ACCOUNTING CONCEPTS

AND PRINCIPLES
 FUNDAMENTAL
ACCOUNTING ASSUMPTIONS
 GOING CONCERN CONCEPT

The accounting entity is viewed as

continuing in operation indefinitely in
the absence to the contrary. Thus, assets
are normally recorded at cost. This
presumption will no longer hold true if
liquidation of the business appears
imminent.
 BUSINESS ENTITY CONCEPT
The business enterprise is a distinct unit that is
separate from owners, managers and employees who
constitute the firm. The enterprise transactions are
accounted for separately from the personal
transactions of its owners. The main purpose of
observing the separate entity concept is to properly
account the real transactions of the business in order to
report the true and fair picture of the financial affairs.
 PERIODICITY/TIME PERIOD
CONCEPT
This requires that the indefinite life of an enterprise is
subdivided into time periods or accounting periods which
are usually of equal length for the purpose of preparing
financial reports.
Companies prepare financial statements annually. If the
year ends in December 31, it is called a calendar year.
A year that ends on the last day of a month other than
December is called a fiscal year.
 MONETARY UNIT CONCEPT
Only transactions that can be qualified in terms
of money are to be recorded in the accounting
records. It is assumed further that the monetary
unit used, in our case the peso, is stable.
It allows accountants to add and subtract items
acquired in different years with pesos of varied
purchasing power.
GENERALLY ACCEPTED
ACCOUNTING
PRINCIPLES (GAAP)
 GAAP
These represent the rules, procedures,
practice, and standards followed in the
preparation and presentation of financial
statements. They are like laws that must
be followed in financial reporting.
 GAAP
The Financial Reporting Standards Council (FRSC)
replaces the Accounting Standards Council (ASC) which
was created in 1981 to formalize the accounting standard
setting function in the Philippines. It is created by the
Professional Regulation Commission upon recommendation
of the Board of Accountancy (BOA) to assist the BOA in
carrying out is powers and functions provided under R.A.
No. 9298 (The Philippine Accountancy Act of 2004).
 GAAP
The main function is to establish and improve
accounting standards that will be generally
accepted in the Philippines. The approved
statements of the FRSC are known as Philippine
Accounting Standards (PAS) and the Philippine
Financial Reporting Standards (PFRS).
BASIC ACCOUNTING
PRINCIPLES
 OBJECTIVITY PRINCIPLE
It requires that accounting records be based on
verifiable events. Reliable data are verifiable
when they can be confirmed by independent
observers. Without this principle, accounting
records would be based on whims and opinions
and is therefore subject to disputes.
 COST PRINCIPLE
It states that acquired assets should
be recorded at their actual cost and
not at what management thinks there
worth as at reporting date.
 ACCRUAL PRINCIPLE
It states that the effects of transactions and other
events are recognized when they occur, rather than
when cash or its equivalent is received or paid, and
they are reported in the period of the financial
statements to which they relate. Income is recognized
when earned regardless of when received and expense
is recognized when incurred regardless of when paid.
 REVENUE RECOGNITION
PRINCIPLE
This principle states that revenue is earned and
therefore should be recognized when two events
occur:
1.The earning process is essentially complete.
2.There is objective evidence as the exchange or
sales price.
 MATCHING PRINCIPLE
This principle states that costs and expenses
incurred in earning revenues should be charged
in the period the revenues were recognized as
earned. Matching is accomplished by relating the
expense to a particular service rendered or
product sold or a particular time period in the
revenue is recognized.
 CONSISTENCY PRINCIPLE
The firm should use the same
accounting method from period to
period to achieve comparability
over tome within a single
enterprise.
 MATERIALITY
Financial reporting is only concerned with
information that is significant enough to
affect evaluations and decisions. To
determine whether an item is material or not,
it is a matter of professional judgment on the
part of the accountant.
 ADEQUATE DISCLOSURE
PRINCIPLE
It states that all material facts that
will significantly affect the
financial statements must be
indicated.