BASIC ACCOUNTING CONCEPTS AND PRINCIPLES

Question 1

The business is viewed as
a separate entity, distinct from its owner(s). Only the
transactions of the business are recorded in the
books of accounts. The personal transactions of the
business owner(s) are not recorded.

Answer 1

Separate entity concept

Question 2

assets are
initially recorded at their acquisition cost.

Answer 2

Historical cost concept (Cost principle)

Question 2

The business is
assumed to continue to exist for an indefinite period
of time.

Answer 2

Going concern assumption

Question 3

Some costs are initially recognized as
assets and charged as expenses only when the
related revenue is recognized.

Answer 3

Matching

Question 4

income is recorded in
the period when it is earned rather than when it is
collected, while expense is recorded in the period
when it is incurred rather than when it is paid.

Answer 4

Accrual Basis of accounting

Question 5

The observance of some degree of
caution when exercising judgments under conditions
of uncertainty. Such that, if there is a choice between
a potentially unfavorable outcome and a potentially
favorable outcome, the unfavorable one is chosen.
This is necessary so that assets or income are not
overstated and liabilities or expenses are not
understated.

Answer 5

Prudence

Question 6

The life of the business is
divided into series of reporting periods.

Answer 6

Reporting Period

Question 7

Assets, liabilities,
equity, income and expenses are stated in
terms of a common unit of measure, which
is the peso in the Philippines. Moreover, the
purchasing power of the peso is regarded as
stable. Therefore, changes in the purchasing
power of the peso due to inflation are
ignored.

Answer 7

Stable monetary unit

Question 8

An item is considered
material if its omission or misstatement
could influence economic decisions.
Materiality is a matter of professional
judgment and is based on the size and
nature of an item being judged.

Answer 8

Materiality concept

Question 9

The costs of processing and
communicating information should not
exceed the benefits to be derived from the
information’s use.

Answer 9

Cost-benefit

Question 10

Information
communicated to users reflect a balance
between detail and conciseness, keeping in
mind the cost-benefit principle.

Answer 10

Full disclosure principle

Question 11

Like transactions are
accounted for in like manner from period to
period.

Answer 11

Consistency concept –