FUNDAMENTALS OF

ACCOUNTANCY, BUSINESS AND

MANAGEMENT 1 – MODULE 2
 Directions: Categorize the following terms whether
they are internal or external users by writing them
on their proper column in the given table.
1. Management
2. Creditors
3. BIR
4. Regulatory Authority
5. Employees
6. Owners
7. Customers
8. Investors
9. DOLE
10. DTI
Inaccounting, there are basis or
assumptions every time we
record a transaction. In order for
the accountants and everyone
who is involved to have a
concrete and united answer,
they need to follow the generally
accepted rule for accounting.
Professionals sometimes argue
when they record a transaction
differently but it doesn't mean
that one of them is wrong.
They may simply have
different accounting concepts
and principles.
 The purpose of accounting concepts
and principles is to justify every
action or way of recording
transactions of the owners. There
are different concepts and principles
that may be applied and followed by
the business. As you go on, these
accounting concepts and principles
will unfold.
Directions:
Read the
text and answer the
questions that follow.
Write your answers on
a separate sheet of
paper.
 Eyang Bookstore
By Judith Tabugan

Rhea Santos dreamed to have her

own bookshop when she was young.
She was a girl with big dreams even
at a young age. She loves books so
reading became her escapade as she
grows. She finished her degree in
Bachelor of Science in Education
major in English Literature and aced
the LET 2019.
Yet, she felt incomplete and
she wanted to pursue her
childhood dream. So, she
launched her own bookshop
business called Eyang
Bookstore with the initial
investment of Php. 500,000.00.
 During the first year of operation
the books of account reflected an
income of Php 50,000.00 and
expenses of Php. 30,000.00. She
was doubtful of the recorded
expenses, so she reviewed the list
of recorded expenses. Observe the
table below showing all her
expenses.
 Questions:
1. What should be included as
bookshop’s expenses? Why?
2. What should not be included as
bookshop’s expenses? Why?
Letus now discuss
and elaborate on
what the accounting
concepts and
principles are.
Indoing financial
reports and in recording
business transactions,
there are certain rules
and principles that are
to be followed.
Here are the
Accounting
Concepts and
Principles,
(Ballada, 2017).
1. Materiality Principle
 This includes all assets that are immaterial
to make a difference in the financial
statements which the company should
record as an expense.

 Example: Robi, an accounting clerk,

purchased a friction pen. She estimated it to
have a useful life up to three months. Since
a friction pen is immaterial relative to
assets, it should be recorded as an expense.
2. Going-Concern Principle
 This means that the business is
expected to continue indefinitely.

 Example: Mr. Clark’s sushi business

is experiencing difficulty, but he is
still
expecting it to continue that is why he
still updates his books of account.
3. Time Period Principle
 The financial statements are usually
divided into specific time intervals. The
business should report the financial
statements appropriate to a specific
period.

 Example: Teresita is an accountant of ABC

Company. Her boss requires her to prepare
financial statements every month.
4. Monetary Unit Principle
 Any amount involved in the business
is stated into a single monetary unit.

 Example: A fast food chain has

branches all over the world but their
financial statements must be
reported in peso since they also
have branch here in the Philippines.
5. Business Entity Principle
 In this principle, there is a separation and
distinction of transactions between the
business enterprise and its owner or investor.

 Example: Aling Babes, the owner of a mini

grocery store, separates the assets and
liability of her business from her personal
transactions. All transactions of the business
will be just in the business while her personal
matters will be hers only.
6. Cost Principle
 This is an accounting principle wherein
accounts should be recorded initially at cost
as well as assets at their respective cash
amounts at the time the asset was
purchased.

 Example: When the owner of a sari-sari

store buys a calculator, it should be
recorded in the cash register at its price
when it was bought.
7. Accrual Accounting Principle
 In this principle, revenue should be recognized when
earned regardless of collection. Same goes with
expenses which are recorded when incurred regardless
of payment. But in the Cash Basis Principle, revenue
is logged when collected, and expenses should be
recorded when paid. A Cash Basis is not generally an
accepted principle today.

 Example: When a painter finishes performing his

services, he should record it as revenue even if his
professional fee is still uncollected. When the painter
has to pay his studio rent, he should record it as an
expense even if it is unpaid.
8. Matching Principle
 In this principle, cost should be matched with
the revenue generated. It requires that the
expenses incurred during a period be recorded
in the same period in which the related
revenues are earned.
 Example: Siony sold the goods to her
customers, the revenue increases and the
inventories decrease. The reduction of the
inventories in relation to revenues is called the
cost of goods sold and it should be recorded in
the period in which the revenues were earned.
9. Disclosure Principle
 All necessary, relevant, and material
information should be reported in
this principle for transparency.

 Example: Aleena bought a computer

for her computer shop. She made
sure that it was recorded on the
financial reports.
10. Conservatism Principle
 This is also known as prudence.
Assets and income should not be
overstated while liabilities and
expenses should not be understated.
In case of doubt, expenses should be
recorded at a higher amount.
Revenue should be recorded at a
lower amount.
 Example: Suppose an asset owned by Mico, like
inventory was bought for Php 20,000.00 but
can now be bought for Php 15,000.00. Then the
company must immediately write down the
value of the asset to at Php 15,000.00 because
of the lower cost in the market. But if the
inventory was bought for Php 20,000.00 and
now has a market value of Php 25,000.00, it
must still be shown as Php 20,000.00 on the
books because the gain is only recorded when
the inventory or asset is sold.
11. Objectivity Principle
 In this concept, financial statements
of an organization must be presented
with supporting solid evidence and
the intent behind this principle is to
keep the management and the
department of accounting from
making financial statements that are
affected by their opinions and biases.
 Example: Martimart Enterprise is trying to
get a financing from Madas Bank for some
expansion but the enterprise’s bank wants
to see a copy of its financial statements
before it approves loan of the enterprise.
The enterprise’s bookkeeper prints out an
income statement from its accounting
system and mails it to the bank. Most likely,
Madas Bank will reject this financial
statement because an independent party
did not prepare it.