ACTIVITY 4

CHAPTER 4
Direction: Explain the following not less than 5 sentences.

1. Explain briefly the meaning of entity concepts and periodicity concepts.

In accounting, entity concepts are the fundamental principle that a business or organization is a
separate entity from its owners, shareholders, and/or employees. Also called entity assumption,
entity concepts recognize that the financial transactions and activities of a business should be
accounted for separately from the personal affairs of its owners.
The periodity concepts is the practice of dividing the financial activities of a business into
accounting periods/dates, these periods include months, quarters, or years. Also known as
“Periodicity Assumption" or "Time Period Principle".
The connection between the two is that the Entity Concept recognizes the separation of the
business from its owners, while the periodicity concept establishes the framework need in
organizing all the financial information.

2. What is the purpose of Generally Accepted Accounting Principle (GAAP)?

GAAP serves as a framework that establishes uniform standards and guidelines for accounting
practices. Its primary purpose is to ensure that financial statements are prepared in a consistent
and reliable manner, providing users with accurate and comparable information about a
business's financial performance, position, and cash flows. With GAAP businesses can enhance
the transparency of their financial reporting. Furthermore, GAAP provides a foundation for
auditing and assurance services. Auditors use GAAP as a benchmark to assess the fairness and
reliability of financial statements.

3. Explain the Fundamental Qualitative Characteristics.

Fundamental qualitative characteristics in accounting refer to the key qualities that financial
information should possess to be useful and meaningful. These characteristics ensure that the
financial information should accurately represent the transactions and events it describes. These
characteristics guide the preparation and presentation of financial statements. These
fundamental qualitative characteristics ensure that financial information is relevant, faithfully
represents the business's activities, and can be trusted in their decision-making.