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 Generally Accepted Accounting Principles were

eventually established primarily as a response to
the Stock Market Crash of 1929 and the
subsequent Great Depression
 Generally Accepted Accounting Principles began
to be established with legislation such as
the Securities Act of 1933 and the Securities
Exchange Act of 1934.
 The GAAP have gradually evolved, based on
established concepts and standards, as well as on
best practices that have come to be commonly
accepted across different industries.
GAAP(Generally Accepted Accounting Principles)
 is referring to a set of rules, standards and
practices used throughout the accounting industry
to prepare and standardize financial statements
that are issued outside the company.
 is based on established concepts, objectives,
standards and conventions that have evolved over
time to guide how financial statements are
prepared and presented.
 Philippine Financial Reporting Standards
(PFRS)/Philippine Accounting Standards
- are the new set of Philippine
Generally Accepted Accounting Principles
(GAAP) issued by the Accounting
Standards Council (ASC) to govern the
preparation of financial statements.
Criteria for General Acceptance
of an Accounting Principle
 Relevance – it results in information that is
meaningful and useful to those who need
to know something about a certain
 Objectivity – the resulting information is
not influenced by the personal bias or
judgment of those who furnish it.
 Feasibility – it can be implemented
without undue complexity or cost.
Basic Principles
 Objectivity Principle - Accounting records and
statements are based on the most reliable data
available so that they will be as accurate and as
useful as possible.
 Historical Cost – this principle states that acquired
assets should be recorded at their actual cost.
 Revenue Recognition Principle – revenue is to be
recognized in the accounting period when goods
are delivered or services are rendered or
 Expense Recognition Principle – Expenses should
be recognized in the accounting period when
goods and services are used up to produce
 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.
 Consistency Principle – the firms should use the
same accounting method from period to period
to achieve comparability over time within a single
Fundamental Concepts
 EntityConcept - The business is separate from its
owners and other businesses.
 Monetary Unit Concept - the Philippine peso is a
reasonable unit of measure and that its purchasing
power is relatively stable.
 Periodicity Concept - The economic activities of
an enterprise can be divided into equal time
periods for reporting purposes.
 Going concern - an entity is viewed as continuing
in business for the foreseeable future.
Qualities of GAAP