Accounting

Concepts
and Principles
Generally Accepted Accounting PRINCIPLES
(GAAP)
- a widely accepted set of rules, concepts,
and principles
- The accounting standards used in the
Philippines are the PAS and PFRS.
Underlying Accounting
Assumptions
ACCOUNTING ENTITY ASSUMPTION
- the assumption that the business is an entity
separate and distinct from the owners, managers,
and employees.
- Personal transactions of owners, managers and,
employees should not distort the results of
company operations
 ACCRUAL Basis Assumption
- it requires that all business transactions and other
events are recognized in the accounting records when
they occur, rather than when the cash or equivalent is
received or paid.
- results in more accurate financial statements.
 Cash basis of accounting
- opposite of the accrual basis of
accounting; recognizes income when
cash is received and recognizes
expenses when cash is paid.
 Going concern assumption
- the assumption that the entity will continue
operations indefinitely into the future.
- It can be abandoned if there are evidences
supporting the contrary.
 Monetary Unit assumption
- economic activities of a Philippine entity are
measured and reported in Philippine peso
- disregards inflation
 Time period assumption
- the assumption that the indefinite life of a
company can be divided into multiple time
periods with equal lengths.
- the result of this is the periodic presentation of
a company’s financial statements.
 Time period assumption
- A calendar year is a 12-month period that ends
on December 31.
- A fiscal year is a 12-month period that ends on
any month.
Basic Accounting Principles
 Cost principle
- the amount shown in financial
statements are referred to as historical
cost amounts
- also known as the historical cost
principle
 Full Disclosure principle
- in the preparation of financial
statements, the accountant should
include sufficient information to permit
the stakeholders to make an informed
judgement about the financial condition
of the enterprise.
 Matching principle
- this principle requires that expenses
be matched with revenues
 Revenue Recognition principle

- revenues are recognized as soon as

goods have been sold (delivered to the
customers) or a service has been
rendered, regardless of when the money
is actually received.
 Materiality principle
- business transactions that may affect
the decision of a user of financial
information are considered important or
material, and thus, must be reported
properly
 Conservatism / PRUDENCE
- means exercising care in decisions regarding
recognition of items in the accounting records.
- In case of doubt, recognize liabilities and expenses
and do not recognize assets and income.
- Income and assets are not overstated
and liabilities and expenses are not
understated.
 Objectivity Principle
- the principle requires business
transations to have some form of
impartial supporting evidence or
documentation.
Thank you!
 Formative
Assessment!
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION
e. MATCHING PRINCIPLE
1. Joe, a business owner, incurs expenses for the
repair of his house. This expense should not be
reflected in the financial statements of his
business, It should be considered as a personal
expense.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION
e. MATCHING PRINCIPLE
2. Joey, a car salesman, rendered service for a car
company in December. Joe was able to sell five cars in
December. However, he was paid by the company in
January of the next year. Joe’s salary will be recorded as
an expense of the car company in December.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION
e. MATCHING PRINCIPLE

3. A company prepares financial reports

every year for the benefit of its
stockholders.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION
e. MATCHING PRINCIPLE

4. A company records warranty expense

even though it is not entirely sure when
warranties will be performed.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION
e. MATCHING PRINCIPLE

5. Credit sales are recorded by a company

as revenues even though no cash is
received.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION e. PRUDENCE
f. MATCHING PRINCIPLE g. GOING CONCERN ASSUMPTION

6. The indefinite life of a company can be

divided into periods of equal length for the
preparation of financial reports.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION e. PRUDENCE
f. MATCHING PRINCIPLE g. GOING CONCERN ASSUMPTION

7. Income and assets are not overstated

and liabilities and expenses are not
overstated.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION e. PRUDENCE
f. MATCHING PRINCIPLE g. GOING CONCERN ASSUMPTION

8. Income should be recognized in the

period when it is earned regardless of when
the payment is received.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION e. PRUDENCE
f. MATCHING PRINCIPLE g. GOING CONCERN ASSUMPTION

9. The business is separate from the

owners, managers, and employees
operating the business.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION e. PRUDENCE
f. MATCHING PRINCIPLE g. GOING CONCERN ASSUMPTION

10. Expenses are recognized in the same

period as the related revenue.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION e. PRUDENCE
f. MATCHING PRINCIPLE g. GOING CONCERN ASSUMPTION

11. Approximations made by Accountants or

the management in the preparation of
financial statements.
a. ACCRUAL ACCOUNTING b. TIME PERIOD ASSUMPTION
c. USE OF JUDGMENT AND ESTIMATES
d. ACCOUNTING ENTITY ASSUMPTION e. PRUDENCE
f. MATCHING PRINCIPLE g. GOING CONCERN ASSUMPTION

12. It is assumed that the operations of a

business will continue indefinitely into the
future.