Accounting

Concepts
and
Principle
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Economic Entity/Entity Concept

The accountant keeps all of the business

transactions of a sole proprietorship separate from
the business owner's transactions. For legal purposes,
a sole proprietorship and its owner are considered to
be one entity, but for accounting purposes they are
considered to be two separate entities.
+ The business is treated as a unit or entity
separate from its owners.
+ Amount invested by the proprietor is
shown as liability.
+ Amount paid for personal expenses of
proprietor are shown as drawings from
capital or the proprietor.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Monetary/Money movement concept

+ Every aspect of a business is recorded as

money using this concept.
 Example
+ An efficient dedicated manager is definitely an asset to the business,
but since the monetary measurement is not possible so it is not
shown in the books of account.
+ The Philippine peso is a reasonable unit of measure and that its
purchasing power is relatively stable. It allows accountants to add
and subtract peso amounts as though each peso has the same
purchasing power as any other peso at any time. This is the basis for
ignoring the effects of inflation in the accounting records.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Time Period/Periodicity Concept

+ An entity’s life can be meaningfully subdivided into equal

time periods for reporting purposes. It will be aimless to wait
for the actual last day of operations to perfectly measure the
entity’s profit. This concept allows the users to obtain timely
information to serve as a basis on making decisions about
future activities. For the purpose of reporting to outsiders,
one year is the usual accounting period.
 This accounting principle assumes that it is possible to
report the complex and ongoing activities of a business in
relatively short, distinct time intervals such as the five months
ended May 31, 2019, or the 5 weeks ended May 1, 2019. The
shorter the time interval, the more likely the need for the
accountant to estimate amounts relevant to that period. For
example, the property tax bill is received on December 15 of each
year. On the income statement for the year ended December 31,
2018, the amount is known; but for the income statement for the
three months ended March 31, 2019, the amount was not known
and an estimate had to be used.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Cost Principle
+ The cost is considered to be the same as what is paid in the beginning
and never its realizable value at a later point in time.

+ Fixed Assets are recorded at cost price and are systematically reduced
by the process called depreciation.
+ These assets will disappear from balance sheet at the end of their
economic life when they have been fully depreciated and sold as scrap.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Full Disclosure Principle /
+ If certain information is important to an investor or lender using the
financial statements, that information should be disclosed within the
statement or in the notes to the statement. It is because of this basic
accounting principle that numerous pages of "footnotes" are often
attached to financial statements.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Going Concern Principle
+ This accounting principle assumes that a company will continue to
exist long enough to carry out its objectives and commitments and will
not liquidate in the foreseeable future. If the company's financial
situation is such that the accountant believes the company will not be
able to continue, the accountant is required to disclose this assessment.
The going concern principle allows the company to defer some of its
prepaid expenses until future accounting periods.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Matching Principle
+ This accounting principle requires companies to use the accrual basis
of accounting. The matching principle requires that expenses be
matched with revenues.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Revenue Recognition Principle
+ Under the accrual basis of accounting (as opposed to the cash basis of
accounting), revenues are recognized as soon as a product has been
sold or a service has been performed, regardless of when the money is
received.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Materiality
+ Because of this basic accounting principle or guideline, an accountant
might be allowed to violate another accounting principle if an amount
is insignificant. Professional judgement is needed to decide whether an
amount is insignificant or immaterial.
 Economic
Entity

Conservatism Monetary

Materiality Time Period

Accounting
Concepts
and
Principle
Revenue
Cost
Recognition

Full
Matching
Disclosure
Going
Concern
Conservatism
+ If there are two acceptable alternatives for reporting an item,
conservatism directs the accountant to choose the alternative that will
result in less net income and/or less asset amount. Conservatism helps
the accountant to "break a tie." It does not direct accountants to be
conservative. Accountants are expected to be unbiased and objective.
The basic accounting principle of conservatism leads accountants to
anticipate or disclose losses, but it does not allow a similar action for
gains.