#3.1 : Accounting Concepts and Principles

Question 1

It is the systematic process of measuring and reporting relevant financial information about the activities of an economic organization or unit.

Answer 1

Accounting

Question 2

The underlying purpose of accounting

Answer 2

To provide financial information.

Question 3

Why is accounting considered as the ‘language of the business’?

Answer 3

It communicates the financial condition and performance of a business to interested users for decision-making purposes.

Question 4

These are broad, general statements or “rules” and “procedures” that serve as guides in the practice of accounting.

Answer 4

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

Question 5

The accounting standards used in the Philippines

Answer 5

Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS)

Question 6

The committee that adopted the accounting standards in the Philippines

Answer 6

Financial Reporting Standards Committee (FRSC)

Question 7

4 Fundamental Concepts

Answer 7

Entity Concepts, Periodicity, Going Concern, and Accrual Basis

Question 8

ENTITY CONCEPT

Answer 8

It regards the business enterprise as separate and distinct from its owners and other business enterprises.

Question 9

PERIODICITY

Answer 9

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.

Question 10

GOING CONCERN

Answer 10

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.

Question 11

GOING CONCERN

Answer 11

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.

Question 12

ACCRUAL BASIS

Answer 12

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.

Question 13

6 Basic Accounting Principles

Answer 13

Objectivity, Cost, Full Disclosure, Matching, Revenue Recognition, and Materiality

Question 14

OBJECTIVITY PRINCIPLE

Answer 14

It states that all business transactions that will be entered in the accounting records must be duly supported by verifiable evidence.

Question 15

COST PRINCIPLE

Answer 15

It means that all properties and services acquired by the business must be recorded at their original acquisition cost.

Question 16

FULL DISCLOSURE PRINCIPLE

Answer 16

It states that all material facts that will significantly affect the financial statements must be indicated.

Question 17

MATCHING PRINCIPLE

Answer 17

It means that in a given accounting period, the revenue recorded should have its corresponding expense recorded, in order to show the true profit of the business.

Question 18

REVENUE RECOGNITION PRINCIPLE

Answer 18

Revenues are recognized as soon as goods have been sold (delivered to the customers) or service has been rendered, regardless of when the money is actually received.

Question 19

MATERIALITY PRINCIPLE

Answer 19

Business transactions that may affect the decision of a user of financial information are considered important or material, and thus, must be reported properly. Items of an insignificant
amount such as paper clips can be charged outright to expenses.

Question 20

THE ACCOUNTING EQUATION

Answer 20

Assets = Liabilities + Owner’s Equity