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    1.3.7 Summary of Basic Accounting Concepts and Principles

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    Drinx Lly
    The document discusses key accounting concepts and principles. It outlines the going concern assumption, accounting entity concept, monetary unit assumption, time period concept, and accrual basis of accounting. It also discusses that accounting principles are formulated by authoritative bodies to accomplish accounting objectives, with Generally Accepted Accounting Principles (GAAP) guiding the measurement, recording, and reporting of financial activities according to standards set by bodies like the Philippine Financial Reporting Standards and Philippine Accounting Standards.

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    1.3.7 Summary of Basic Accounting Concepts and Principles

    Uploaded by

    Drinx Lly
    62 views1 page
    The document discusses key accounting concepts and principles. It outlines the going concern assumption, accounting entity concept, monetary unit assumption, time period concept, and accrual basis of accounting. It also discusses that accounting principles are formulated by authoritative bodies to accomplish accounting objectives, with Generally Accepted Accounting Principles (GAAP) guiding the measurement, recording, and reporting of financial activities according to standards set by bodies like the Philippine Financial Reporting Standards and Philippine Accounting Standards.

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    Basic Accounting

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    The document discusses key accounting concepts and principles. It outlines the going concern assumption, accounting entity concept, monetary unit assumption, time period concept, and accrual basis of accounting. It also discusses that accounting principles are formulated by authoritative bodies to accomplish accounting objectives, with Generally Accepted Accounting Principles (GAAP) guiding the measurement, recording, and reporting of financial activities according to standards set by bodies like the Philippine Financial Reporting Standards and Philippine Accounting Standards.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    62 views1 page

    1.3.7 Summary of Basic Accounting Concepts and Principles

    Uploaded by

    Drinx Lly
    The document discusses key accounting concepts and principles. It outlines the going concern assumption, accounting entity concept, monetary unit assumption, time period concept, and accrual basis of accounting. It also discusses that accounting principles are formulated by authoritative bodies to accomplish accounting objectives, with Generally Accepted Accounting Principles (GAAP) guiding the measurement, recording, and reporting of financial activities according to standards set by bodies like the Philippine Financial Reporting Standards and Philippine Accounting Standards.

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    of 1

    Prepared by: Lord Gen A.

    Rilloraza, CPA, MBA

    BASIC ACCOUNTING CONCEPTS AND PRINCIPLES

    ACCOUNTING CONCEPTS
     Important assumptions or ideas accountants observe in recording business transactions in the books of accounts
     May refer to an assumption, or an abstract idea that governs accounting practice

    Going Concern Assumption


     The only assumption as mentioned in the Conceptual Framework for Financial Reporting
     Assumes that the business entity will continue operating indefinitely – for a period of time sufficient to carry out
    its objectives, plans, contracts, and commitments, unless the liquidation of the entity is imminent
     In the preparation of financial statements, accountants assume that the business has no intention to liquidate or
    curtail the material scale of its operations
     Values of the accounting elements are based on objectivity and historical cost
    o Objectivity – accounting measurement must be both definite and verifiable; all documents used in
    record-keeping must be evidenced by a source document
    o Historical cost – the value of an element, once recorded, remains unchanged

    Accounting Entity Concept


     The business enterprise is a separate and distinct entity from the person or people who own and run it.
     The transactions of the business are recorded in the books of the business; the personal transactions of the
    owner/s are NOT recorded in the books of the business.
     The main purpose is to properly account the real transactions of the business in order to report the true and fair
    picture of the business financial affairs
     Other terms: separate entity concept; entity concept; business entity concept

    Monetary Unit Assumption


     Only record business transactions that can be expressed in terms of a currency
     Includes the concepts of quantifiability and peso stability
    o Quantifiability – accountants use a common unit of measurement/currency (e.g., Philippine Peso)
    o Peso Stability – accountants assume that the purchasing power of the monetary unit being used will not
    change regardless of fluctuation in money value

    Time Period
     The economic life of the business is divided into relatively short periods of time, normally of equal lengths, such
    as quarterly, semi-annually, or annually
     The preparation of financial statements is required annually
     A time period is usually called an accounting period, classified as:
    o Calendar year – a twelve-month period starting January 1 and ending December 31
    o Fiscal year – a twelve-month period that starts from any other month other than January; consequently,
    a fiscal year does not end in December
    o Interim period – a business period within an accounting period (e.g., three-month period ending March
    31)

    Accrual Basis of Accounting


     The basis of recognizing income and expenses
     Income is recognized when earned, regardless of collection
     Expense is recognized when incurred, regardless of payment

    ACCOUNTING PRINCIPLES
     These define broadly the actions that will best accomplish the objectives of accounting
     The authoritative body of accountancy formulated standard principles, assumptions, and procedures called
    “Generally Accepted Accounting Principles (GAAP)” that guide accountants in measuring, recording, and
    reporting financial activities

    GAAP
     The objective is to fairly present the financial statements
     In the Philippines, GAAP is comprised of the following:
    o Philippine Financial Reporting Standards (PFRS);
    o Philippine Accounting Standards (PAS);
    o Interpretations by the Philippine Interpretations Committee (PIC)

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