GAAP

Generally Accepted
Accounting Principles

JENILUZ F. MAMAYSON
 GAAP
Refers to a common set of
accounting principles,
standards and procedures
issued by the financial
accounting standards
board (fasb).
 3

“
CONCEPTUAL
FRAMEWORK
(Assumptions and Financial
Reporting)
Accounting assumptions
provide structure to how
business transactions are
recorded. Accounting
assumptions are also
known as Postulates.
 4

the four basic accounting

assumptions are as follows:

➜ Going Concern
➜ Accounting Entity/ Economic
Entity
➜ Time Period
➜ Monetary

basic accounting assumptions
Going Concern
✔ The going concern
assumption means that in
the absence of evidence to
the contrary, the accounting
entity is viewed as
continuing in operation
indefinitely.
5
Accounting Entity/
Entity Concept/
Business Entity Concept
✔ The entity is separate from the
owners, managers, and
employees who constitute the
entity
✔ The reason for the entity
assumption is to have a fair
presentation of financial
statement.

basic accounting assumptions
Time Period/Periodicity/
Accounting Period
✔ Means that the life of the business is
divided in equal intervals or period,
wherein every period, financial
statements should be prepared
CALENDAR PERIOD – period that
starts from January and ends in
December
Ex. JANUARY 1 – DECEMBER 31
FISCAL PERIOD – any 12 consecutive
month that start from any month.
EX. MARCH 1, 2018 – FEB 28, 2019
6
Monetary Unit
✔ The monetary unit assumption has
two aspects, namely quantifiability
and stability of the peso
✔ The quantifiability aspect means that
the assets, liabilities , equity, income
and expenses should be stated in
terms of a unit of measure which is
the peso in the Philippines.
✔ The stability of peso assumption
means that the purchasing power of
the peso is stable or constant and that
its instability is insignificant and
therefore maybe ignored
 7

CONCEPTUAL FRAMEWORK
(Qualitative Characteristics)

Qualitative Fundamental The fundamental

Characteristics qualitative qualitative
are the qualities characteristics characteristics are:
or attributes that relate to the
make financial content or a. Relevance
accounting substance of b. Faithful
information financial Representation
useful to the information. (Information must be both
relevant and faithfully
users. represented if it is to be useful.)
 8
CONCEPTUAL FRAMEWORK
(Qualitative Characteristics)

Materiality
Is a practical rule in accounting
Relevance which dictates that strict
adherence to GAAP is not
In the simplest required when the items are not
terms, relevance is significant enough to affect the
evaluation, decision and fairness
the capacity of the of the financial statement.
information to Also known as Doctrine of
influence a Convenience

decision. An item is material if knowledge

of it would affect or influence
the decision of the informed
users of the financial
statements.
 9

CONCEPTUAL FRAMEWORK
(Qualitative Characteristics)
Relevance
✔ In the simplest terms, relevance is the capacity of the
information to influence a decision.

Materiality
✔ Is a practical rule in accounting which dictates that
strict adherence to GAAP is not required when the
items are not significant enough to affect the
evaluation, decision and fairness of the financial
statement.
✔ Also known as Doctrine of Convenience
✔ An item is material if knowledge of it would affect
or influence the decision of the informed users of
the financial statements.
 10

CONCEPTUAL FRAMEWORK
(Qualitative Characteristics)
Faithful Representation
✔ Faithful Representation means that financial reports
represent economic phenomena or transaction in words and
numbers.
✔ The actual effects of the transactions shall be properly
accounted for and reported in the financial statement.
Ingredients of Faithful Representation
To be a perfectly faithful representation, a depiction
should have three characteristics namely:

a. Completeness
b. Neutrality
c. Free from Error

Completeness
▪ Completeness requires
that relevant
information should be Neutrality
presented in a way that ▪ A neutral depiction is
facilitates “without bias” in the
understanding and preparation or
avoids erroneous presentation of financial
implication. information.
▪ The financial
information should not
favor one party to the
detriment of another
party.
11
Free from error
▪ Free from error means
there are no errors or
omissions in the
description of the
phenomenon or
transaction, and the
process used to produce
the reported information
has been selected and
applied with no errors in
the process.
 12
CONCEPTUAL FRAMEWORK
(Enhancing Qualitative Characteristics)

▪ The enhancing qualitative characteristics relate to the

presentation or form of the financial information

▪ Intended to increase the usefulness of the financial

information that is relevant and faithfully represented.

The enhancing qualitative characteristics are:

a. Consistency
b. Comparability
c. Understandability
d. Verifiability
e. Timeliness

CONCEPTUAL FRAMEWORK
(Enhancing Qualitative Characteristics)
Consistency Comparability
The accounting Comparability means the
methods and ability to bring together for
practices should be the purpose of noting points
applied on a uniform of likeness and difference.
basis from period to Comparability within an
period.
entity is the quality of
The accounting information that allows
methods and comparison within a single
practices should be entity through time or from
applied on a uniform one accounting period to the
basis from period to next.
period. For information to be
comparable, like things must
be look alike and different
things must look difference
13
Understandability
For information to be
comparable, like things
must be look alike and
different things must
look difference
Accordingly, the
information should be
presented in a form and
expressed in
terminology that a user
understands.
Financial statements
cannot realistically be
understandable to
everyone.

CONCEPTUAL FRAMEWORK
(Enhancing Qualitative Characteristics)
Verifiability
Means that the accounting
information presented in
financial statements must
be verifiable by
independent accountants.
Verifiability helps to assure
that the financial
statements are a true and
fair representation of
underlying transactions.
14
Timeliness
Timeliness means that
financial information must be
available or communicated
early enough when a decision
is to be made.
Timeliness means that
financial information must be
available or communicated
early enough when a decision
is to be made.
 15

ACCRUAL BASIS COST PRINCIPLE/ HISTORICAL COST

❑ Expense is recognized or recorded when ❑ The cost of the assets should be recorded
INCURRED, regardless when to paid at cost at the time of acquisition.
❑ Income is recognized or recorded when
EARNED, regardless when to collect

CASH BASIS CONSERVATISM/PRUDENCE

❑ Income is recognized or recorded when ❑ Requires that accountants should exercise

cash was collected. a degree of caution in the adoption and
❑ Expense is recognized or recorded when policies and significant estimates such that
cash was disbursed the assets and income are not overstated
whereas liability and expenses are not
understated
ANY QUESTIONS?
THANK YOU!