______________________________________
____________________. This means that the operations of a business will not stop in
the near future and it will not be forced to liquidate its assets to pay off its liabilities.

Let’s Apply
Directions: Identify the accounting principle and concept for the following examples. Write your
answer on the space provided.
____________1. When you provide tutorial services to a customer and there is a transportation
cost incurred related to the tutorial services, it should be recorded as an expense for that period.
____________2. A school purchased an eraser with an estimated useful life of three years. Since
an eraser is immaterial relative to assets, it should be recorded as an expense.
____________3. Philippine companies are required to report financial statements annually. o
The salary expenses from January to December 2015 should only be reported in 2015.

Let’s Evaluate
Directions: Read and analyze each item. Circle the letter of the best
answer.
1. The accounting guideline that requires financial statement information to be supported by
independent, unbiased evidence other than someone's belief or opinion is the:
a. Business entity principle b. Monetary unit principle
c. Going-concern principle e. Objectivity principle
2. The principle that requires every business to be accounted for separately and distinctly from its
owner or owners is known as the:
a. Objectivity principle b. Business entity principle
c. Going-concern principle d. Revenue recognition principle
3. The rule that requires financial statements to reflect the assumption that the business will
continue operating instead of being closed or sold, unless evidence shows that it will not
continue, is the:
a. Going-concern principle b. Business entity principle
c. Objectivity principle d. Cost Principle
4. To include the personal assets and transactions of a business's owner in the records and
reports of the business would be in conflict with the:
a. Objectivity principle c. Realization principle
b. Going-concern principle d. Revenue recognition principle
5. The objectivity principle:
a. means that information is supported by independent, unbiased evidence
b. means that information can be based on what the preparer thinks is true
c. means that financial statements should contain information that is optimistic
d. means that a business may not re-organize revenue until cash is received
6. Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle
requires Marian to keep her personal financial information separate from the financial
information of Mosely Accounting Services?
a. Monetary unit principle c. Going-concern principle
 b. Cost principle d. Business entity principle
7. Which of the following accounting principles would require that all goods and services
purchased be recorded at cost?
a. Going-concern principle . c. Continuing-concern principle
b. Cost principle d. Business entity principle
8. The opposite of accrual accounting is the
a. Cash basis accounting c. Going-concern principle
b. Revenue recognition principle d. Monetary unit principle
9. The ________________________ consists of accounting principles, standards, rules, and
guidelines that companies follow to achieve consistency and comparability in their financial
statements.
a. Generally Accepted Principles
b. Philippine Financial Reporting Standards
c. Philippine Accounting Standards
d. International Accounting Standards
10. _____________ is an item in the accounting records that requires the use of estimates.
a. Penalty expense c. Warranty expense
b. Guaranty expense d. Rent expense

Let’s Extend

Look for a short video about business owner and their accounting practices. Identify the accounting
principles and concept applied for each example. Write your answer on the space provided.

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References

 Florendo, F. G. (2016). Fundamentals of Accountancy, Business, and

Management I. Rex Bookstore
 Teaching Guide for Senior High School
Fundamentals of Accountancy, Business, and Management 1