ACCOUNTING REVIEWER
8. Stable Monetary Unit
Accounting Principles and Assumptions
1. Business Entity/ Separate Entity
Concept
- every business is separate from its
owner and from its owner’s other
businesses
- can objectively know if the business
really earns profit
2. Going Concern
- business is a continuing activity
- assumed to continue to exist for an
indefinite period
- its opposite is “liquidating
concern”
3. Periodicity/ Time Period
- the life of the business is divided into
equal time interval for reporting
purposes
- series of reporting periods
- calendar year, fiscal year period
(other than Jan. 1), and interim
period (shorter than 12 months)
4. Objectivity
- Every record must be verifiable or
supported by valid
documents
- should not allow bias, conflict of
interest or undue influence
5. Conservatism/ Prudence
- in choosing alternatives, select the
one that has least effect on capital
- accountant observes some degree of
caution in judgments
6. Historical Cost Principle (Cost
Principle)
- assets are initially recorded at their
acquisition cost
- recorded at the value on the
transaction date
7. Materiality and Aggregation
- immaterial items of the same nature
are aggregated to
summarized information
- “Materiality” is a matter of
professional judgment
- rounding-off the amounts
This study source was downloaded by 100000858771285 from CourseHero.com on 02-21-2023 02:09:59 GMT -06:00
https://www.coursehero.com/file/172866790/ACCOUNTING-REVIEWER-Accounting-Priciples-and-Assumptionsdocx/
- must indicate specific monetary unit
being used and assume it to be
stable
- use of peso (PHP)
9. Accrual
- income is recognized when earned
- expenses are recognized when
incurred
- period which they occur rather they
affect cash
10. Substance over Form
- concern on the substance or
essence of the transaction that
transpired, not on its legal form
11. Matching/ Association of Cause and
Effect
- some costs are initially recorded as
assets and charged as expenses
only when the related revenue is
recognized
12. Cost-benefit/ Cost Constraint
- the cost of processing and
communicating info should not
exceed the benefits to be derived
business from it
13. Full Disclosure Principle
- materiality and cost-benefit
- sufficient detail to disclose matters
- requires all relevant information
that would affect user’s
understanding
14. Consistency Concept
- applying accounting policies
consistently, from one period to
another
The Conceptual Framework for Financial
Reporting
- prescribes accounting concepts that
are relevant to the preparation of
financial statements
achieve - it is not the standard
- serves as a general frame of
reference in applying the standards
 - deals with qualitative characteristics
that determine the usefulness of
information in financial statements

Qualitative Characteristics of Useful

Financial Information
- these are the traits that determine
whether an item of information is
useful to users
 Fundamental Qualitative
Characteristics
1. Relevance
- influences economic decisions of
users by evaluating past, present,
and future
- predictive value, confirmatory value,
and materiality
2. Faithful Representation
- should be factual, represents the
actual effects of events that have
taken place
- completeness, neutrality, and free
from error
 Enhancing Qualitative Characteristics
1. Comparability
- help users identify similarities and
differences between sets of
information
- compares at least two items
2. Verifiability
- users could reach a general
agreement
3. Timeliness
- available to users in time to be able
to influence their decisions
4. Understandability
- presented in clear and concise
manner

This study source was downloaded by 100000858771285 from CourseHero.com on 02-21-2023 02:09:59 GMT -06:00

https://www.coursehero.com/file/172866790/ACCOUNTING-REVIEWER-Accounting-Priciples-and-Assumptionsdocx/
Powered by TCPDF (www.tcpdf.org)