AC C O U N T I N G

CONCEPTS
AND
PRINCIPLES
 are set of
AC C O U N T I N G
rules that
CONCEPTS govern the
AND accounting
PRINCIPLES process.
 Accounting
Concepts,Principles
AC C O U N T I N G and Assumptions
serve as the
CONCEPTS foundation of
accounting in order to
AND avoid misunderstating
and enhance the
PRINCIPLES understanding and
usefulness of
financial information.-
Va l i x e t a l
 a widely set of
G E N E RA L LY rules, concept and
AC C E P T E D principles that
govern the
AC C O U N T I N G application of
accounting
PRINCIPLES procedures.

((GAAP))
 1. BUSINESS ENTITY
ASSUMPTION
• This principle says that a business
enterprise is separate and distinct
from its owner or investor.
 BUSINESS ENTITY
ASSUMPTION
• Basically, this principle means that a
business is an entity unto itself, and should
be treated as such (which is also why this is
sometimes called the “separate entity
assumption”).
 2 . AC C R U A L AC C O U N T I N G
ASSUMPTION

• It requires that all business transactions and

other events are recognized in the accounting
records when they occur, rather than when the
cash or equivalent is received or paid.
 AC C R U A L AC C O U N T I N G
ASSUMPTION

• In this principle, revenue should be recognized

when earned regardless of collection. Same
goes with expenses which are recorded when
incurred regardless of payment.
 AC C R U A L AC C O U N T I N G
ASSUMPTION
• 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 must pay his studio rent, he should record it
as an expense even if it is unpaid.
 3. GOING-CONCERN
A SS U M P T I O N
• In the absence of contrary
information, a business entity is
assumed to remain in existence for
an indeterminate period of time.
 GOING-CONCERN
A SS U M P T I O N
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.
 4 . M O N E TA RY U N I T
A SS U M P T I O N

• Any amount involved in the business

is stated into a single monetary unit.
 M O N E TA RY U N I T
ASSUMPTION
• Example: Imagine a company, XYZ Corp,"
operating in both the United States and Japan.
XYZ Corp incurs expenses and earns revenue in
both US Dollars (USD) and Japanese Yen (JPY).
According to the monetary unit assumption, all of
XYZ Corp's financial transactions must be
converted into a single currency, say USD, when
preparing financial statements.
 5. TIME PERIOD
ASSUMPTION
• The financial statements are usually
divided into specific time intervals. The
business should report the financial
statements appropriate to a specific period.
 TIME PERIOD
ASSUMPTION
• Philippine companies are required to report
financial statements annually. For an
annual accounting period, it may follow a
calendar or fiscal year .
 TIME PERIOD
ASSUMPTION
• Example: Teresita is an accountant of
ABC Company. Her boss requires her
to prepare financial statements every
month.
 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.
 COST PRINCIPLE

• 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 . F U L L D I S C LO S U R E
PRINCIPLE
• In the preparation of fs, the accountants
should include sufficient information to
permit the stakeholders to make an
informed judgement about the financial
condition of the enterprise.
 8 . M ATC H I N G P R I N C I P L E
• 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.
 M ATC H I N G P R I N C I P L E

• Example: Electricity consumed in Dec. 31,

2024 should be recoreded as utility expenses
in the month the year 2024 not in Jan. 10,
2025 when it was paid.
 9.REVENUE RECOGNITION
PRINCIPLE
• Revenues are recognized as soon as
goods have been sold or service has
been rendered regardless of when the
money is actually received.
 REVENUE RECOGNITION
PRINCIPLE

• Example: On June 25, Bilis Serbisyo Repair

Shop rendered service to a client for
Php1,500.00. The fee was collected on July
4.
 1 0 . M AT E R I A L I T Y
PRINCIPLE
• Business transactions that may affect the
decision of a user of financial information
are considered important or material,
and thus must be reported properly.
 M AT E R I A L I T Y P R I N C I P L E

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.
 1 1 . C O N S E RVAT I S M
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.
 C O N S E RVAT I S M
PRINCIPLE
• 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.
 12. OBJECTIVITY
• In this P R I N C I P L E
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.
 8OBJECTIVITY PRINCIPLE
• 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.
 Accounting
Concepts and
1. Business Entity Assumption 7. Full Disclosure Principle

Principles
2. Accrual Accounting Assumption
3. Going Concern Assumption
8. Matching Principle
9. Revenue Recognition Principle
4. Monetary Unit Assumption 10. Materiality Principle
5. Time Period Assumption 11. Conservatism Principle
6. Cost Principle 12. Objectivity Principle