Pres. Carlos P.

Garcia Technical Vocational School of Fisheries & Arts

Puerto San Pedro, Bien Unido, Bohol
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1– GRADE 11
(Specialized Subject for SHS ABM)
Lesson # : 2 - WEEK 2 - QUARTER 3

Topic : Accounting concepts and principles

Explain the varied accounting concepts and principles

Objectives :
Solve exercises on accounting principles as applied in various case

Copyright : For classroom use only, DepEd owned

Concept Notes:

Accounting Concepts and Principles

 Business entity principle: For example, “the owner deposited 20% of the business revenue on business account at
the ABC Bank. “ There would be a separation of personal cash to business earning. The principle of business entity
principle or separate entity concepts states that a business enterprise is separate and distinct from its owner or
investor. For example if the owner has a barber shop, the cash of the barber shop should be reported separately
from personal cash of the owner. However, the expenses that come from a meeting with a client should be part of
the company’s expenses. If the owner paid for gas for his personal use, it should not be included as part of the
company’s expenses.

 Monetary unit principle: For example, “Maria, a Filipina, lives in U.S.A., she made a financial report in dollar even
though they had some clients in the Philippines” because the concepts and principles of monetary unit said
accounts should be stated in single monetary unit where the accounts should be reported. Another example, ABM
Retailing Store should report financial statements in pesos even if they have a store in the United States; or IHOP
should report financial statements in dollars even if they have a branch here in the Philippines.

 Objectivity principle: For example, “Rica received a receipt coming from the cash register.” As per concepts and
principles of objectivity, the financial statements must be presented with supporting evidence. Example is when the
customer paid Company XYZ for orders; the company should have a copy of the receipt to represent as evidence.
When a company incurred a transportation expense, a voucher should be prepared as evidence.

 Cost principle to the statement is, when the cash register provides the date of purchase, tax due, item‟s particular,
and price. As per concepts and principles of cost principle, the accounts should be recorded initially at cost. Other
example: * When Company X buys a cash register machine; it should record the machine at its price when they
bought it.
 Time period principle. Accounting concepts and principles define time or period in which the financial statements are
to be divided into specific time intervals. For example The Philippine companies are required to report financial
statements annually of the salary expenses from January to December 2015 should only be reported in 2015. ―A 1
year period‖ cycle mus t be observed.

 Matching principle to the statement “food representation for the guest.” The principle refers to a situation in which the
cost should be matched with the revenue generated. Another example is when you provide tutorial services to a customer
and there is a transportation cost incurred related to the tutorial services, it should be recorded as an expense for that
period

 Accrual accounting principle to the statement, “an accountant recorded the income and expenses regardless of
payments and collections dates.” The accounting principle of accounting on accrual accounting says, revenue
should be recognized when earned regardless of collection, and expenses should be recognized when incurred
regardless of payment. On the other hand, the cash basis principle in which revenue is recorded when collected and
expenses should be recorded when paid. Other example is when a barber finishes performing his services, he
should record it as revenue. When the barber shop receives an electricity bill, it should record it as an expense even
if it is unpaid.
AMELDA MIRA G. BONTILAO -09615766553
 Pres. Carlos P. Garcia Technical Vocational School of Fisheries & Arts
Puerto San Pedro, Bien Unido, Bohol
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1– GRADE 11
(Specialized Subject for SHS ABM)

 Conservatism principle to the statement, “he received a tampered receipt”. The Conservatism principle is also
known as prudence. In case of doubt, assets and income should not be overstated while liabilities and expenses
should not be understated. Another example: In case of doubt, expenses should be recorded at a higher amount.
Revenue should be recorded at a lower amount.

 Materiality principle to the statement, “the chair of a student must depreciate every year and must condemn every
three years.” The principle of materiality says that in case assets are immaterial to make a difference in the financial
statements, the company should instead record it as an expense. Another example is when a school purchased an
eraser with an estimated useful life of three years. Since an eraser is immaterial relative to assets, it should be
recorded as an expense.

 Going concern principle to the statement, “the furniture had a depreciation value or downgraded value.” The
principle of going concern says that business is expected to continue indefinitely. Another e xample: When preparing
financial statements, you should assume that the entity will continue indefinitely.

 Disclosure principle to the statement “Ricky recorded the broken materials he received two weeks ago.” The
accounting principle says that in a disclosure principle, all relevant and material information should be reported.

Activity/Exercise:

Activity 1. Applying Accounting principles and concepts

Direction: Let„s apply the basic accounting concepts and principles. Kindly identify the concept or principle that
corresponds to each statement. Choose from the box below.

1. During the year, you started a business of selling personalized mugs and T-shirt. You opened a separate bank
account for the business and deposited your initial investment of Php 250,000.00 to this account.
.

2. The business acquired a printing machine. The regular selling price is Php 100,000.00; however, you were able to
acquire it at a discounted price of Php 90,000.00. You will record the machine at its acquisition cost of Php 90,000.00.
.

3. The business acquired initial inventory of mugs and T-shirt for the total cost of Php 50,000.00. You will record the
cost as an asset (i.e. inventory) rather than as expense. .

4. The inventories were sold on credit for Php 300,000.00. You will immediately record the credit sales as accounts
receivable rather than waiting for them to be collected.

5. Also, you will now record the Php 50,000.00 cost of inventory as expense.
•

Matchingconcept,Accrualbasis,Matchingconcept,Historicalcost, Business entity concept, Objectivity

concept

Activity II. Matching Type

A. Matching Type. Match the following accounting principles with their
definitions. Write only the letter on the space provided.

a. Going concern principle e. Time period h. Monetary unit

AMELDA MIRA G. BONTILAO -09615766553

 Pres. Carlos P. Garcia Technical Vocational School of Fisheries & Arts
Puerto San Pedro, Bien Unido, Bohol
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1– GRADE 11
(Specialized Subject for SHS ABM)

b. Objectivity principle f. Cost principle i. Accrual accounting

c. Matching principle g. Disclosure principle j. Conservatism

d. Materiality principle

1. All relevant information should be included in the financial reports

2. In case of doubt, assets and income should not be overstated.

3. Assume that the company will continue indefinitely.

4. All transactions should be supported by unbiased evidence.

5 Expenses should be recorded in the period when the revenue is generated.

6. Minimal costs incurred should be recorded as an expense.

7. A Philippine company should report financial statements in pesos.

8. A barber who performs services for a client should record revenue.

9. Statement of Financial Position must be recorded as of December 31, 2015.

10. A company that purchases furniture must record it at its acquisition price.

Activity III. Accounting principles.

Indicate which principles are violated.

1. The owner-manager bought a computer for personal use. The invoice was recorded to the company‟s accounts.

2. The statement of financial position of a company included equipment purchased from Japanese for 350,000 yen. It
was reported at that amount in the statement of financial position while all the other assets were reported in Philippine
pesos.

3. No financial statements were prepared by Michael Go for his business. He explained that he will prepare the
statements when he will close the business, which he predicted to take place after 20 years.

4. Aside from owning a shoe store, Albert operates a canteen. The assets of the canteen are reported in the statement
of financial position of the shoe store.

5. Purchased a hammer at a cost of Php500.00. This was recorded as an asset and expense to decrease its value by
Php 50.00 per year for 10 years.

6. A food company ordered a machine needed in the assembly line of its production department. Upon order, the
machine was immediately listed as one of its assets.
Performance task

A. Critical Thinking: (15 points for financial report and 5 points for explanations) Rubrics in Checking Essays:
Content = 30%, Understanding/Application = 25%, Original Thinking = 25%, Structure = 10% and Grammar = 10%.

I. Case Analysis: Please read and analyze carefully the case and answer the following questions: 1) which amounts
cited below do you think must be included in the business financial reports? 2) What is your basis for including the said
amounts?

The owner, Robin Rica, invested Php 10,000 and borrowed Php50, 000 to start his business. He purchased a

AMELDA MIRA G. BONTILAO -09615766553

 Pres. Carlos P. Garcia Technical Vocational School of Fisheries & Arts
Puerto San Pedro, Bien Unido, Bohol
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1– GRADE 11
(Specialized Subject for SHS ABM)

photocopying machine for P 30,000 and supplies for Php10, 000.00. He paid two months‟ rent for Php10, 000.00,
salary for Php 4,000, and business permit for Php2, 000.00. The business consumed electricity for Php2, 500.00 payable
the following moth. During the first month of business operations, the photocopying service generated Php10, 000.00
revenue.

Answer Sheet

Name: __________________________________________________________
Grade & Section: ________________ Score: _______

Note: Please use this Answer sheet for your answers. (Minus points when not following
instructions)
Quarter 2 – Module 1- 2

Activities
Activity 1 Activity 2
1. 1. 6.
2. 2. 7.
3. 3. 8.
4. 4. 9.
5. 5. 10.

Activity 3
1.
2.
3.
4.
5.
6.
Performance Task
(Use the space for your computation and explanation of the case analysis)

AMELDA MIRA G. BONTILAO -09615766553

 Pres. Carlos P. Garcia Technical Vocational School of Fisheries & Arts
Puerto San Pedro, Bien Unido, Bohol
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1– GRADE 11
(Specialized Subject for SHS ABM)

ANSWER KEY

Pre-test
I . Identification
1. Historical Cost Concept 4. Separate entity concepts
2. Going Concern 5. Matching principles
3. Accounting Concepts
I I . True or False
1. True 6. True
2. True 7. True
3. False 8. True
4. True 9. True
5. False 10. True

Looking back to Your Lesson

1. Financial accounting 4. a) External users
2. Internal b)Internalusers
3. External users 5. Business owners
Activities
I. Identification

1 Separate entity 4 Accrual basis

2 Historical cost 5 Matching principles
3 Matching concept

Check Your Understanding

A . Concept Check – Multiple Choice
1. E 5. A
2. B 6. D
3. A 7. C
4. C
B . Matching Type
1. G 6. C
2. J 7. H
3. A 8. F
4. B 9. I
5. E 10. D
C . Principles Violations
1. Separate Entity or Business 4. Consistency Concept
Entity Principle
2. Monetary Principle 5. Historical Cost
3. Disclosure Principle 6. Cost Principle

AMELDA MIRA G. BONTILAO -09615766553