ACCOUNTING

CONCEPTS AND
PRINCIPLES
MATCH ME UP, MATCH ME NAE NAE!
Match the word in Set A with the same meaning
in Set B.
SET A SET B
1. Peso a. Continuous
2. Accumulate b. Monetary unit
3. Independent c. Gather
4. Indefinite d. Yearly
5. Annual e. Separate
Juan Dela Cruz opened his pet shop business called Petness
First Petshop. He opened a bank account for his business
and deposited PhP500,000.00. The business earned
PhP50,000.00 but he had doubts with the recorded expense
of PhP70,000.00. He is not sure if he will include the following
items as expenses:
 Salary expense 20,000
 Rent expense for the building 10,000
 Utilities expense (at home) 15,000
 Utilities expense (at the store) 10,000
 Insurance expense (for the store) 5,000
 Withdrawals 10,000
Salary expense - included since it is related to the
operation of the business;
Rent expense - included since the rent is for the
business
Utilities expense (at home) - NOT included; it is personal
expense
Utilities expense (at the store) -included; it is an
expense of the business
Insurance expense - included since the insurance is for
the business
Withdrawals - NOT included since the withdrawal is for
personal use
ACCOUNTING CONCEPTS AND
PRINCIPLES
areknown as the “Generally Accepted
Accounting Principles,” or GAAP
serve as the rules for accounting of financial
transactions and preparing financial statements
application of the principles by accountants
ensures that financial statements are both
informative and reliable
BUSINESS ENTITY PRINCIPLES

A business enterprise is separate

and distinct from its owner or
investor
GOING CONCERN PRINCIPLE

Business if expected to continue

indefinitely
TIME PERIOD PRINCIPLE

Financial statements are to be

divided into specific time
intervals; usually monthly,
quarterly or annually
MONETARY UNIT PRINCIPLE

Amountsare stated into a single

monetary unit
Record business transactions
that can be expressed in terms
of currency
OBJECTIVITY PRINCIPLE

Financial
statements must be
presented with supporting
evidence
COST PRINCIPLE

Assetsbe recorded at the cash

amount (or the equivalent) at the
time that an asset is acquired
ACCRUAL ACCOUNTING PRINCIPLE
Revenue/income must be
recognized when earned even if it
is still collectible
Expenseshould be recognized
when used even if is still payable
MATCHING PRINCIPLE

That expenses should be reported

in the same accounting period as
the revenues/income they are
related to
FULL DISCLOSURE PRINCIPLE
requires management to report
all relevant information about the
company's operations to
creditors and investors in the
financial statements and
footnotes
CONSERVATISM PRINCIPLE
Also known as prudence
In case of doubt, assets and
income should not be overstated
Liabilities
and expenses should not
be understated
MATERIALITY PRINCIPLE

Incase of assets that are

immaterial to make a difference in
the financial statements, the
company should instead record it
as an expense
APPLICATION

Indicate which principles are

violated
 APPLICATION
Group yourselves into 5 groups
Read the following cases and
identify which principles are
violated and explain
Assign a reporter to present your
answer
CASE #1

The owner-manager bought a

computer for personal use. The
invoice was given to the
accountant who recorded it as
an asset of the business.
CASE #2
The statement of financial position of a
company included an equipment
purchased from Japan for 350,000 Yen. It
was reported at that amount in the
statement of financial position while all
the other assets were reported in
Philippine pesos.
CASE #3
No financial statements were
prepared by Michael Go for his
business. He explained that he will
prepare the statements when he
closes the business, which he
predicts to take place after 20 years.
CASE #4
A food company ordered a
machine needed in the assembly
line of its production department.
Upon order, the machine was
immediately listed as one of its
assets.
CASE #5
The restaurant purchased a
screwdriver at a cost of PHP58.
This was recorded as an asset
and expense to decrease its
value by PHP50 per year for 10
years.
MULTIPLE CHOICE

Read the following statements

and choose the principle it
describes.
Write the letter of the correct
answer in a 1/4 sheet of paper.
1. The accounting guideline that requires
financial statement information to be
supported by independent, unbiased evidence
other than someone's belief or opinion is the:
a. Business entity principle
b. Monetary unit principle
c. Going-concern principle
d. Objectivity principle
2. The principle that requires every business to
be accounted for separately and distinctly
from its owner or owners is known as the:
a. Objectivity principle
b. Business entity principle
c. Revenue recognition principle
d. Cost principle
3. The rule that requires financial statements to
reflect the assumption that the business will
continue operating instead of being closed or
sold, unless evidence shows that it will not
continue, is the:
a. Going-concern principle
b. Objectivity principle
c. Cost Principle
d. Monetary unit principle
4. Financial Statements of a company
is prepared at a regular interval.
a. Going Concern Principle
b. Time Period Principle
c. Monetary Unit Principle
d. Business Entity Principle
5. The financial statements should be
stated in terms of a common financial
denominator.
a. Monetary unit principle
b. Conservatism principle
c. Matching principle
d. Cost principle
ASSIGNMENT

Interviewa business owner and

ask them about their accounting
practices. Identify if there has
been any violation of the
accounting principles.