Fundamentals of Accountancy,

Business, & Management 1

RUNY JADE D. BABAGAY

CONTENTS
Third Quarter
• Introduction to Accounting
• Branches of Accounting
• Users of Accounting Information
• Forms of Business Organization
• Types of Business according to Activities
• Accounting Concepts and Principles
• The Accounting Equation
• Types of Major Accounts
• Books of Accounts
CONTENTS
Forth Quarter
• Business Transactions and their analysis as applied
to the accounting cycle of:
• Service and Merchandising
• Rules of Debit and Credit
• Journalizing
• Posting
• Preparation of Trial Balance
• Adjusting Entries
• Preparation of Adjusted Trial Balance
• Preparation of Financial Statements
GRADING SYSTEM
WRITTEN WORKS – 25%
• Long Quiz
• Problem Solving
• Other Written Activities
PERFORMANCE TASK – 45%
• Class Activities
• Projects
• Oral Recitation
• Practical Exam
QUARTER ASSESSMENT – 30%
• 50-Item Written Exam
ACCOUNTING CONCEPTS
AND PRINCIPLES
OBJECTIVES:
• Explain the varied accounting concepts and
principles
• Solve exercises on accounting principles as
applied in various cases
FUNDAMENTAL
CONCEPTS
ACCOUNTING CONCEPTS AND PRINCIPLES
Explain the varied accounting concepts and principles
FUNDAMENTAL CONCEPTS
Several fundamental concepts underlie
the accounting process. In recording
business transactions, accountant should
consider the following:
• Entity Concept
• Periodicity Concept
• Going Concern Concept
• Stable Monetary Unit Concept
ACCOUNTING CONCEPTS AND PRINCIPLES
Explain the varied accounting concepts and principles
ENTITY CONCEPTS
The most basic concept in accounting.
An accounting entity is an organization or a
section of an organization that stands apart
from other organization and individuals as a
separate economic unit.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
Simply put, the transactions of different
entities should not be accounted for
together.

Each entity should be evaluated

separately.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
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 net income.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
This concept allows the user 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.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
Pacioli, the first author of an
accounting text, wrote in
1494:

“Books should be closed each

year, especially in a
partnership, because
frequent accounting makes
for long friendship.”

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
GOING CONCERN CONCEPT
The business is expected to continue
indefinitely.

When preparing financial statements, the

accountant should assume that the entity
will continue indefinitely.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
STABLE MONETARY UNIT
CONCEPT
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.
ACCOUNTING CONCEPTS AND PRINCIPLES
Explain the varied accounting concepts and principles
This is the basis for ignoring the effects
of inflation in the accounting records.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
CRITERIA FOR
GENERAL
ACCEPTANCE OF AN
ACCOUNTING
PRINCIPLES ACCOUNTING CONCEPTS AND PRINCIPLES
Explain the varied accounting concepts and principles
The general acceptance of an accounting
principle usually depends on how well it
meets three criteria:

• RELAVANCE
• OBJECTIVITY
• FEASIBILITY

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
RELEVANCE
A principle has relevance to the extent that
it results in information that is meaningful
and useful to those who need to know
something about a certain organization.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
OBJECTIVITY
A principle has objectivity to the extent that
the resulting information is not influenced
by the person bias and judgment of those
who furnish it.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
Objectivity connotes reliability and
trustworthiness.

It also connotes verifiability, which

means that there is some way of finding
out whether the information is correct.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
FEASIBILITY
A principle has feasibility to the extent that
it can be implemented without undue
complexity or cost.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
These criteria often conflict
with one another.
In some cases, the most
relevant solution may be the
least objective and least
feasible.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
BASIC
PRINCIPLES
ACCOUNTING CONCEPTS AND PRINCIPLES
Explain the varied accounting concepts and principles
Accounting practices follow certain
guidelines. The set of guidelines and
procedures that constitute acceptable
accounting practice at a given time is
GAAP, which stands for
GENERAL ACCEPTED ACCOUNTING
PRINCIPLES.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
In order to generate information that is
useful to the users of financial statements,
accountants rely upon the following
principles:
• Objectivity Principle
• Historical Cost/Cost Principle
• Accrual Accounting Principle
• Adequate Disclosure
• Materiality
• Consistency
• Conservatism
ACCOUNTING CONCEPTS AND PRINCIPLES
Explain the varied accounting concepts and principles
OBJECTIVITY PRINCIPLE
Accounting records and statements are
based on the most reliable data available so
that they will be as accurate and as useful
as possible.
Reliable data are verifiable when they can
be confirmed by independent observers.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
Ideally, accounting records are based on
information that flows from activities
documented by objective evidence.
Without this principle, accounting
records would be based on whims and
opinions and is therefore subject to
disputes.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
HISTORICAL COST
This principle states that acquired assets
should be recorded at their actual cost and
not at what management thinks they are
worth as at reporting date.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
ACCRUAL ACCOUNTING
PRINCIPLE
Revenue should be recognized when
earned regardless of collection and
expenses should be recognized when
incurred regardless of payment.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
REVENUE RECOGNITION
Revenue is to be recognized in the
accounting period when goods are
delivered, or services are rendered or
performed.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
EXPENSE RECOGNITION
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.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
ADEQUATE DISCLOSURE
Requires that all relevant information that
would affect the user’s understanding and
assessment of the accounting entity be
disclosed in the financial statements.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
MATERIALITY
Financial reporting is only concerned with
information that is significant enough to
affect evaluations and decisions.
Materiality depends on the size and nature
of the item judged in the particular
circumstances of its omission.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
In deciding whether an item
or an aggregate of items is
material, the nature and size
of the item are evaluated
together. Depending on the
circumstances, either the
nature or the size of the item
could be the determining
factor.

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
CONSISTENCY
The firm should use the same accounting
method from period to period to achieve
comparability over time within a single
enterprise.
However, changes are permitted if
justifiable and disclose in the financial
statements.
ACCOUNTING CONCEPTS AND PRINCIPLES
Explain the varied accounting concepts and principles
CONSERVATISM
also known as prudence.
In case of doubt, assets and income should
not be overstated while liabilities and
expenses should not be understated

ACCOUNTING CONCEPTS AND PRINCIPLES

Explain the varied accounting concepts and principles
CONCEPT CHECK!

Identify what concept,

criteria or principle.

ACCOUNTING CONCEPTS AND PRINCIPLES

Solve exercises on accounting principles as applied in various cases
The accounting guideline that requires
financial statement information to be
supported by independent, unbiased
evidence other than someone’s belief or
opinion.

OBJECTIVITY PRINCIPLE

ACCOUNTING CONCEPTS AND PRINCIPLES

Solve exercises on accounting principles as applied in various cases
It requires companies to recognize
expense even if it is unpaid.

ACCRUAL ACCOUNTING
PRINCIPLE
ACCOUNTING CONCEPTS AND PRINCIPLES
Solve exercises on accounting principles as applied in various cases
Philippine companies are required to
report financial statements annually.

PERIODICITY CONCEPT

ACCOUNTING CONCEPTS AND PRINCIPLES

Solve exercises on accounting principles as applied in various cases
The principle that requires every
business to be accounted for
separately and distinctly from its
owner.

ENTITY CONCEPT

ACCOUNTING CONCEPTS AND PRINCIPLES

Solve exercises on accounting principles as applied in various cases
A principle that requires companies
report all relevant and material
information.

ADEQUATE DISCLOSURE

ACCOUNTING CONCEPTS AND PRINCIPLES

Solve exercises on accounting principles as applied in various cases
The rule that requires financial
statements to reflect the assumption
that the business will continue
operating instead of being closed or
sold, unless evidence shows that it
will not continue.

GOING CONCERN

ACCOUNTING CONCEPTS AND PRINCIPLES

Solve exercises on accounting principles as applied in various cases
It requires companies report financial
statements in pesos even if they have
a branch in other countries.

STABLE MONETARY UNIT

CONCEPT
ACCOUNTING CONCEPTS AND PRINCIPLES
Solve exercises on accounting principles as applied in various cases
“The strongest principle of growth
lies in human choice”.

-George Eliot

ACCOUNTING CONCEPTS AND PRINCIPLES

Solve exercises on accounting principles as applied in various cases