Chapter 1 - The Generally Accepted Accounting Principles

Financial Reporting Standards Council

Aims to develop a single set of high quality, understandable and enforceable accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the various capital markets and other users of information in making economic decisions

Calendar year

Begins on January 1 and ends on December 31 of the same year

Fiscal year

Begins on any month (except january) and will end on the twelfth month of the following year. - Ex. July 1, 2009 to June 30, 2010

Quarterly basis

Financial statements may be prepared At the end of every three months

Semi-annual basis

Financial statements may be prepared Six months

Annually

Financial statements may be prepared on one year

Generally Accepted Accounting Principles

Defines what is accepted accounting practice they are like laws that must be followed in financial reporting

Generally Accepted Accounting Principles

Encompasses the conventions, rules, procedures, practice and standards followed in the accumulation, preparation and presentation of accounting data in the financial statements

Natural business year

Is a twelve month period that ends on any month when the business is at the lowest point or is experiencing slack season

Financial Reporting Standards Council

Is the accounting standard setting body created by the professional regulation commission (PRC) upon recommendation of the Board of Accountancy

Unit of measurement assumption

Recognizes the statements is a n effective means of aggregatibg and communicatibg accounting information - it is a standard practice to ignore changes in purchasing power of a peso

Time period assumption

Requires that the indefinite life of the business be divided into time periods or accountin perios for the purpose of the preparing financial reports on the performance and financial position of the business

Accrual basis

Requires the revenue or income should be recognized when earned regardless of when collection is received; and expense should be recognized when incurred regardless of when payment js made

Business Entity concept

The business entity is treated as separated and distinct from its owner/s and from other business units. - it is important because it limits the economic data in the accounting system to data related to the activities of the business

Monthly basis

The shortest accounting period. - Financial statements may be prepared monthly

Going concern/continuity assumption

This assumes that unless there is evidence to the contrary, the business entity will continue to operate for an indefinite period

Matching principle

This principle relates to the expense recognition principle which requires the costs and expenses incurred in generating the revenue should be properly matched against the related revenue in determining the net income or net loss for the period

Unit of measurement assumption

This specifies that accounting should measure and report the results of a business' economic activities in terms of a monetary unit such as the Philippine Peso