#3.1 : Accounting Concepts and Principles Flashcards
It is the systematic process of measuring and reporting relevant financial information about the activities of an economic organization or unit.
Accounting
The underlying purpose of accounting
To provide financial information.
Why is accounting considered as the ‘language of the business’?
It communicates the financial condition and performance of a business to interested users for decision-making purposes.
These are broad, general statements or “rules” and “procedures” that serve as guides in the practice of accounting.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
The accounting standards used in the Philippines
Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS)
The committee that adopted the accounting standards in the Philippines
Financial Reporting Standards Committee (FRSC)
4 Fundamental Concepts
Entity Concepts, Periodicity, Going Concern, and Accrual Basis
ENTITY CONCEPT
It regards the business enterprise as separate and distinct from its owners and other business enterprises.
PERIODICITY
It is the concept behind providing financial accounting information about the economic activities of an enterprise for specified time periods. For reporting purposes, one year is usually considered as one accounting period. It may be monthly, quarterly, or annually.
GOING CONCERN
It is a concept which assumes that the business enterprise will continue to operate indefinitely. This assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
GOING CONCERN
It is a concept which assumes that the business enterprise will continue to operate indefinitely. This assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
ACCRUAL BASIS
It requires that all business transactions and other events are recognized in the accounting records when they occur, rather than when the cash or equivalent is received or paid.
6 Basic Accounting Principles
Objectivity, Cost, Full Disclosure, Matching, Revenue Recognition, and Materiality
OBJECTIVITY PRINCIPLE
It states that all business transactions that will be entered in the accounting records must be duly supported by verifiable evidence.
COST PRINCIPLE
It means that all properties and services acquired by the business must be recorded at their original acquisition cost.