ACCOUNTING CONCEPT
AND PRINCIPLES
MODU
LE 6
JENMAR S. PEPITO, LPT
OBJECTI
1
VES
• STUDENTS CAN JUSTIFY EVERY ACTION OR WAY OF
RECORDING TRANSACTIONS
2 • STUDENTS CAN LEARN ACCOUNTING CONCEPT
AND PRINCIPLES
3 • STUDENTS MAY APPLY DIFFERENT CONCEPTS AND
PRINCIPLES IN ACCOUNTING
Introduction
In accounting, there are basis or assumptions every time
we record a transaction. In order for the accountants
and everyone who is involved to have a concrete and
united answer, they need to follow the generally
accepted rule for accounting.
Introduction
The purpose of accounting concepts and principles is
to justify every action or way of recording transactions
of the owners. There are different concepts and
principles that may be applied and followed by the
business. As you go on, these accounting concepts
and principles will unfold.
Here are the
Accounting
Concepts and
Principles,
(Ballada, 2017).
1. Materiality
Principle
This includes all assets
EXAMPLE
Robi, an accounting clerk,
that are immaterial to
purchased a friction pen.
make a difference in
She estimated it to have a
the financial
useful life up to three
statements which the
months. Since a friction
company should
pen is immaterial relative
record as an expense.
to assets, it should be
2. Going-
Concern
This means that EXAMPLE
Principle
the business is Mr. Clark’s sushi
business is
expected to experiencing difficulty,
continue but he is still expecting
it to continue that is
indefinitely. why he still updates his
books of account.
3. Time
Period
The financial
statements are
usually divided into
Principle
EXAMPLE
specific time Teresita is an accountant
intervals. The of ABC Company. Her
business should boss requires her to
report the financial prepare financial
statements statements every month.
appropriate to a
4. Monetary
Unit Principle
Any amount
EXAMPLE
involved in the
business is A fast food chain has
branches all over the
stated into a
world but their
single monetary financial statements
unit. must be reported in
peso since they also
have branch here in
5. Business
Entity Principle
In this principle,
EXAMPLE
there is a
separation and Aling Babes, the owner of a
mini grocery store, separates
distinction of
the assets and liability of her
transactions business from her personal
between the transactions. All transactions
of the business will be just in
business the business while her
6. Cost
Principle
This is an accounting EXAMPLE
principle wherein
accounts should be When the owner of
a sari-sari store
recorded initially at
buys a calculator, it
cost as well as assets
should be recorded
at their respective
in the cash register
cash amounts at the
at its price when it
7. Accrual
Accounting
In this principle, revenue
should be recognized when
Principle
EXAMPLE
earned regardless of When a painter finishes
collection. Same goes with performing his services,
expenses which are recorded
he should record it as
when incurred regardless of
revenue even if his
payment. But in the Cash
Basis Principle, revenue is professional fee is still
logged when collected, and uncollected. When the
expenses should be recorded painter has to pay his
8. Matching
Principle
In this principle, cost EXAMPLE
should be matched
with the revenue In this principle, cost
generated. It requires should be matched with
that the expenses the revenue generated.
incurred during a It requires that the
period be recorded in expenses incurred
the same period in during a period be
which the related recorded in the same
9. Disclosure
Principle
All necessary, EXAMPLE
relevant, and
Aleena bought a
material information computer for her
should be reported in computer shop. She
this principle for made sure that it
transparency. was recorded on the
financial reports
1 0 .
r v a t i s m
C o n s e
This is also known as prudence.
i n c i p l e
r
Assets and income should not
P overstated while liabilities and
be
expenses should not be
understated. In case of doubt,
expenses should be recorded at a
higher amount. Revenue should
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
1 1 .
T I V I T Y te m e n t s o f
In t JEC
n a n c i a l s t a
t , fi
B o n c e p i th
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m u s t b e p
o n
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i za ti te n t
L
an or g a n h e i n
P
t
I c e a n d
C v i d e n
N d e
I g s o l i
R
o rt in p t h e
P
su p p l e i s t o k e e
th i s p ri n c i p
be h i n d a r tm e n t o f
n d t h ed e p
a g e m e n t a i a l
m a n k i n g fin a n c
g fr o m m a
a c co u n ti n b y t h e i r
re a ff e c t e d
e n ts th a t a
sta te m i a s e s .
on s a n d b
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,
ANY
QUESTIO
NS?
Than
ks!
