FABM I – GRADE 11

Name: ______________________________________ Date: ____________________

Grade: ______________________________________ Section: ___________________

Quarter: 1 Week: 2 SSLM No. 2 MELC(s): The learner explains the varied
accounting concepts and principles and solve exercises on accounting
principles as applied in various cases.
➢ Objectives: At the end of the lesson, the learners will be able to enumerate
the principles of accounting; differentiate each principle and apply these
principles in a business setting.
➢ Title of Textbook/LM to Study: Fundamentals of Accountancy, Business
and Management I
➢ Chapter: 6 Pages: 32-40 Topic: Accounting Concepts and Principles

Let Us Discover

In our previous lesson, we were able to learn the different meaning of

accounting. Accounting is regarded as the business language. Accounting is required
for enterprises to determine their financial performance. There are various types of
business entities based on their structure and operations. A corporation, a partnership,
or a sole proprietorship are all options for forming a business. A company can be run
as a service, merchandising, or manufacturing operation. We occasionally want to
compare our performance to that of similar organizations; but, because there are so
many different ways and assumptions to produce financial reports, we require a
universally accepted accounting rule. The goal of this session's lesson is for you to be
able to recognize the many accounting concepts and principles, as well as determine
if a given circumstance follows or violates an accounting principle.

Accounting Assumptions – these are the underlying assumptions or premises that

the accounting process is built on. Postulates are another term for accounting
assumptions. Only ONE premise, GOING CONCERN, is mentioned in the New
Conceptual Framework for Financial Reporting.

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 1. Accruals - Expenses are recorded when they are incurred, not when they are
paid, and income is recognized when it is earned, not when it is received.
Example: Dennis received an electricity bill, he should record it as expense
even it is not yet paid.
When a barber completes his services, he should record it as revenue.
2. Time Period - According to this postulate, a company must produce financial
reports on its financial situation, performance, and cash flows for a "one-year
period."
Calendar Year - is a calendar year that begins on January 1 and concludes on
December 31.
Fiscal year - is a one-year period consisting of any consecutive months (e.g.
April 30 20A to May 31 20B; June 30 20A to July 31 20B).
Natural year - is a one-year term that ends when the annual cycle of company
operations reaches its lowest point.
Example: Companies in the Philippines are required to provide financial
accounts on a yearly basis.
Only the salaries and wages for the months of January to December 2020
should be recorded for the year 2020.
3. Going concern or continuity - This assumption is based on a company that will
continue to operate in the near future.
Example: You should presume that the entity will continue indefinitely while
generating financial statements.
4. Accounting Entity - The firm's owners, managers, and employees are distinct
from the business enterprise.
Example: If the owner operates a barbershop, the barbershop's cash should be
disclosed separately from personal cash.
5. Monetary Unit - Financial statements must be expressed in Philippine pesos,
and any fluctuations in the peso's value may be ignored.
Example: Even if the business operates a location outside the Philippines, a
business should publish financial accounts in pesos.
6. Cost Principle - Initially, accounts should be reported at cost.
Example: When a company buys a laptop, it should be recorded at purchase
price.
7. Objectivity Principle - Financial statements must be accompanied by supporting
documentation.
Example: A company should have a copy of the receipt to show as evidence
when the consumer paid for their order.
8. Materiality Principle - When assets are insignificant enough to make a
difference in the financial accounts, the corporation should record them as an
expense instead.
Example: An eraser with a three-year projected useful life was purchased by a
school. Because an eraser isn't worth much in terms of assets, it should be
recorded as an expense.

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 Let Us Try

FurFriends Pet shop

Dennis Manua Aujero started his own pet store, HaYoup Petshop. He opened
a business bank account and deposited P 200,000. The company made PHP80,000,
but he had reservations about the P 50,000 expense. He is undecided about whether
or not to include the following expenses in his budget.
Salary expense P 10,000
Rent expense (at home) 5,000
Rent expense (at the shop) 15,000
Utilities expense 5,000
Insurance expense 7,000
Withdrawals 8,000
Total P 50,000

What should not be included as an expense? After that, explain why.

Responses that could be made:

Salary expense - It should be included because it is connected to the business
operations.
Rent expense (at home) - It is a personal expense that should not be included.
Rent expense (at the shop) - It should be included since the rent is for the business.
Utilities expense – It should be included because it is a business expense.
Insurance expense - Since the insurance is for the business, it should be included.
Withdrawals - Since the withdrawal is for personal use, it should not be included.

The activity is a practical application of the Accounting Entity Principle, Dennis

Manua Aujero, the owner, is distinct from FurFriends Pet shop. Thus, personal
expenses should not be reported in business report.

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 Let Us Do

Activity 1. You complete me!

Accruals Time Period Going concern or continuity

Accounting Entity Monetary Unit Cost Principle
Objectivity Principle Materiality Principle
Calendar Year Fiscal Year

Instruction: Fill in the blanks with the definitions of the following words.

_________________1. A barber who completes services to a client should record

revenue.
_________________2. When a company buys furniture, it should record it at its
purchase price.
_________________3. Financial statements for a Philippine company should be
reported in pesos.
_________________4. Assume the business will live indefinitely.
_________________5. As of December 31, 2020, a Statement of Financial Position
should be recorded.
_________________6. All transactions should be backed up by objective evidence.
_________________7. The minimum amount of costs should be recorded as an
expense.
_________________8. The principle that every business must be separately and
clearly accounted for from its owner or owners.
_________________9. It is a year that begins on January 1 and concludes on
December 31.
_________________10. It is a one-year period consisting of any consecutive months.

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 Let Us Apply

Activity 2. You know me better!

Instruction: Indicate which accounting principles have been violated. Write the
answers on the blank provided.

1. A hammer was purchased for P 300. This was recorded as an asset and an
expense to depreciate it by P 30 per year for ten years.
___________________________________

2. For personal usage, the owner-manager purchased a computer. The invoice

was given to the accountant, who entered it into the accounting system as a
business asset. ___________________________________

3. An item acquired from Malaysia for 300,000 ringgits was included in a

company's statement of financial situation. In the statement of financial position,
it was valued at that amount, while all other assets were valued in Philippine
pesos. ___________________________________

4. Dennis runs a canteen in addition to his pet store. The assets of the canteen
are reported in the pet store's statement of financial position.
___________________________________

5. In December, a manufacturing company performs extensive repairs on one of

its machines. Using a calendar period, it pays the bill when it arrives in January
of the following year. ___________________________________

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 Rubrics

If applicable, provide rubrics on how the learners or their outputs will be graded.

References

Include bibliography of learning resources used in the development of this SSLM

SSLM Development Team

Writer: Dennis M. Aujero
Content Editor:
LR Evaluator:
Illustrator:
Creative Arts Designer: Reggie D. Galindez
Education Program Supervisor: Luzviminda Loreno
Education Program Supervisor – Learning Resources: Sally A. Palomo
Curriculum Implementation Division Chief: Juliet F. Lastimosa
Asst. Schools Division Superintendent: Carlos G. Susarno, Ph. D.
Schools Division Superintendent: Romelito G. Flores, CESO V

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GSC-CID-LRMS-ESSLM, v.r. 03.00, Effective June 9, 2021
Let Us Apply Let Us Do
1. Materiality Principle 1. Accruals
2. Accounting Entity 2. Cost Principle
3. Monetary Unit 3. Monetary Unit
4. Accounting Entity 4. Going concern or continuity
5. Accruals 5. Time Period
6. Objectivity Principle
7. Materiality Principle
8. Accounting Entity
9. Calendar Year
10. Fiscal Year
Answer Key
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