fabm quiz 4 Flashcards
is the organizational unit for which accounting records are maintained (e.g., Joseph General Merchandising). Under entity concept, the business is regarded as having a separate and distinct personality from that of the owner/s generating its own revenue incurring Its own expenses, owning its own assets, and owing its own liabilities (Smith, Keith, et al., 1993). This means that the personal transactions of the business.
ENTITY CONCEPT
assumes that the company is going to be a continuing business (going or ongoing concern) for an indefinite period of time, that is, the company will not close shop and will neither sell nor liquidate its assets in the immediate or foreseeable future.
GOING CONCERN ASSUMPTION
it divides the life of the business in regular intervals (usually one year) at the end of which financial statements are prepared.
This means that the economic activities undertaken during the life of an accounting entity are assumed to be divisible into various artificial time periods for financial reporting purposes.
TIME PERIOD or PERIODICITY CONCEPT
This is a twelve-month period beginning on January 1 and ending on December 31.
Calendar year
is marked and recognized by the year on which it ends. So, if a business follows the April to March financial cycle, then for the financial year 2022, the fiscal year begins on April 01, 2021, and ends on March 31, 2022.
Fiscal year
Business activities are measured in monetary units and expressed in monetary units, for example, Philippine pesos, when they are recorded. Thus, any non-financial or non-monetary information must not be recorded in the accounting books, but must be noted in the form of a memorandum; and, if necessary for disclosure, be included as part of the notes to the financial statements.
MONETARY UNIT ASSUMPTIONS
this term refers to the amount of money spent in the acquisition of an asset. It is neither its prevailing market value nor its future value.
COST PRINCIPLE or HISTORICAL COST PRINCIPLE
This principle requires accounting procedures in a consistent manner, that is, not subject to change from time to time.
CONSISTENCY PRINCIPLE
requires that the recording of business transactions be done independently and rendered without bias and prejudice. It also requires proper documentation of the transactions recorded.
OBJECTIVITY PRINCIPLE
the inflow of assets that results from producing goods or rendering services. Revenue is not earned all at one point in time. Instead, the earning process extends over a considerable length of time. The revenue realization concept provides that income is recognized when earned regardless whether cash is received.
REVENUE RECOGNITION CONCEPT
This concept requires that income be recorded when earned regardless whether cash is received. And an expense be recognized when incurred
ACCRUAL CONCEPT
simply states that there should be matching between expenses and revenues. For this reason, most companies use accrual accounting, not cash accounting. Under the accrual basis, revenues are recorded when they are earned, not when they are paid, whereas expenses are recorded when they are incurred, not when they are paid.
MATCHING PRINCIPLE
This concept refers to the relative importance of an item or event. An item/ event is considered material if knowledge of it would influence the decision of prudent users of financial statements.
MATERIALITY CONCEPT
All relevant and material events affecting the financial condition/position of a business and the result of its operation must be communicated to users of financial statements. We must remember that the purpose of accounting is to provide information that is useful to decision-makers.
DISCLOSURE CONCEPT
