LESSON 1.

3: ACCOUNTING PRINCIPLES
AND CONCEPTS
Maria Aries Ortega – Poliquit MICB,RCA, CAT
LEARNING OUTCOMES

After studying this lesson, you will be able to:

1. Understand what generally accepted accounting
principles are.
2. Explain the objectives and identify the content of the
conceptual framework of financial reporting
3. Enumerate the different qualitative characteristics of
useful financial information
4. Identify the components of a complete set of financial
statements
5. Know the different accounting principles
GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
• is the set of rules, principles, standards, conventions
and underlying assumptions that are used when
preparing the financial statements
• serves as a guide for individuals in the accounting
profession.
Philippine Financial Reporting Standards

• is the set of standards issued by the Financial

Reporting Standards Council (FRSC) and constitutes
the generally accepted accounting principles
observed in the Philippines
• The PFRS includes the following:
1. Philippine Accounting Standards (PAS)
2. Philippines Financial Reporting Standards (PFRS)
3. Interpretations published by the Philippine
Interpretations Committee (PIC)
Conceptual Framework
• the system of ideas and objectives that lead to the
creation of a consistent set of rules and standards
• The purpose of the conceptual framework is to
1. Assist the FRSC to develop PFRS that are based on
consistent concepts
2. Assist preparers to develop consistent accounting
policies when no standard applies to a particular
transaction or other event, when a standard allows a
choice of accounting policy; and
3. Assist all parties to understand and interpret the
standards
Objective of Financial Reporting

The objective of financial reporting is to provide

financial information that is useful to users in making
decisions relating to providing resources to the entity.
 Qualitative Characteristics of a Useful
Information
• Relevance - is the capability of financial information to make
a difference in the decisions made by the users. Financial
information can make a difference if it is both Predictive and
Confirmatory.
• Faithful Representation – financial information must not only
present relevant phenomena, but it must faithfully represent
the substance of the phenomena that its purports to be. To
be perfectly faithfully represented, the information must be
complete, neutral, and free from error.
• Verifiability – means that different knowledgeable and
independent, observers could reach a consensus, although
not necessarily complete agreement, that a particular
depiction is a faithful representation.
 Qualitative Characteristics of a Useful
Information
• Comparability - enables users to identify and
understand similarities in and differences among, items.
• Understandability – means classifying, characterizing
and presenting information clearly and concisely.
• Timeliness – means having information available to
decision-makers in time to be capable of influencing
their decisions. Generally, the older the information is
the less useful it is.
Basic Accounting Principles
• Economic Entity Principle states that the business is
considered distinct and separate from the owners of the
business.
• Monetary Unit Assumption Principle dictates that all activity
to be recorded in the same currency, in the Philippines, the
Philippines Peso.
• Specific Time Period Assumption states that all financial
statements have to indicate the same time period for the
activity reported in order for them to be meaningful to those
reviewing them.
• Full Disclosure Principle states that a business is required
to disclose all information that relates to the function of its
financial statements in notes accompanying the statements.
Basic Accounting Principles
• Going Concern this principle assumes the business will
continue to exist and function with no defined end date.
• Matching Principle accounting for revenue and expenses
are matched. Meaning, revenue and the expenses directly
related to those revenues are reported in the same
accounting period.
• Accrual Basis revenue is reported when it is earned,
regardless when payment for the product or service is
actually received.
• Materiality is an entity specific aspect of relevance based
on the nature or magnitude or both, of the items to which
the information relates in the context of an individual
entity’s financial report.