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Accounting Concepts and Principles

The document outlines fundamental accounting concepts and principles that guide financial accounting, including GAAP and PFRS in the Philippines. Key concepts such as the Entity Concept, Going Concern Concept, and Accrual Concept are discussed, along with principles like Historical Cost and Revenue Recognition. These concepts and principles ensure accurate financial reporting and transparency for businesses.

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6 views21 pages

Accounting Concepts and Principles

The document outlines fundamental accounting concepts and principles that guide financial accounting, including GAAP and PFRS in the Philippines. Key concepts such as the Entity Concept, Going Concern Concept, and Accrual Concept are discussed, along with principles like Historical Cost and Revenue Recognition. These concepts and principles ensure accurate financial reporting and transparency for businesses.

Uploaded by

maricardejucos6
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Accounting

Concepts
and
Principles
Accounting concepts and principles form the
foundation of financial accounting and provide
guidelines for recording, classifying, and reporting
financial information.

Generally Accepted Accounting Principles (GAAP)-


refers to a common set of accounting principles,
standards, and procedures issued by Financial
Accounting Standards Board (FASB)

GAAP in the Philippines


Philippine Financial Reporting Standards (PFRS)
Philippine Accounting Standards (PAS)
Accounting
Concepts
Entity Concept
•This concept assumes that the
business is separate from its
owners. The financial activities
of the business are recorded
separately from the personal
finances of the owners.
Going Concern Concept
•It assumes that a business
will continue to operate
indefinitely unless there is
evidence to the contrary. This
concept justifies the deferral
of some expenses (like
depreciation).
Accrual Concept
•Revenue and expenses are
recorded when they are earned
or incurred not when cash is
exchanged. This ensures that
financial statements reflect the
true financial position of the
business.
Consistency Concept
•This principle requires
businesses to use the same
accounting methods and
principles from one period to
the next. If changes are made,
they must be disclosed.
Matching Concept
•This concept states that
expenses should be matched
with the revenue they generate
in the same accounting period.
It ensures that financial
statements accurately reflect
profits or losses.
Money Measurement Concept
•Only transactions can be
measured in monetary terms
are recorded. Non-financial
information like customers
satisfaction or employee
morale is not recorded in the
financial statement.
Prudence/Conservatism
•This suggests that
accountants should not
overstate income or assets
and should anticipate
potential losses. It ensures
that financial statements is
not overly optimistic
Realization Concept
•Revenue is recognized when it
is earned, not necessarily
when it is received. It is
considered realized when
goods or services are
delivered, or when the risk and
reward have been transferred.
Accounting
Principles
Historical Cost Principle
•Assets should be recorded at
their original cost at the time
of acquisition, rather that
their current market value.
This principle provides
objectivity and reliability.
Revenue Recognition Principle
•Revenue should be recognized
when it is earned, regardless of
when the payment is receives.
This align with the accrual
concept and ensures revenues
are accurately represented.
Full Disclosure Principle
•All relevant and material
financial information should be
disclosed in the financial
statements or accompanying
notes. This ensures
transparency and helps users
make informed decisions.
Materiality Principle
•Financial statements should only
include information that is
significantly enough to influence
the decision of users. Small errors
or omission that do not affect the
overall understanding of the
financial position can be ignored.
Conservatism Principle
•Similar to the prudence concept,
this principle suggests that the
potential expenses or liabilities
should be recognized as soon as
possible, but revenues should
only be recognized when they
are assured.
Objectivity Principle
•Financial statements should
be based on objective and
verifiable evidence. This
minimizes bias and ensures
that financial reporting is
reliable.
Time-Period Principle
• The life of a business can be divided into
artificial time periods (e.g. monthly,
quarterly, or yearly) for reporting
purposes. This allows for consistent and
timely financial reporting

• Calendar Year (Jan 1- Dec 31)


• Fiscal Year (Any starting point + 12
months)
Cost-Benefit Principle
•The benefits derived from
financial information should
exceed the cost of providing
it. This principles ensures the
accounting practices are
efficient and not overly
burdensome
Quiz Time,
Pookiebears!

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