FABM 1: ACCOUNTING CONCEPTS, PRINCIPLES, AND ASSUMPTIONS
1. Cost Principle 2. Full Disclosure Principle 3. Matching Principle 4. Revenue Recognition Principle 5. Materiality Principle 6. Conservatism or Prudence Principle. 7. Objectivity Principle
Basic Accounting Principles
GAAP (Generally Accepted Accounting Principles)
Being a set of accounting concepts, principles, rules and guidelines.
Monetary Unit Assumption
It assumes that accounting only records business transactions and events that can be expressed in terms of money.
Economic Entity Assumption
It assumes that the business entity is separate from its owners.
Going Concern Assumption
It assumes the business is entity is going to continue existing and operating in the indefinite future.
Objectivity Principle
It entails that bookkeeping and financial recording be performed without bias and prejudice.
GAAP (Generally Accepted Accounting Principles)
It governs the application of accounting procedures.
GAAP (Generally Accepted Accounting Principles)
It is very useful because it aims to standardize as well as regulate accounting definitions, assumptions, and methods.
Time-Period Assumption
It requires a business to complete its whole accounting process over a specific period of time.
Matching Principle
It requires that revenue be matched with expense, where if a company records revenue during an accounting period, corresponding expense should also be recorded.
Accrual Basis Assumption
It requires that revenue is recorded in the period it is earned, regardless of the time the cash is received or collected.
Cost Principle
It states that all assets acquired should be valued and recorded by the company based on the actual cash equivalent or original cost of acquisition, not the prevailing market value or future value.
Conservatism or Prudence Principle
It states that if there are two options to choose from in the valuation of a business transaction, the lower amount should be recorded and not the higher amount.
Revenue Recognition Principle
It states that revenues are to be recognized as soon as the goods have been sold (delivered to customers) or as service has been rendered, regardless of when the money is actually received.
Full Disclosure Principle
It states that the financial statements of the company should contain sufficient information to allow the stakeholders to draw appropriate judgment and make informed decisions about the enterprise.
Going Concern Assumption
It supposes that the business will be able to perform its objectives and commitments and will not liquidate.
Objectivity Principle
This is achieved by the business through having impartial supporting evidence or documentation to business transactions.
Materiality Principle
This states that business transactions that may affect the decision of a user of financial information are considered important or material, and thus must be reported properly
1. Accrual Basis Assumption 2. Economic Entity Assumption 3. Going Concern Assumption 4. Monetary Unit Assumption 5. Time-Period Assumption
Underlying Accounting Assumptions
IFRS (International Financial Reporting Standards)
an international accounting standard used as guide in the formulation of PFRS and other standards.
Accounting Concepts, Principles and Assumptions
are important because they guide accountants in the proper and accurate preparation of financial statements.
PAS (Philippine Accounting Standards) PFRS (Philippine Financial Reporting Standards)
are other accounting standards adopted in the Philippines.
Monetary Unit Assumption
businesses measure and report activities in Philippine peso.
Accounting Concepts, Principles and Assumptions
nternal and external users of financial statements are able to compare the performance of a company in different periods, the performance of various companies, and the performance of a company in relation to the industry.
Accrual Basis Assumption
requires that expense is recognized and recorded at the time it is incurred, regardless of the time that cash is paid.
Time-Period Assumption
the business can divide its life into shorter operation and furnish financial statements time periods like monthly, quarterly, or annually.
Conservatism or Prudence Principle
the option of lower amount gives less effect on net income, or less effect on asset amount.
Economic Entity Assumption
the transactions of the business are separate from the transactions of its owners.