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FABM1 Module 6 Accounting Concepts and Principles

This document provides an overview of accounting concepts and principles for a module on fundamentals of accounting for business administration majors. It defines key terms like GAAP, PFRS, PAS, and IFRS. It then explains 11 important accounting principles: 1) economic entity, 2) going concern, 3) time period, 4) monetary unit, 5) objectivity, 6) cost, 7) accrual, 8) matching, 9) full disclosure, 10) conservatism, and 11) materiality. Examples are given for each principle. The document was prepared by an instructor for a high school in the Philippines and approved by the school principal.

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Donna Bautista
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3K views

FABM1 Module 6 Accounting Concepts and Principles

This document provides an overview of accounting concepts and principles for a module on fundamentals of accounting for business administration majors. It defines key terms like GAAP, PFRS, PAS, and IFRS. It then explains 11 important accounting principles: 1) economic entity, 2) going concern, 3) time period, 4) monetary unit, 5) objectivity, 6) cost, 7) accrual, 8) matching, 9) full disclosure, 10) conservatism, and 11) materiality. Examples are given for each principle. The document was prepared by an instructor for a high school in the Philippines and approved by the school principal.

Uploaded by

Donna Bautista
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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MARFRANCISCO,

PINAMALAYAN,
BASIC EDUCATION DEPARTMENT ORIENTAL MINDORO
043-284-4504
Senior High School Abada College Basic Education Department

ABADA COLLEGE
MODULE 6
FUNDAMENTALS OF ABM 1
ACCOUNTING CONCEPTS AND PRINCIPLES
At the end of this module, the students are expected to:

• Explain the varied accounting concepts and principles.

• Explain the Generally Accepted Accounting Principles in the Philippines.


Lesson Proper:

GAAP – Generally Accepted Accounting Principles refer to a common set of accounting principles, standards,
and procedures issued by the Financial Accounting Standard Board (FASB)
PFRS – Philippine Financial Reporting Standard – Guiding Principles how to record transactions here in the
Philippines
PAS – Philippine Accounting Standard - Guiding Principles how to record transactions here in the Philippines
IFRS – International Financial Reporting Standard
IAS – International Accounting Standard

1. Economic entity/Accounting Entity principle – a business enterprise is separate and distinct from its
owner or investor.
Examples :
ü If the owner has a barber shop, the cash of the barber shop should be reported separately from
personal cash.
ü The owner had a business meeting with a prospective client. The expenses that come with that
meeting should be part of the company’s expenses. If the owner paid for gas for his personal use, it
should not be included as part of the company’s expenses.

2. Going concern principle – business is expected to continue indefinitely.


Example:
ü When preparing financial statements, you should assume that the entity will continue indefinitely.

3. Time period principle – financial statements are to be divided into specific time intervals.
Example :
ü Philippine companies are required to report financial statements annually.
ü The salary expenses from January to December 2015 should only be reported in 2015.

A W A R E N E S S. C O M M I T M E N T. E X C E L L E N C E. SERVICE
4. Monetary unit principle – amounts are stated into a single monetary unit
Example :
ü Jollibee should report financial statements in pesos even if they have a store in the United States.

ü IHOP should report financial statements in dollars even if they have a branch here in the Philippines

5. Objectivity principle – financial statements must be presented with supporting evidence.


Example :
ü When the customer paid Jollibee for their order, Jollibee should have a copy of the receipt to
represent as evidence.
ü When a company incurred a transportation expense, a voucher should be prepared as evidence.

6. Cost principle – accounts should be recorded initially at cost.


Example :
ü When Jollibee buys a cash register, it should record the cash register at its price when they bought
it.
ü When a company purchases a laptop, it should be recorded at the price it was purchased.

7. Accrual Accounting Principle – revenue should be recognized when earned regardless of collection and
expenses should be recognized when incurred regardless of payment. On the other hand, the cash
basis principle in which revenue is recorded when collected and expenses should be recorded when
paid. Cash basis is not the generally accepted principle today.
Example:
ü When a barber finishes performing his services he should record it as revenue. When the barber shop
receives an electricity bill, it should record it as an expense even if it is unpaid.

8. Matching principle – cost should be matched with the revenue generated.


Example:
ü When you provide tutorial services to a customer and there is a transportation cost incurred related to
the tutorial services, it should be recorded as an expense for that period.

9. Full Disclosure principle – all relevant and material information should be reported.
Example:
ü The company should report all relevant information.

10. Conservatism principle – also known as prudence. In case of doubt, assets and income should not be
overstated while liabilities and expenses should not be understated.
Example:
ü In case of doubt, expenses should be recorded at a higher amount. Revenue should be recorded at a
lower amount.

A W A R E N E S S. C O M M I T M E N T. E X C E L L E N C E. SERVICE
11. Materiality principle – in case of assets that are immaterial to make a difference in the financial
statements, the company should instead record it as an expense.
Example:
ü A school purchased an eraser with an estimated useful life of three years. Since an eraser is immaterial
relative to assets, it should be recorded as an expense.

QUALITATIVE CHARACTERISTIC OF USEFUL FINANCIAL INFORMATION

Activity/Quiz: to be announced..

A W A R E N E S S. C O M M I T M E N T. E X C E L L E N C E. SERVICE
Prepared By : ________________________
Mr. Roy C. Hernandez
(Instructor)

Checked By: _________________________


Ms. Janelle Forfieda Aguito
(SHS-Coordinator)

Approved By: __________________________


Ms. Emelyn Marasigan-Narra
(Principal)

A W A R E N E S S. C O M M I T M E N T. E X C E L L E N C E. SERVICE

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