Name: Josh Adrian Greg S.

Mante
Block: 1BSTMACCO 001

Fundamentals of Accounting Activity and Assessment 1

A. Identifying the applicable Accounting Principle

1.) The personal assets of the owner of a company will not appear on the company's balance
sheet because of which principle/guideline? Economic Entity Assumption
2.) Which principle/guideline requires a company's balance sheet to report its land at the
amount the company paid to acquire the land, even if the land could be sold today at a
significantly higher amount? Cost Principle
3.) Which principle/guideline allows a company to ignore the change in the purchasing power
of the peso over time? Monetary Unit Assumption
4.) Which principle/guideline requires the company's financial statements to have footnotes
containing information that is important to users of the financial statements? Full Disclosure
Principle
5.) Which principle/guideline justifies a company violating an accounting principle because the
amounts are immaterial? Materiality
6.) Which principle/guideline is associated with the assumption that the company will continue
on long enough to carry out its objectives and commitments? Going Concern Principle
7.) A very large corporation's financial statements have the peso amounts rounded to the
nearest P1,000. Which accounting principle/guideline justifies not reporting the amounts to
the penny? Materiality
8.) Accountants might recognize losses but not gains in certain situations. For example, the
company might write-down the cost of inventory, but will not write-up the cost of inventory.
Which principle/guideline is associated with this action? Conservatism
9.) Which principle/guideline directs a company to show all the expenses related to its
revenues of a specified period even if the expenses were not paid in that period? Time Period
Principle
10.) When the accountant has to choose between two acceptable alternatives, the accountant
should select the alternative that will report less profit, less asset amount, or a greater liability
amount. This is based upon which principle/guideline? Conservatism

B. Define or discuss the following:

1.) Accounting
- Accounting is the recording of financial transactions along with storing, sorting, retrieving,
summarizing, and presenting the results in various reports and analyses. Accounting is also a
field of study and profession dedicated to carrying out those tasks.
2.) Generally Accepted Accounting Principles (GAAP)
- The Generally Accepted Accounting Principles or more well known as GAAP are a set of
standards that an accountant must strictly follow. As the name implies, GAAP are principles
accepted by the general practitioners of accounting for it is: (1) founded from basic accounting
principles and guidelines, (2) they are the detailed issued rules and standards by FASB and the
Accounting Principles Board (ABP), and (3) they are generally accepted in the industry’s
practices.
3. )International Accounting Standards (IAS)
- IAS is the previous set of guidelines explaining how specific types of transactions and other
events should be reported in financial statements.
4.) International Financial Reporting Standards (IFRS)
- At least 120 nations, including the Philippines, have adopted the International Financial
Reporting Standards (IFRS), a collection of accounting guidelines that describe how specific
kinds of transactions and other events should be represented in financial statements. Utilizing
IFRS is justified in order to maintain consistency in the recording, recognizing, and measuring
of financial transactions. If done correctly, this will promote stability and transparency across
the company's financial reporting process. These standards are voluntary, and compliance is
not required.
5.) Evolution of accounting standards in the Philippines
- The Generally Accepted Accounting Principles of the US were the first accounting standards
applied in the Philippines. The Philippine Financial Reporting Standards (PFRS)/Philippine
Accounting Standards (PAS), a new set of accounting standards released by the Accounting
Standards Council (ASC), are now used to guide the creation of financial statements as a result
of the convergence of reporting standards. These standards are based on the updated and
revised International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS) issued by the International Accounting Standards Board (IASB).

C. Enumerate and Discuss the following:

1.) Forms of Business Organization

• Sole Proprietorship - These firms are owned by one person, usually the individual who
has day-to-day responsibility for running the business. Sole proprietorships own all
the assets of the business and the profits generated by it. They also assume complete
responsibility for any of its liabilities or debts.
• Partnership - In a Partnership, two or more people share ownership of a single
business. Like proprietorships, the law does not distinguish between the business and
its owners. The Partners should have a legal agreement that sets forth how decisions
will be made, profits will be shared, disputes will be resolved, how future partners will
be admitted to the partnership, how partners can be bought out, or what steps will be
taken to dissolve the partnership when needed.
• Corporation - A Corporation, chartered by the state in which it is headquartered, is
considered by law to be a unique entity, separate and apart from those who own it. A
Corporation can be taxed; it can be sued; it can enter into contractual agreements. The
owners of a corporation are its shareholders. The shareholders elect a board of
directors to oversee the major policies and decisions. The corporation has a life of its
own and does not dissolve when ownership changes.
o Stock Corporation – a corporation with capital stock divided into shares and
authorized to distribute to the holders of such share’s dividends or allotments of
the surplus profits based on the shares held.
o One–Person Corporation - Any natural person (who must be of legal age), trust,
or estate may own stock in a one-person company (OPC), which is a type of
corporation with only one stockholder.
 o Non-Stock Corporation - is a corporation set up primarily for public goals, such
as charitable, educational, cultural, or similar ones; it does not provide its
members stock.

2.) Types of Business Activity

• Service Business – a type of business that offers products that are intangible. This
includes services that involve professional skills, expertise, advice, and other similar
products
• Merchandising Business – commonly known as “buy and sell business” because of it
making a profit from selling products at a higher cost than their original purchase costs.
• Manufacturing Business – it involves the transformation of products that are
purchased. Raw materials. labor, and overhead costs are needed in the production of a
new manufactured good that will then be sold to potential customers.

3.) 10 Generally Accepted Accounting Principles

• Economic Entity Assumption

• Monetary Unit Assumption
• Time Period Assumption
• Cost Principle
• Full Disclosure Principle
• Going Concern Principle
• Matching Principle
• Revenue Recognition Principle
• Materiality
• Conservatism

4.) Give some of the important uses of accounting information

1.) Accounting information is used to measure the performance of various business operations.
Financial ratios use the accounting information reported on financial statements and break it
down into leading indicators. These indicators can be compared to other companies in the
business environment or an industry standard. This helps business owners understand how
well their companies operate.

2.) Historical financial accounting information provides business owners with a detailed
analysis of how their companies have spent money. Business owners use this information to
create budgets for their companies. These budgets can be adjusted based on current
accounting information to ensure a business owner does not restrict spending on critical
economic resources.

3.) Accounting information is commonly used to make business decisions. For financial
management, an income statement and accounting of expenses provide an important
overview of the business. Decisions may include expanding current operations, using different
economic resources, purchasing new equipment or facilities, estimating future sales, or
reviewing new business opportunities

4.) Accounting information is an important tool for business owners to understand the
potential income and costs of expanding or growing their business. New opportunities with
low-income potential and high costs are often rejected by business owners because they are
too expensive or time-consuming to start a new business.

5.) Many small businesses need external financing to start up or grow. The lack of accounting
information can severely limit financing opportunities for a small business. Banks, lenders, and
investors use this information to review a company's financial health and operational
profitability. This provides information about whether or not a company is a wise investment
decision.

5.) 8 Branches of Accounting

• Financial Accounting - It involves recording and categorizing transactions for a

business. It is also performed to conform to external regulations and requirements.
• Cost Accounting - It is most commonly used in the manufacturing industry and is a
sub-type of managerial accounting.
• Auditing - There are two types of auditing: Internal auditing and External auditing.
* Internal Auditing – where it involves the process of evaluating how a business
divides up accounting duties, who is authorized to do what accounting task, and what
procedures and policies are in place.
* External Auditing - where an independent third party reviews a company’s financial
statements to make sure they are presented correctly and comply with GAAP and IFRS.
• Managerial Accounting - the main focus of this type of accounting is to provide data
that managers need to make decisions about a business’s operations, not comply
strictly with GAAP.
• Accounting Information Systems (AIS) - AIS encompasses everything that has to do
with accounting systems and processes and their construction, installation, application,
and observation.
• Tax Accounting - It involves planning for tax diminution, payment schemes, and the
preparation of income tax returns.
• Forensic Accounting - It is a specialized accounting service that centralizes legal affairs
such as inquiry into fraud, legal cases and dispute, and claims resolution.
• Fiduciary Accounting - It centers around the management of property for another
person or business. Fiduciary accounting covers estate accounting, trust accounting,
and receivership (the appointing of a custodian of a business’s assets during events
such as bankruptcy).