THE ACCOUNTING CONCEPTS Flashcards
Unspoken rules that Accountants should observe in identifying transactions when communicating financial information
Accounting Concepts
GAAP
Generally Accepted Accounting Principles
Nature and amount of information included in the report reflect a series of judgemental trade-offs
Full disclosure Principle
Life of the business is divided into series of reporting periods
Time period
Business is assumed to carry on its operation for an indefinite period of time
Going Concern Assumption
Information is material if its omission or misstatement could influence economic decisions
Materiality
TRUE OR FALSE: Accrual is when expense is recognized when paid, not when incurred
FALSE.
Income is recognized when earned, not when collected
Expense is recognized when incurred, not when paid
ACCRUAL
Business unit is viewed separately from the owners
Entity Concept
Costs are recognized as expense at the same time when the related revenue is recognized
Matching
Financial reports are prepared in the basis of accounting rules that are applied consistently from one period to next
Consistency
Information is stated in a common unit of measure
Monetary Assumption
“Choose that which leads to lower equity.”
PRUDENCE OR CONSERVATISM
Use of caution when making estimates
PRUDENCE OR CONSERVATISM
This set of accounting principles are universally adopted and mandated
Generally Accepted Accounting Principles
Set of rules, procedures, assumptions,postulates, and concepts followed in recording business transactions and events, and in the preparation of general purpose financial statements
Generally Accepted Accounting Principles
IASC
International Accounting Standards Committee
PFRSs
Philippine Financial Reporting Standards
FRSC
Financial Reporting Standard Council
Also known as Continuity Principle
Going Concern Assumption
Business is assumed to have an indefinite life unless otherwise there is specific evidence to contrary
Time-Period Assumption
Assumes that the business is going to operate or will continue to exist for an indefinite period
Going Concern Assumption
Highly encourages fair presentation of financial statements, but separating the transactions of the owners and the business
Entity Assumption
The Specific period in the sphere of Accounting principles
Accounting period or Time Period
The business is treated as a person with personality separate and distinct from the owner or owners
Entity Assumption
Transactions are recorded whenever they happen, notwithstanding the inflow or outflow of cash
Accrual basis
Dictates that assets, on the date of acquisition, should be recognized at cost
Cost Principle
Requires that expenses incurred should be matched against the revenues realized within the same accounting period.
Matching Principle
Financial Statements should include only information that is considered material or significant
Materiality Principle
Accounting methods and Procedures should be applied on a uniform basis from period to period to achieve comparability in the financial Statements
Consistency Principle
Financial Statements should present all accounting information that will influence the economic decision of the different users
Adequate Disclosure Principle
