BASIC ACCOUNTING
PRINCIPLES
Presented by:
FERNANDO A MOLINA
Basic Accounting
Principles
basic
accounting principles form the
groundwork on which more detailed,
complicated, and legalistic
accounting rules are based.
Financial Accounting Standards
Board (FASB) uses the basic
accounting principles as a basis for
their own detailed and
comprehensive set of accounting
rules and standards
GAAP
is exceedingly useful because it attempts to
standardize and regulate accounting definitions,
assumptions, and methods.
there
is consistency from year to year in the
methods used to prepare a company's financial
statements.
confident
conclusions when comparing one
company to another, or comparing one company's
financial statistics to the statistics for its industry.
Basic Accounting
Principles
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
Economic Entity Assumption
Money Unit Assumption
Going Concern Assumption
Time Period Assumption
Cost Principle
Full Disclosure Principle
Dual Aspect Principle
Revenue Recognition Principle
Matching Principle
Materiality
Conservatism
Economic Entity Assumption
This principle assumes that, for
accounting purposes, the business
enterprise and its owners are two
separate independent entities. Thus,
the
business
and
personal
transactions of its owner are
separate.
Money Unit Assumption
resources
(assets) and obligations
(liabilities) of a company are
measured in monetary terms
Going Concern Assumption
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.
Time Period Assumption
assumes that it is possible to report
the complex and ongoing activities
of a business in relatively short,
distinct time intervals
Cost Principle
From an accountant's point of view,
the term "cost" refers to the amount
spent (cash or the cash equivalent)
when an item was originally obtained
Full Disclosure Principle
If certain information is important to
an investor or lender using the
financial statements, that
information should be disclosed
within the statement or in the notes
to the statement.
Dual Aspect Principle
This
concept assumes that every
transaction has a dual effect, i.e. it
affects two accounts in their
respective opposite sides.
Revenue Recognition
Principle
revenues are recognized as soon as
a product has been sold or a service
has been performed, regardless of
when the money is actually received
Matching Principle
expenses
are incurred in order to
generate revenues, therefore,
expense should be charged against
(deducted from) income in the
accounting period that the related
sale (revenue) is recognized
Materiality
Professional judgment is needed to
decide whether an amount is
insignificant or immaterial and
should be reported in the financial
statement
Conservatism
If a situation arises where there are
two acceptable alternatives for
reporting an item, conservatism
directs the accountant to choose the
alternative that will result in less net
income and/or less asset amount.
ACCOUNTING
THEORIES
Accounting Theory
defined as logical reasoning in the
form of a set of broad principles that
provide a general frame of reference
by which accounting practice can be
evaluated
and
guide
the
development of new practices and
procedures
Descriptive Theory
It
explains the causes and effects of
the day-to-day events of our life.
Normative Accounting
Theory
mainly concerned with the future
acts in the light of the present daily
phenomena
Evaluative Accounting Theory
helps to know about the quality and
quantity of any object or event or
the qualitative quantity and
quantitative quality
Inductive Accounting
Theory
examines and analyses the
happenings of past events
Deductive Accounting Theory
the accounting theory which is
prepared by following the method of
deduction
Generally Accepted
Theories
can be applied equally in all cases
and are adopted by all
References:
[Link]
[Link]
[Link]/[Link]
Corporate Finance Text and Philippine Cases Vol.1
, Roy C. Ybanez, Alberto R Ilano, 2009.
Good Day!
