IMPORTANT ACCOUNTING PRINCIPLES

➔ Entity Concept
● Organization that stands apart from other organizations and individuals as a
seperate economic unit.
● The transactions of different entities should not be accounted together.
➔ Going Concern
● a business will continue in operation for the foreseeable future.
● assumed that the enterprise has neither the intention/need to liquidate materially
the scale of its operations.
➔ Periodicity Concept
● Allows user to obtain timely information to serve as a basis on making decisions
about future activities
● An entity’s life can be meaningfully subdivided into equal time periods for
reporting purposes.
➔ Stable Monetary Unit Concept
● Peso is a reasonable unit of measure and that its purchasing power is relatively
stable
● The basis for ignoring the effects of inflation in the accouting records
➔ Accrual Basis
● The effects of transactions are recognized when they occur and not as cash is
paid or received.
● Revenues as they are earned and expenses as they are incurred.
➔ Matching Principle
● To match expenses against revenues((expenses-revenue to compute profit/loss)

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

➢ Rules and procedures to define accepted accounting principle at a particular time.
➔ Objectivity Principle
● Records and statements are based on the most reliable data so they will be as
accurate/useful as possible.
● Reliable date are verifiable when they can be confirmed by independent
observers.
➔ Historical Cost
● Assets should be recorded at their actual cost and not as management thinks
they are worth.
➔ Revenue Recognition Principle
● When goods are delivered or services are rendered or performed.
➔ Expense Recognition Principle
● good/services are consumed,expired and used up to produce revenue
➔ Adequate (full) Disclosure
● Requires all relevant information that would affect the user’s understanding and
assessment of the accounting entity be disclosed in the financial statement.
➔ Materiality
 ●Financial reporting is only concerned with information that is significant enough to
affect evaluations. // It depends on the size and nature of the item
➔ Consistency Principle
● Firms should use the same accounting method to achieve comparability over
time within a single enterprise.
● Changes are permitted if justifiable and disclosed in the financial statements