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An entitiy formed for the purposes of carrying on commercial enterprises
Organization
Interested in information about the stability and profitability of employers
and information which enables them to assess the ability of the enterprise to provide
remuneration, retirement benefits and employment opportunities.
Employees
Interested in information about the continuance of an enterprise especially
when they have a long-term involvement with, or are dependent on, the enterprise.
Managers
Need information to help them determine whether they should buy, hold or
sell their investments.
Investors
Interested in the allocation of resources and,
therefore, the activities of the enterprise. Require information in order to regulate the
activities of the enterprise, determine taxation policies, and as the basis for national
income and similar statistics.
Government and Regulatory Agencies
Interested in information that enables them to determine whether their loans
and related interest will be paid when due.
Lenders
refer to a common set of accounting principles,
standards, and procedures issued by the Financial
Accounting Standards Board (FASB).
Generally accepted accounting principles (GAAP)
The personal transactions of the owner are
separate from that of the business he/she
owns
Accounting Entity
The company will continue operating
indefinitely until the foreseeable future,
and that company closure is not
imminent.
Assumption of Going
Concern
Providing financial accounting information for
specified period of time
Transactions are summarized and reported at
regular time intervals
Time period or Periodicity Concepts
Transactions are express in a monetary unit of
measure
Financial in nature
are recorded with the corresponding amount
expressed in the country’s currency.
Monetary Unit
Principles
Also known as the historical cost.
Means that all properties and services
acquired by the business must be recorded at
their original acquisition cost.
Amount shown in financial statements are
historical cost
Cost Principle
States that ALL material facts that will
significantly affects the financial statement
must be indicated
Sufficient information for informed
judgements
Full Disclosure
Principle
Established in recognition of the fact that
there is a cause-and-effect relationship
between revenue and expense.
Matching
Principle
Income should be recognized at the time it is
earned such as when goods are delivered or
when service has been rendered and NOT when
the business receive the payment
Accrual Principle
(INCOME)
Expenses should be recognized at the time it is
incurred such as when goods and services are
actually used and NOT at the time when the
entity pays for those goods and services.
Accrual Principle
(EXPENSE)
Means that financial reporting is only
concerned with information significant
enough to affect decisions.
Materiality
In situation where there are two
possibilities, choose the one that will have
the least favorable effect on the financial
statement.
Conservatism Principle
Assets – Liabilities
Owner’s Equity
Assets - Owner’s Equity
Liabilities
LIABILITIES + OWNER’S
EQUITY
ASSETS
different example of assets:
Cash
Accounts Receivables
Notes Receivables
Inventories
Prepaid Expenses
Equipment
Furniture and Fixtures
Vehicles
Land and Building
Resources owned
by the business
ASSETS
Financial obligations
of the business
LIABILITIES
Right of the owner
on the assets of the
business
OWNER’S
EQUITY or capital
different example of liabilities:
Accounts Payables
Notes Payables
Salaries Payable
Taxes Payables
Interest Payables
Mortgage Payable
gross inflow of economic benefits
during the period arising in the course of
ordinary activities of an enterprise when
these inflows result in increase on equity
other than those relating to contributions
from owners.
Example: Sales Income, Sales Revenue,
Service Income, Service Revenue, and
the likes.
REVENUE or
INCOME
-costs incurred to produce revenue. It is the
“gross outflow of economic benefits during
the period arising in the course of ordinary
activities when these outflows result in
decrease on equity, other than those relating
to distributions to owners.
examples
Salaries Repairs and Maintenance
Rent Representation
Utilities Communication
Depreciation …and many others
EXPENSES
DEBIT:
Assets
Expenses
Withdrawals
CREDIT
Liabilities
Capital
Income
A listing of the names of the accounts that a company
has identified and made available for recording
transactions.
Chart of Accounts
The owner of the business bought a car for personal use. The invoice
was given to the accountant who recorded it as the asset of the business.
Business Entity
Concept
Purchased an equipment at a cost of P100,000 which was immediately
recognized as an expense even if the equipment’s useful life is 5 years.
Matching Principle
No financial statements were prepared by Sonia Santos for her business.
She explained that she will prepare the financial statements when she
closes the business which she predicted to take place after thirty years.
Periodicity Concept
The company included an equipment purchased from Europe. It was
reported in the statement of financial position at 2,500 Euros. All other
assets were reported in Philippine Pesos.
Monetary Unit
Principle
