REVIEW

ACCOUNTING

BUSINESS

ORGANIZATION OPERATION
ACTIVITY
• . LET THEM READ AND ANSWER THE TEXT QUIETLY FOR 10 MINUTES.
• PETNESS FIRST PETSHOP
• JUAN DELA CRUZ OPENED HIS PET SHOP BUSINESS CALLED PETNESS FIRST PETSHOP. HE OPENED A BANK
ACCOUNT FOR HIS BUSINESS AND DEPOSITED PHP500,000. THE BUSINESS EARNED PHP50,000 BUT HE HAD
DOUBTS WITH THE RECORDED EXPENSE OF PHP60,000. HE IS NOT SURE IF HE SHOULD INCLUDE THE
FOLLOWING ITEMS AS EXPENSES:
• SALARY EXPENSE 20,000
• RENT EXPENSE 10,000
• UTILITIES EXPENSE (AT HOME) 15,000
• UTILITIES EXPENSE (AT THE STORE) 10,000
• INSURANCE EXPENSE 5,000
• WITHDRAWALS 10,000
• TOTAL 60,000
• 4. ASK THE STUDENTS WHAT THEY THINK SHOULD NOT BE INCLUDED AS EXPENSES. THEN EXPLAIN WHY.
BUSINESS ENTITY PRINCIPLE
• •– A BUSINESS ENTERPRISE IS SEPARATE AND DISTINCT FROM ITS OWNER OR INVESTOR.
• EXAMPLES :
• IF THE OWNER HAS A BARBER SHOP, THE CASH OF THE BARBER SHOP
SHOULD BE REPORTED SEPARATELY FROM PERSONAL CASH. 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.
GOING CONCERN PRINCIPLE –
• – BUSINESS IS EXPECTED TO CONTINUE INDEFINITELY.
EXAMPLE:
• WHEN PREPARING FINANCIAL STATEMENTS, YOU
SHOULD ASSUME THAT THE ENTITY WILL CONTINUE
INDEFINITELY.
TIME PERIOD PRINCIPLE –
• FINANCIAL STATEMENTS ARE TO BE DIVIDED INTO SPECIFIC TIME INTERVALS.
• EXAMPLE :
• PHILIPPINE COMPANIES ARE REQUIRED TO REPORT FINANCIAL STATEMENTS
ANNUALLY. THE SALARY EXPENSES FROM JANUARY TO DECEMBER 2015
SHOULD ONLY BE REPORTED IN 2015.
MONETARY UNIT EXAMPLE
• JOLLIBEE SHOULD REPORT FINANCIAL STATEMENTS IN
PESOS EVEN IF THEY HAVE A STORE IN THE UNITED
STATES. IHOP SHOULD REPORT FINANCIAL
STATEMENTS IN DOLLARS EVEN IF THEY HAVE A
BRANCH HERE IN THE PHILIPPINES
OBJECTIVITY PRINCIPLE –
• FINANCIAL STATEMENTS MUST BE PRESENTED WITH
SUPPORTING EVIDENCE. EXAMPLE :
• WHEN THE CUSTOMER PAID JOLLIBEE FOR THEIR ORDER,
JOLLIBEE SHOULD HAVE A COPY OF THE RECEIPT TO REPRESENT
AS EVIDENCE.
• WHEN A COMPANY INCURRED A TRANSPORTATION EXPENSE, A
VOUCHER SHOULD BE PREPARED AS EVIDENCE.
• COST PRINCIPLE
• – ACCOUNTS SHOULD BE RECORDED INITIALLY AT COST.
EXAMPLE :
• WHEN JOLLIBEE BUYS A CASH REGISTER, IT SHOULD
RECORD THE CASH REGISTER AT ITS PRICE WHEN THEY
BOUGHT IT.
• WHEN A COMPANY PURCHASES A LAPTOP, IT SHOULD BE
RECORDED AT THE PRICE IT WAS PURCHASED.
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: 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.
MATCHING PRINCIPLE
• – COST SHOULD BE MATCHED WITH THE REVENUE
GENERATED.
• EXAMPLE:WHEN YOU PROVIDE TUTORIAL SERVICES TO A
CUSTOMER AND THERE IS A TRANSPORTATION COST
INCURRED RELATED TO THE THE TUTORIAL SERVICES, IT
SHOULD BE RECORDED AS AN EXPENSE FOR THAT
PERIOD.
• DISCLOSURE PRINCIPLE

•– ALL RELEVANT AND MATERIAL INFORMATION

SHOULD BE REPORTED.
•EXAMPLE:THE COMPANY SHOULD REPORT ALL
RELEVANT INFORMATION.
• 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: IN CASE OF DOUBT, EXPENSES SHOULD BE
RECORDED AT A HIGHER AMOUNT. REVENUE SHOULD BE
RECORDED AT A LOWER AMOUNT.
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: 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.
PRACTICE
•
(35 MINS)
A. CONCEPT CHECK. USE THE FOLLOWING MULTIPLE CHOICE QUESTIONS FOR PRACTICE.
ASK THE STUDENTS TO ANSWER THE FOLLOWING MULTIPLE CHOICE QUESTIONS:
• 1. THE ACCOUNTING GUIDELINE THAT REQUIRES FINANCIAL STATEMENT INFORMATION TO BE
SUPPORTED BY INDEPENDENT, UNBIASED EVIDENCE OTHER THAN SOMEONE'S BELIEF OR
OPINION IS THE:
• A. BUSINESS ENTITY PRINCIPLE
• B. MONETARY UNIT PRINCIPLE
• C. GOING-CONCERN PRINCIPLE
• D. COST PRINCIPLE E. OBJECTIVITY PRINCIPLE
• 2. THE PRINCIPLE THAT REQUIRES EVERY BUSINESS TO BE ACCOUNTED FOR SEPARATELY
AND DISTINCTLY FROM ITS OWNER OR OWNERS IS KNOWN AS THE:
• A. OBJECTIVITY PRINCIPLE
• B. BUSINESS ENTITY PRINCIPLE
• C. GOING-CONCERN PRINCIPLE
• D. REVENUE RECOGNITION PRINCIPLE
• E. COST PRINCIPLE
• 3. 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, IS THE
A. GOING-CONCERN PRINCIPLE
B. BUSINESS ENTITY PRINCIPLE
C. OBJECTIVITY PRINCIPLE
D. COST PRINCIPLE
E. MONETARY UNIT PRINCIPLE

• 4. TO INCLUDE THE PERSONAL ASSETS AND TRANSACTIONS OF A BUSINESS'S

OWNER IN THE RECORDS AND REPORTS OF THE BUSINESS WOULD BE IN CONFLICT
WITH THE:
A. OBJECTIVITY PRINCIPLE
B. REALIZATION PRINCIPLE
C. BUSINESS ENTITY PRINCIPLE
D. GOING-CONCERN PRINCIPLE
E. REVENUE RECOGNITION PRINCIPLE
• 5. THE OBJECTIVITY PRINCIPLE:
A. MEANS THAT INFORMATION IS SUPPORTED BY INDEPENDENT, UNBIASED
EVIDENCE
B. MEANS THAT INFORMATION CAN BE BASED ON WHAT THE PREPARER THINKS
IS TRUE
C. MEANS THAT FINANCIAL STATEMENTS SHOULD CONTAIN INFORMATION THAT
IS OPTIMISTIC
D. MEANS THAT A BUSINESS MAY NOT RE-ORGANIZE REVENUE UNTIL CASH IS
RECEIVED
• 6. NICOLE PAJULAS IS THE OWNER OF MOSELY ACCOUNTING SERVICES.
WHICH ACCOUNTING PRINCIPLE REQUIRES MARIAN TO KEEP HER PERSONAL
FINANCIAL INFORMATION SEPARATE FROM THE FINANCIAL INFORMATION OF
MOSELY ACCOUNTING SERVICES?
A. MONETARY UNIT PRINCIPLE
B. GOING-CONCERN PRINCIPLE
C. COST PRINCIPLE
D. BUSINESS ENTITY PRINCIPLE
• 7. WHICH OF THE FOLLOWING ACCOUNTING PRINCIPLES WOULD REQUIRE
THAT ALL GOODS AND SERVICES PURCHASED BE RECORDED AT COST?
• A. GOING-CONCERN PRINCIPLE
• B. CONTINUING-CONCERN PRINCIPLE
• C. COST PRINCIPLE
• D. BUSINESS ENTITY PRINCIPLE
ASSESSMENT ( 10 MINUTES)
Accounting principles. Indicate which principles are violated

1. The owner-manager of Awoor Computer Shop,bought a computer for personal use. The invoice was given
to the accountant who recorded it as an asset of the business.

2. The statement of financial position of a Lucsuhin Natonal High School included an equipment purchased
from Japan for 350,000 yen. It was reported at that amount in the statement of financial position while all the
other assets were reported in Philippine pesos.

3. No financial statements were prepared by Mrs. Maricel Umandap, Cash Disbursing Officer of LNHS for his
business. She explained that he will prepare the statements when he closes the business, which he predicts
to take place after 20 years.

4. Aside from owning a shoe store, Mr. Apollo Alcazar operates a canteen. The assets of the canteen are
reported in the statement of financial position of the shoe store.

5. Mrs. Alma Balani, owner of SEBalani purchased a hammer at a cost of PHP500. This was recorded as an
asset and expense to decrease its value by PHP50 per year for 10 years.

6. The Frank’s Burger ordered a machine needed in the assembly line of its production department. Upon
order, the machine was immediately listed as one of its assets.
•ANSWERS : (1) BUSINESS ENTITY
• (2) MONETARY UNIT
•(3) TIME PERIOD
•(4) BUSINESS ENTITY
•(5) MATERIALITY
• (6) OBJECTIVITY
ASSIGNMENT
• MATCHING. MATCH THE FOLLOWING WORDS WITH THEIR DEFINITION:
• A. GOING CONCERN PRINCIPLE
• B. OBJECTIVITY PRINCIPLE
• C. MATCHING PRINCIPLE
• D. MATERIALITY PRINCIPLE
• E. TIME PERIOD PRINCIPLE
• F. COST PRINCIPLE
• G. DISCLOSURE PRINCIPLE
• H. MONETARY UNIT PRINCIPLE
• I. ACCRUAL ACCOUNTING PRINCIPLE
• J. CONSERVATISM PRINCIPLE
• __________________ 1. ALL RELEVANT INFORMATION SHOULD BE INCLUDED IN THE FINANCIAL
REPORTS
• ___________________ 2. IN CASE OF DOUBT, ASSETS AND INCOME SHOULD NOT BE OVERSTATED.
• ___________________ 3. ASSUME THAT THE COMPANY WILL CONTINUE INDEFINITELY.
• ___________________ 4. ALL TRANSACTIONS SHOULD BE SUPPORTED BY UNBIASED EVIDENCE.
• ___________________ 5. EXPENSES SHOULD BE RECORDED IN THE PERIOD WHEN THE REVENUE IS
GENERATED.
• ___________________ 6. MINIMAL COSTS INCURRED SHOULD BE RECORDED AS AN EXPENSE.
___________________7. A PHILIPPINE COMPANY SHOULD REPORT FINANCIAL STATEMENTS IN
PESOS.
• ___________________ 8. A BARBER WHO PERFORMS SERVICES FOR A CLIENT SHOULD RECORD
REVENUE. ___________________
• 9. STATEMENT OF FINANCIAL POSITION SHOULD BE RECORDED AS OF DECEMBER 31, 2015.
___________________
• 10. A COMPANY THAT PURCHASES FURNITURE SHOULD RECORD IT AT ITS ACQUISITION PRICE.
ANSWERS:

• 1. G 2. J 3. A 4. B 5. C 6. D 7. H 8. I 9. E 10. F