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VER Topic 3 Accounting Concepts and Principles

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29 views3 pages

VER Topic 3 Accounting Concepts and Principles

Uploaded by

sammerlao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Topic 3: Accounting Concepts and Principles (PPT ver)

Objectives:
- explain the varied accounting concepts and principles
- solve exercises on accounting principles as applied in various cases

Generally Accepted Accounting Principles (GAAP)


- these are general, broad statements or “rules and procedures” that serve
as guides in the practice of accounting.
- These standards, assumptions, and concepts with general acceptability.
- These are measurement techniques and standards used in the
presentation and preparation of the financial statements.
- They serve as the foundation of accounting in order to avoid
misunderstanding and enhance the understandability and usefulness of
the financial statements (Valix et. Al, 2013 as cited in Florendo, 2016)

International Finacial Reporting Standards (IFRS)

FUNDAMENTAL CONCEPTS
1. Periodicity/ time period concepts: begins Jan 1 – end dec 31
2. Fiscal Year: 12 month
3. Natural Business Year: the accounting year end when business activities
are at their lowest point. (12 months)

Accrual Basis Concept: revenue should be recognized when earned


regardless of when a collection is done and expenses should be recognized
when incurred regardless of when payment is made.

Going Concern Concept: the financial statements are normally prepared on


the assumption that an enterprise is a going concern and “will continue in
operation for the foreseeable future.”

Stable Monetary Unit Concept- assumes that the value of the peso is stable
over time.
e.g: 1970 land, 100k
2022 land, 800k
= Presented in FS 2022, 900k
Accounting Principles

Objectivity: accounting records should be based on reliable and verifiable


data.

Cost Principle: assets should be recorded at the original acquisition cost at


the time of purchase.
e.g: land bought in 1970, 10k
market place 2022, 900k
= recorded/presented 2022, 10k

Revenue Recognition Principle


- Revenue/ income is to be recognized in the accounting period when
goods are delivered, or services are rendered or performed, regardless of
when the cash is received.

Expenses Recognition Principle


- Expenses should be recognized in the accounting period in which goods
and services are used up to produce revenue and not when the entity
pays for those goods and services.

Adequate disclosure
- Required that all relevant information that could affect the user’s
understanding and assessment of the accounting entity be disclosed in
the financial statements.

Materiality
- Business transactions that could affect the decision of users must be
reported properly. Those that can’t affect decisions may be omitted or an
accountant may violate principles for expediency for these types of items.
Consistency
- Accounting methods and procedures should be applied on a uniform
basis from period to period.

What Principles/ Concept is being applied?


1. Paper clips worth 200.00 were automatically charged to expense-
MATERIALITY
2. Separate financial statements were prepared for the restaurant and the
barber shop of Mr. Panot. BUSINESS ENTITY CONCEPT
3. A restaurant prepared financial statements every year for distribution to
investors. PERIODICITY CONCEPTS
4. Equipment bought in 1999 for 10,000 was reported at the same cost in the
2022 notes to financial statements even though its market value is not at
100,000. COST PRINCIPLES

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