ACTIVITIES AND ASSESSMENT

A.Identifying the applicable Accounting Principle

1. The personal assets of the owner of a company will not appear on the company's balance
sheet because of which principle/guideline? Economic Entity Assumption
2. Which principle/guideline requires a company's balance sheet to report its land at the amount
the company paid to acquire the land, even if the land could be sold today at a significantly
higher amount? Cost Principle
3. Which principle/guideline allows a company to ignore the change in the purchasing power of
the peso over time? Monetary Unit Assumption
4. Which principle/guideline requires the company's financial statements to have footnotes
containing information that is important to users of the financial statements? Full Disclosure
Principle
5. Which principle/guideline justifies a company violating an accounting principle because the
amounts are immaterial? Materiality
6. Which principle/guideline is associated with the assumption that the company will continue
on long enough to carry out its objectives and commitments? Going Concern Principle
7. A very large corporation's financial statements have the peso amounts rounded to the
nearest P1,000. Which accounting principle/guideline justifies not reporting the amounts to the
penny? Materiality
8. Accountants might recognize losses but not gains in certain situations. For example, the
company might write-down the cost of inventory, but will not write-up the cost of inventory.
Which principle/guideline is associated with this action? Conservatism
9. Which principle/guideline directs a company to show all the expenses related to its revenues
of a specified period even if the expenses were not paid in that period? Matching Principle
10. When the accountant has to choose between two acceptable alternatives, the accountant
should select the alternative that will report less profit, less asset amount, or a greater liability
amount. This is based upon which principle/guideline? Conservatism

B. Define or discuss the following:

1. Accounting - Accounting is the activity of keeping records of a company's financial
transactions. Journal entries are how the accountants condense the transactions. In bookkeeping,
these entries are utilized. According to the rules set forth by the auditors and other governing
agencies, the accountants create the books of accounts. The accountants could adhere to IFRS
(International Financial Reporting Standards) or GAAP (Generally Accepted Accounting
Principles) standards. One of the most crucial things a firm does is accounting. In a small
business, a bookkeeper or accountant may do it, whereas the finance department of a huge
organization may employ dozens of employees to do it. reports generated by several accounting
methods, including managerial, financial, and cost accounting.
2. Generally Accepted Accounting Principles (GAPP) - The subtleties, difficulties, and
legality of corporate and business accounting are all covered under generally accepted
accounting principles, or GAAP. The Financial Accounting Standards Board (FASB) bases its
extensive collection of recognized accounting techniques and procedures on GAAP. These also
include a set of accepted accounting principles and guidelines for financial reporting.
3. International Accounting Standards (IAS) - International Financial Reporting Standards
(IFRS), which have now been accepted by the majority of the world's major financial markets,
replaced International Accounting Standards (IAS), a set of regulations for financial statements,
in 2001. The International Accounting Standards Board (IASB), an impartial organization with
headquarters in London, released both sets of standards.
4. International Financial Reporting Standards (IFRS) - International Financial Reporting
Standards (IFRS) are a set of accounting rules for public companies' financial statements that aim
to make them consistent, transparent, and easily comparable around the world. The International
Financial Reporting Standards (IFRS) currently has complete profiles for 167 jurisdictions,
including those in the European Union. The US employs a different system, generally accepted
accounting principles (GAAP)
5. Evolution of accounting standards in the Philippines - The first accounting standards used
in the Philippines were the US Generally Accepted Accounting Principles. However, with the
convergence of reporting standards, a new accounting standard issued by the Accounting
Standards Council (ASC), the Philippine Financial Reporting Standards (PFRS)/Philippine
Accounting Standards (PAS), was adopted to regulate the preparation of financial statements.
increase. These standards are based on International Financial Reporting Standards (IFRS) and
International Accounting Standards (IAS) issued by the International Accounting Standards
Board (IASB), as amended. IFRS is a set of accounting standards accepted in at least 120
countries (including the Philippines) that provides guidance on how certain types of transactions
and other events should be reported in financial statements. The reason for adopting IFRS is to
ensure consistent recording, recording and measurement of financial transactions. When properly
applied, it ensures stability and transparency throughout the company's financial reporting
process. These standards are non-binding and compliance is voluntary.

C. Enumerate and Discuss the following:

1. Forms of Business Organization
Sole Proprietorship - A sole proprietorship, also known as sole proprietorship, sole
proprietorship, or sole proprietorship, is a form of business owned and operated by a single
person where there is no legal distinction between owner and business entity. Sole
proprietorships do not necessarily work alone and may employ other people.
Partnership - A partnership firm is, by definition, two or more people who agree to
combine their resources to start a business and share the risks, profits, and losses. Examples of
joint partnerships include law firms, medical groups, real estate investment firms, and accounting
groups.
Corporation - A corporation is an organization (usually a group of people or a legal
entity) authorized by the State to act as a single entity and legally recognized as such for a
specific purpose. Early incorporated entities were established by charter. Most jurisdictions now
allow the formation of new companies through registration.
2. Types of Business Activity
Service Business - A service company is a company that performs tasks for the benefit of
its customers. These duties may include transport, cleaning, travel, hospitality, maintenance, or
consulting.
Merchandising Business - Merchandising is the practice and process of presenting and
selling products to customers. Whether digital or in-store, retailers use merchandising to
influence customer intent and achieve sales goals.
Manufacturing Business - The term manufacturing refers to the transformation of raw
materials or parts into finished products through the use of tools, human labor, machines, and
chemical processing. Manufacturing allows companies to sell finished products at a cost greater
than the value of the raw materials used.
3. 10 Generally Accepted Accounting Principles
Economic Entity Assumption - The economic entity assumption is an accounting
principle that separates transactions carried out by a company from its owners. It can also refer to
separation between different areas within a company. Each business entity maintains its own
accounting records specific to its business operations.
Monetary Unit Assumption - The monetary unit principle is the assumption that money
itself is treated as a unit of measurement and that all transactions and economic events recorded
in a company's books are expressed in money and can be measured in currency.
Time Period Assumption - It is an accounting principle that states that a company must
prepare financial statements for a specific period.
Cost Principle - It is an accounting principle that recognizes assets for their respective
cash amounts at the time the assets are purchased or acquired.
Full Disclosure Principle - The principle of full disclosure is a concept that requires
companies to disclose all necessary and other relevant information about their financial
statements to everyone accustomed to reading this information.
Going Concern Principle - A going concern is a company that assumes it will meet its
financial obligations when they come due. Generally, it will work without threat of liquidation
for at least the next 12 months or for the foreseeable future, which is the billing period specified.
 Matching Principle - A matching principle is an accounting principle for recording
income and expenses. Businesses must record expenses in addition to revenue generated. Ideally
both are within the same time period for the clearest tracking. This principle recognizes that
businesses must spend to generate revenue.
Revenue Recognition Principle - The principle of revenue recognition is that a business
recognizes revenue when a service or product is deemed to have been provided to the customer,
not when money is received.
Materiality - Materiality is an accounting principle that requires all items that could
reasonably influence investor decisions to be recognized or reported in detail in a company's
financial statements under GAAP standards.
Conservatism - Conservatism accounting is a set of guidelines in accounting. A
conservative approach allows companies to claim profits only if they are fully realized and
legally verified. Companies should consider potential worst-case scenarios when making
financial projections according to these guidelines.
4. Give some of the important uses of Accounting information
4.1 A common use of accounting information is to measure the performance of various
business operations. Financial statements are the classic accounting information tool used to
evaluate business operations, but business owners can analyze this information more thoroughly
when considering their business operations. Financial ratios use accounting information reported
in financial statements and break it down into leading indicators. These metrics can be compared
with other companies in their business environment or industry standards. This allows business
owners to understand how well their business is performing compared to other established
businesses.
4.2 Accounting data is frequently used by business owners to build budgets for their
organizations. Historical financial accounting data gives business owners a detailed breakdown
of how their organizations spend money on various business tasks. Business owners frequently
use this accounting information to create future budgets to guarantee they have a financial
roadmap for their companies. These budgets can also be changed depending on current
accounting information to guarantee that a business owner's expenditure on key economic
resources is not restricted.
4.3 Accounting data is frequently utilized to make business choices. An income statement
and expense accounting provide an important picture of the business for financial management.
Decisions may involve extending current operations, utilizing various economic resources,
purchasing new equipment or facilities, and forecasting future operations sales or looking into
new business opportunities
4.4 Accounting data often informs business owners about the costs of various resources
or business operations. During the financial analysis process, these costs can be compared to the
potential income of new opportunities. This procedure assists business owners in understanding
how existing operations may be impacted when their enterprises are expanding or increasing.
Business owners frequently reject opportunities with little earning prospects and hefty costs.
4.5 Accounting information is frequently used by external corporate stakeholders to make
investment decisions. Accounting information is frequently reviewed by banks, lenders, venture
capitalists, and private investors to assess a company's financial health and operational
performance. This provides information on whether or not starting a small business is a good
investment. Many small firms require outside funding to get started or develop. The inability to
give accounting information to outside lenders or investors can significantly limit a small
business's funding options.
5. 8 Branches of Accounting
Financial Accounting - Financial accounting is the branch of accounting dealing with
the summary, analysis, and reporting of a company's financial transactions. This entails
preparing financial statements for public use.
Cost Accounting - Cost accounting is defined as "a systematic set of methods for
documenting and reporting aggregate and detailed measures of the cost of creating things and
performing services."
Auditing - Financial statement audits or an objective inspection and evaluation of a
company's financial statements are normally undertaken by an external third party.
Managerial Accounting - Managers use accounting information in decision-making and
to aid in the management and performance of their control tasks in management accounting or
managerial accounting.
Accounting Information Systems - An accounting information system (AIS) is a
structure used by a company to gather, store, manage, process, retrieve, and report financial data
so that accountants, consultants, business analysts, managers, chief financial officers (CFOs),
auditors, regulators, and tax agencies may use it.
Tax Accounting - Tax accounting refers to the principles that are used to establish tax
assets and liabilities in a company's or individual's accounting records.
Forensic Accounting - Forensic accounting, often known as forensic accountancy or
financial forensics, is a subset of accounting that investigates whether organizations participate
in financial reporting fraud. Forensic accountants use a variety of skills and methodologies to
establish whether financial reporting fraud has occurred.
Fiduciary Accounting - Fiduciary accounting is tracking transactions related to a trust or
estate entity and issuing periodic reports on the entity's status. This accounting is done on a cash
basis, which means that cash is recorded when it is received and disbursements and distributions
are recorded when they are paid.
EXERCISE 1-1- Instructions: For each of the business listed below indicate the type of the firm for which
each belongs. Write “X” on the line provided.

SERVICE MERCHANDISING MANUFACTURING

car assembler X
Newsstand X
Paper mills X
Laundry shop X
Pharmaceutical X
Dental clinic X
Barber shop X
Gift shop X
real estate broker X
bookstore X
battery maker X
movie houses X
driving school X
hardware X
furniture maker X
law offices X
department store X
accounting firm X
boutique X
groceries X
supermarkets X
textiles X
shoe maker X
sari-sari store X
laundry shop X

EXERCISE1- 2- INSTRUCTION - After the statement given below, make a “check” on the line Provided.
Indicate the type of organization being referred to:

SOLE PARTNERSHIP CORPORATION

1. easy to form ✔
2. life is continuous ✔
3. more expensive to organize ✔
4. better credit standing ✔
5. unlimited liability ✔
6. Few legal restrictions. ✔
7. It is subject to more taxes. ✔
8. Owner has more freedom ✔
9. Owned by the government ✔
10. Centralized management. ✔
11. unlimited life ✔
 12. Easy to dissolve ✔
13. Better credit standing ✔
than sole proprietorship
14. Subject to governmental ✔
Controls.
15. Large scale business ✔
Undertakings.
16. limited liability ✔
17. divided authority ✔
18. difficult of raising capital ✔
19. restricted transfer of ✔
capital
20. greater source of capital ✔
than sole

PROBLEM 1-1 INSTRUCTIONS: On the space provided, indicate a CHECK MARK as to the Effect balances
of the following accounts:

INCREASED DECREASED
1. Notes payable was debited. ✔
2. Accounts receivable was credited. ✔
3. Cash was debited. ✔
4. Salary expense was debited ✔
5. Service income was credited. ✔
6. Accounts payable was credited ✔
7. Owner’s equity was credited ✔
8. Cash was credited. ✔
9. Prepaid rent was debited ✔
10. Accounts payable was debited. ✔
11. Notes receivable was debited ✔
12. Salaries payable was debited ✔
13. Service revenue was debited ✔
14. Capital was debited ✔
15. Rent expense was debited ✔
16. Supplies was credited ✔
17. Utilities expense was debited ✔
18. Equipment was debited ✔
19. Unearned commission was debited ✔
20. Marlon drawing was debited ✔
PROBLEM 1-2 INSTRUCTION: Compute the new balances of the following items. Consider each item
separately:

ORIGINAL NEW BALANCE

BALANCE
SAMPLE: Cash was debited by P300 P 1, 500 P 1,800
1. Irene, Capital was debited by P10, 000 50,000 40,000
2. Prepaid rent was debited by P6, 000 12,000 18,000
3. Notes receivable was debited by P 3,500 14,000 17,500
4. Accounts payable was debited by P 5,000 26,000 21,000
5. Service income was credited by P 9,000 34,000 43,000
6. Salary expense was debited by P 8,200 22,000 30,200
7. Notes payable was credited by P20, 000 5,000 25,000
8. Accounts receivable was debited by P18, 3,000 21,000
000
9. Irene, Drawing was debited by P 2,000 8,000 10,000
10. Supplies Expense was debited by P2,200 --- 2,200
11. Accounts receivable was credited 32,000 24,500
by ,P7,500
12. Utilities expense was debited by P3,200 1,000 4,200
13. Cash was credited by P 21,000 46,000 25,000
14. Mortgage payable was debited by P30,000 75,000 45,000
15. Rental Income was credited by P 15,000 9,000 24,000
16. Commission income was credited by P 4,000 29,000
25,000
17. Interest receivable was credited by P800 2,800 2,000
18. Taxes & licenses was debited by P3,000 5,200 8,200
19. Furniture & fixtures was credited by P400 10,000 9,600
20. Land was debited by P45, 000 60,000 105,000
21. Interest expense was debited by P750 6,800 7,550
22. Equipment was debited by P 6,900 3,700 10,600
23. Interest receivable was debited by P650 1,300 1,950
24. Tools was debited by P2, 000 4,000 6,000
25. Wages expense was debited by P 14,000 15,000 29,000