Petness First Petshop

Juan dela Cruz opened his pet shop business called Petness 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

Rent expense 10,000
Utilities expense (at home) 15,000
Utilities expense (at the store) 10,000
Insurance expense 5,000
Withdrawals 10,000
TOTAL 60,000
Accounting
Concepts and
Principles
Accounting Concepts and Principles
Are set of logical ideas and procedures that guide
the accounting in recording and communicating
economic information.They provide general frame of
reference by which accounting practice can be
evaluated and they serve as guide in the
development of new practices and procedures.
Accounting concepts and principles provide
reasonable assurance that information communicated
to users is prepared in a proper way.
Basic Accounting Concepts
 Business entity principle – a business enterprise is separate and
distinct from its owner or investor.
 Going concern principle – business is expected to continue
indefinitely.
 Time period principle – financial statements are to be divided
into specific time intervals.

Reporting period is usually 12 months,although it can be longer or shorter.

Calendar year period-starts on January 1 to December 31 of the same year.
Fiscal year period – also covers 12 months but starts on a date other than
January 1.e.g. July 1, 2017 to June 30, 2018.
Interim period – shoarter than 12 months , can be a month quarter or a semi
annual period (6 mos.)
 Monetary unit principle – amounts are stated into a single
monetary unit
 Objectivity principle – financial statements must be presented
with supporting evidence.
 Cost principle – accounts should be recorded initially at cost.
 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.
 Matching principle – cost should be matched with the revenue
generated.
 Disclosure principle – all relevant and material
information should be reported.
 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.
 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.