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51 views46 pages

Andhshdhjsjsjs

Jbsxjbedjxnns

Uploaded by

Nennsha Nagud
Copyright
© © All Rights Reserved
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ACCOUNTING PRINCIPLE &

CONCEPTS

ROSIEL J. MORENO
SUBJECT TEACHER
CONCEPTUAL FRAMEWORK

 Outlines the objectives of financial


reporting and the qualities of good
accounting information, precisely defines
commonly used terms such as assets,
liabilities, equity, revenue and expenses,
and provide guidance about appropriate
recognition and reporting.
CONCEPTUAL FRAMEWORK
CONSIST OF THE FOLLOWING:
 OBJECTIVES
 QUALITATIVE CHARACTERISTICS
 ELEMENTS
 RECOGNITION AND
MEASUREMENT
ACCOUNTING CONCEPTS AND
PRINCIPLES (ASSUMPTIONS)
 Set of logical ideas and procedures that
guide the accountant in recording and
communicating economic information.
 provide a general frame of reference by
which accounting practice can be
evaluated and they serve as guide in the
development of new practices and
procedures
FUNDAMENTAL CONCEPTS

 ENTITY CONCEPT
 PERIODICITY CONCEPT
 STABLE MONETARY UNIT
CONCEPT
 GOING CONCERN
ENTITY CONCEPT

 the most basic concept in


accounting. An accounting entity is
an organization or a section of an
organization that stands apart from
other organizations and individuals
as a separate economic entity.
PERIODICITY CONCEPT

 this concept allows the users 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.
STABLE MONETARY UNIT CONCEPT

 the Philippine peso is a reasonable


unit of measure and that its
purchasing power is relatively
stable.
GOING CONCERN

 Financial statements are normally


prepared on the assumptions that
the reporting entity is a going
concern and will continue in
operation for the foreseeable future.
ACCOUNTING ASSUMPTIONS

 GOING CONCERN
ASSUMPTIONS
ACCOUNTING ENTITY
ASSUMPTIONS
 TIME PERIOD
ASSUMPTIONS
 MONETARY UNIT
ASSUMPTIONS
GOING CONCERN
ASSUMPTIONS

 the assumptions that the


entity will continue operations
indefinitely into the future. It
can be abandoned if there are
evidences supporting the
contrary.
ACCOUNTING ENTITY
ASSUMPTIONS

 the assumptions that the


business is an entity separate and
distinct from the owners,
managers, and employees.
Personal transactions of owners,
managers, and employees should
not distort the results of company
operations.
TIME PERIOD ASSUMPTIONS

 the assumptions that the


indefinite life of a company can
be divided into multiple time
periods with equal lengths. The
result of this is the periodic
presentation of a company’s
financial statements.
CALENDAR YEAR

A 12 month period that


ends on December 31
CALENDAR YEAR

A 12 - month period that


ends on any month
BASIC PRINCIPLES
 OBJECTIVITY PRINCIPLE
 HISTORICAL COST
 REVENUE RECOGNITION PRINCIPLE
 EXPENSE RECOGNITION PRINCIPLE
 ADEQUATE DISCLOSURE
 MATERIALITY
 CONSISTENCY PRINCIPLE
BASIC PRINCIPLES
 ACCRUAL ACCOUNTING
 MATCHING PRINCIPLE
 ACCOUNTING JUDGEMENT AND
ESTIMATES
 PRUDENCE OR CONSERVATISM
OBJECTIVITY PRINCIPLE

accounting records and statements


are based on the most reliable data
available so that they will be as
accurate as possible. Reliable data
are verifiable when they can be
confirmed by independent observers.
HISTORICAL COST

this principle states that acquired


assets should be recorded at their
actual cost and not what
management thinks they are worth
as at reporting date.
REVENUE RECOGNITION PRINCIPLE

 revenue is to be recognized in the


accounting period when goods are
delivered or services are rendered or
performed.
EXPENSE 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

 requires that all relevant information


that would affect the user’s
understanding and assessment of the
accounting entity be disclosed in the
financial statements.
MATERIALITY

Financial reporting is only concerned


with information that is significant
enough to affect evaluations and
decisions.
 depends on the size and nature of
the item judged in the particular
circumstances of its omission
CONSISTENCY PRINCIPLE

 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 disclosed in the
financial statements.
ACCRUAL ACCOUNTING

 an accounting basis wherein income is


recognized when earned and expenses
are recognize when incurred irrespective
of the timing of cash receipt or payments.
Accrual accounting results in more
accurate financial statements.
CASH BASIS OF ACCOUNTING

 opposite of the accrual basis of


accounting; recognizes income when
cash is received and recognizes expense
when cash is paid
MATCHING PRINCIPLE

 a concept closely related to accrual


accounting which states that expenses
should be recorded in the same period as
the related revenues.
MATCHING PRINCIPLE

 a concept closely related to accrual


accounting which states that expenses
should be recorded in the same period as
the related revenues.
ACCOUNTING JUDGEMENT AND ESTIMATES

 not all items in a company’s accounting


records can be determined precisely. This
is the reason why estimates are used.
 estimates are determined using
professional judgment, study of historical
data, and through research.
PRUDENCE OR CONSERVATISM

 means exercising care in decisions


regarding recognition of items in the
accounting records. In case of doubt,
recognize liabilities and expenses and do
not recognize assets and income.
QUALITATIVE
CHARACTERISTICS

 The traits that determine


whether an item of
information is useful to
users. Without these
characteristics, information
may be deemed useless.
QUALITATIVE CHARACTERISTICS OF
USEFUL INFORMATION

1. FUNDAMENTAL QUALITATIVE
CHARACTERISTICS

 RELEVANCE
 FAITHFUL REPRESENTATION
RELEVANCE
Information is relevant if it can
affect the decisions of users.
Relevant information has the
following aspects:
- Predictive Value
- Confirmatory value or
Feedback
- Materiality
PREDICTIVE VALUE

Information has a
predictive value if it can
help users to make
predictions about
future outcomes.
CONFIRMATORY VALUE
FEEDBACK VALUE
This concept is related to
the predictive value.
Information has a
confirmatory value if it
can help users confirm
their past predictions.
MATERIALITY

An ‘entity-specific’
aspect of relevance,
meaning it depends on
the facts and
circumstances
surrounding a specific
FAITHFUL REPRESENTATION

Faithfully represented if it is
factual. Faithfully represented
information has the following
aspects:
- Completeness
-Neutrality
- Free from error
COMPLETENESS

All information necessary


for users to have a
complete understanding
of the financial
statements is provided.
NEUTRALITY

Information is selected or
presented without bias.
Information is not
manipulated to increase
its favorability or
decrease its
unfavorability.
FREE FROM ERROR

The information is not materially


misstated. This does not mean,
however, that accounting
information must be perfectly
accurate in all respects because
some accounting information
necessarily needs to be
estimated.
QUALITATIVE CHARACTERISTICS OF
USEFUL INFORMATION

2. ENHANCING QUALITATIVE
CHARACTERISCTICS
 COMPARABILITY
 VERIFIABILITY
 TIMELINESS
 UNDERSTANDABILITY
COMPARABILITY
Information is comparable if it
can help users identify
similarities and differences
between different sets of
information. Unlike, the other
qualitative characteristics,
comparability does not relate to
only one item because a
comparison requires at least
two items.
VERIFIABILITY

Information is verifiable
if different users could
reach general
agreement as to what
the information intends
to represent
TIMELINESS

Information is timely if
it is available to users
in time to be able to
influence their
decisions.
UNDERSTANDABILITY
Information is understandable
if it is presented in a clear and
concise manner. On the other
hand, users are expected to
have a reasonable knowledge
of business activities and a
willingness to analyze the
information diligently.

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