Module for AP 115

Advanced Accounting Principles 1

UNIT – 2 (Accounting Principles and
Reporting Standards)

Name: _______________________________________ Program/Year: ____________________

Instructor: ____________________________________ Course Schedule: __________________

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 Good day students!

This is your module for the course AP 115 – Advanced Accounting

Principles 1. This consists of six (6) units and each unit has its own
abstraction of the topic and the application/evaluation like activities,
performance tasks, tests, quizzes and the like for you to work on. Please
read and understand the topic so that it will be easier for you to answer
each activity. You can also browse from the internet or watch video from
the YouTube for your additional learnings of the topic given. If you have
queries or clarifications, please do not hesitate to contact me in the
messenger.

Course Description:

The course deals with the nature, scope and limitation of the field of
accounting affecting a service concern organized as a sole proprietorship.
This is designed to meet the basic needs of all business students, regardless
of how accounting records, techniques and methodologies are utilized to
present useful accounting information from mass of data. Emphasis is
placed on understanding the reasons underlying basic accounting concepts
and providing students with adequate background in the recording,
classifying, summarizing and interpreting functions to enable them to
appreciate the varied use of accounting data.

Course Intended Learning Outcome:

At the end of the course the student will be able to:

1. Discuss the role of accounting in business and human resource

environment.

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 2. Analyze business transactions with the application of different
accounting concepts, principles, postulates, and practices to
record, classify, and summarize the business transactions.
3. Apply the code of ethics in preparing financial statements.

STUDY GUIDE AND MODULE RULES:

1. Schedule and manage your time and understand every point of the
module. Read it over and over until you understand the point.

2. Study how you can manage to do the activities of this module in

consideration of your other modules from other courses. Be very
conscious with the study schedule. Post it on a conspicuous place so
that you can always see it. Do not ask about questions that are
already answered in the guide.

3. If you did not understand the readings and other tasks, re-read.
Focus, if this will not work, engage all possible resources. If this will
not work with again, text me first so that I can call you or text you
back for assistance.

4. Do not procrastinate. Remember, it is not others who will be short-

changed if you will not do your work on time. It will be you.

5. Before you start doing your tasks, read and understand the
assessment tools provided. Do not settle with low standards, target
the highest standards in doing your assigned tasks. I know you can.

6. Quote your sources if there are in answering all the activities.

7. Lastly, you are the learner: hence, you do the module on your own.
Your family members and friends at home will support you but the
activities must be done by you.
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 ACCOUNTING PRINCIPLES AND REPORTING
STANDARDS

Unit Intended Learning Outcomes:

At the end of the unit, the student will be able to:

1. Discuss the basic concepts and forms of accounting;

2. Determine the different guiding assumptions and principles as well
as constraints that influence the activity and practice of accounting.

ACTIVITY

WATCH:

https://youtu.be/JQgx
Qv_oZDc

WATCH
THINK
REFLECT

CHECK the
ILLUSTRATION IN
THE NEXT PAGE

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Illustration:
This activity entails you to examine how the fundamental business model
works.

ANALYSIS
Read and analyze carefully the questions below. Answer it thoroughly.
1. What are the two concepts that the model illustrates?
2. What concept can help manage a business effectively?
3. Name two businesses of different nature or industry that you
can see around your area and describe them as to their main line
of activity or how they operate.

Write your answer in a one whole sheet of paper and take

picture on it and send it to me via messenger.

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ABSTRACTION
FUNDAMENTAL BUSINESS MODEL

For a business to be successful, it needs to develop a product or service that

customers will [ay for and thus create a revenue stream. It can be a new
product or service that meets specific needs. It can also be a better product
or service. Or, it can be a product or service that offers a better value
proposition. A business requires investments to enable it to pay for the
infrastructure, equipment and personnel. Only after a skillful combination
of these elements can be a business generate a revenue stream.

Figure above illustrates how a business is structured to provide a customer

proposition. The business model is built on five activities:

1. First, the investors provide the required capital for the business. The
cash investment will then be held in a bank account.
2. The cash in the business can be:

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  Converted into another type of asset that will be used in the
business (e.g. equipment) or sold (e.g. inventory); or
 Spent operating costs such as salaries, rentals and utilities.

3. The combination of business resources provides the basis for

producing the products or services.
4. The sale of a product or service generates an asset called a receivable.
This asset once collected will produce a cash inflow for the business.
5. If there’s an existing debt from banks, the cash inflow from collections
will be used to provide the debt providers with interest on their loans
to the entity. The rest of the cash can be sent back to the cycle by being
converted into other assets or spent on operating costs (back to stage
2). In the normal course of business, this whole process will earn
profits on which tax will have to be paid. Any profit after tax can
continue to be reinvested in the cycle or paid out to the owners as a
“return” on their investments.

The model illustrates the way money flows around a business and provides
the basis of accounting. To manage a business effectively it is important to
know how the cash has been spent and how profitable the products or
services have been to the business. The availability of this historic
information helps management to make judgments on how to improve the
performance of business.
TYPE OF BUSINESS
Although the fundamental business model does not vary, there are infinite
ways of applying it to provide the range of products and services that make
up the business world. However, the range of products and services can be
summarized in seven categories, they are as follows:

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 Type Activity Structure Examples
Services Selling people’s Hiring skilled Software
time staff and selling development
their time Accounting
Legal
Trader Buying and Buying a range Wholesaler
selling products of raw materials Retailer
and
manufactured
goods and
consolidating
them, making
them available
for sale in
locations near to
their customers
or online for
delivery
Manufacture Designing Taking raw Vehicle
products, materials and Assembly
aggregating using Construction
components equipment and Engineering
and assembling staff to convert Electricity
finished them into Food and drink
products finished goods Chemicals
Media
Pharmaceuticals
Water
Raw materials Growing or Buying blocks of Farming
extracting raw land and using Mining
materials them to provide Oil
raw materials

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Infrastructure Selling the Buying and Transport
utilization of operating assets (airport
infrastructure (typically large operator,
assets); selling airlines, trains,
occupancy often ferries, buses)
in combination Hotels
with services Telecoms
Sports facilities
Property
management
Financial Receiving Accepting cash Bank
deposits, from depositors Investment
lending and and paying house
investing them interest;
money using the money
to provide loans
to borrowers,
charging them
fees and a
higher rate of
interest than the
depositors
receive
Insurance Pooling Collecting cash Insurance
premiums of from many
many to meet customers;
claims of a few investing the
money to pay
the losses
experienced by a
few customers.
By
understanding
the risk accepted
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 and the
likelihood of a
claim, more
premium than
claims paid

FORMS OF BUSINESS ORGANIZATIONS

There are three major legal form of business entity: the sole proprietorship,
the partnership, and the corporation. While the accounting process for all
three types of business entity is generally the same, differences in their
structures and in the laws that apply to these structures requires some
differences in the way certain aspect of their financial affairs are recorded.
These specific differences in accounting procedures are presented in detail
in advanced accounting subjects. However, for now you should
understand the basic differences in the three types of business entities.

Sole Proprietorship. This business organization has a single owner call the
proprietor who generally is also the manager. Sole proprietorships tend to
be small service-type (e.g., physicians, lawyers and accountants) businesses
and retail establishments.

The owner receives all profits, absorb all losses and is solely responsible for
all debts of the business. From the accounting viewpoint, the sole
proprietorship so not include the proprietor’s personal financial records.

Partnership. A partnership is a business owned and operated by two or

more persons who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits
among themselves. Each partner is personally liable for any debt incurred
by the partnership. Accounting considers the partnership as a separate
organization, distinct from the personal affairs of each partner.

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Corporation. A corporation is a business owned by its stockholders. It is
an artificial being created by operation of law, having the rights of
succession and the powers, attributes and properties expressly authorized
by aw or incident to its existence. The stockholders are not personally liable
for the corporation’s debts. The corporation is a separate legal entity.

MICRO, SMALL AND MEDIUM ENTERPRISES

Big business may be the country’s top taxpayers and highest paying
employers. Collectively, though, micro, small and medium enterprises
(MSMEs) provide employment for 61% of the country’s labor force.
According to the National Statistics Office, MSMEs in 2010 accounted for
99.6% of the total business enterprises at 777,687. The 99.6% is broken down
as follows: micro enterprises, 91.6% and SMEs, 8%.

In terms of economic output, MSMEs account for only 32%. Then, 68% of
the economy’s total output can be attributed to the largest 0.4% of
Philippine enterprises, or 3,023 out of a total 777,687 firms counted in 2010.
But MSMEs hold the key to our economic progress, the challenge lies in
being able to increase productivity of the MSMEs; also, there’s a need to
further increase their number and in the progress, help create more jobs.
MSMEs in China provide 74% of the jobs and in Japan, 78%; in ASEAN,
68% in Singapore, 77% in Thailand and 97% in Indonesia. Indonesia’s
MSMEs contribute 57% to gross domestic product.

Micro enterprises are those with assets, before financing, of P3.0 (before
P1.5 million) or less and employ not more than nine workers. Small
enterprises are those with assets, before financing, of above P3.0 (before
P1.5 million) to P15 million and employ 10 to 99 workers. Medium
enterprises have assets, before financing, of above P15 million to P100
million and employ 100 to 199 workers. More than ever, the government

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should promote and build an entrepreneurial culture and environment to
spark an entrepreneurial revolution among the Filipino youth.

In the US, 97% of the 28 million firms are small-and medium-scale

enterprises (SMEs) with less than US$1.0 million annual gross sales. This
means that even in advanced economies, SMEs make up a big majority in
terms of numbers. In China, entrepreneurship has taken 250 million
Chinese out of poverty over the last decades.

ACTIVITIES IN BUSINESS ORGANIZATIONS

Many types of decisions are made in business organizations. Accounting

provides important information to make these decisions. The three types
of organizational activities are as follows: financing, investing, and
operating.
Financing Activities
Organizations require financial resources to obtain other resources used to
produce goods and services. They compete for these resources in financial
markets. Financing activities are the methods an organization uses to
obtain financial resources from financial markets and how it manages these
resources. Primary sources of financing for most businesses are owners and
creditors, such as banks and suppliers. Repaying the creditors and paying
a return to the owners are also financing activities.
Investing Activities

Managers use capital from financing activities to acquire other resources

used in the transformation process – that is, to transform resources from
one form to a different form, which is more valuable, to meet the need of
the people. Having the right mix of resources is essential to efficient and
effective operations.

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An efficient business is one that provides goods and services at low costs
relative to their selling prices. An effective business is one that is successful
in providing goods and services demanded by the customers.

Investing activities involve the selection and management including

disposal and replacement of long-term resources that will be used to
develop, produce, and sell goods and services. Investing activities include
buying land, equipment, buildings and other resources that are needed in
the operation of the business, and selling these resources when they are no
longer needed.
Operating Activities

Operating activities involve the use of resources to design, produce,

distribute, and market goods and services. Operating activities include
research and development, design and engineering, purchasing, human
resources, production, distribution, marketing and selling, and servicing.
Organizations compete in supplier and labor markets for resources used in
these activities. Also, they compete in product markets to sell the goods
and services created by operating activities.

PURPOSE AND PHASES OF ACCOUNTING

The accounting function is part of the broader business system, and does
not operate in isolation. It handles the financial operations of the business
but also provides information and advice to other departments. Business
transactions are the economic activities of a business. Recording these
historical events is a significant function of accounting. Accounts are
produced to aid management in planning, control and decision-making
and to comply with regulations.

Before the effects of transactions can be recorded, they much be measured.

In order that accounting information will be useful, it must e expressed in
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terms of a common financial denominator – money. Money serves as both
a medium of exchange and a measure of value. To measure a business
transaction, the accountant must decide when the transaction occurred,
what value to place on the transaction and how the components of the
transaction should be classified.

By simply measuring and recording transactions, the resulting information

will be of limited use. To be useful in making decisions, the recorded data
must be classified and summarized. Classification reduces the effects of
numerous transactions into useful groups or categories.

Summarization of financial data is achieved through the preparation of

financial statements or financial reports. These usually summarize the
effects of all business transactions that occurred during some period. After
going through the preceding phases, it is imperative that the result of the
summarization phase be interpreted or analyzed to evaluate the liquidity,
profitability and solvency of the business organization. Accounting
provides the decision-makers with information to make reasoned choices
among alternatives uses of scarce resources in the conduct of business and
economic activities.
USERS AND THEIR INFORMATION NEEDS

Decision-makers need information. The more important the decision is, the
greater is the need for reliable information. Virtually all businesses and
most individuals keep accounting records to aid them in making decisions.
The users utilize financial statements in order to satisfy some of their
different needs for information. The users of financial statements and their
information needs follow:

 Investors need information to help them determine whether they

should buy, hold or sell.
 Employees are interested in information about the stability and
profitability of their employers. They are also interested in
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 information which enables them to assess the ability of the enterprise
to provide remuneration, retirement benefits and employment
opportunities.
 Lenders are interested in information that enables them to determine
whether their loans and the related interest will be paid when due.
 Suppliers and other trade creditors are interested in information
that enables them to determine whether amounts owing to them will
be paid when due.
 Customers have an interest in information about the continuance of
an enterprise, especially when they have a long-term involvement
with, or are dependent on, the enterprise.
 Government and their agencies are interested in the allocation of
resources and, therefore, the activities of the enterprises. They also
require information in order to regulate the activities of the
enterprises, determine taxation policies and as the basis for national
income and similar statistics.
 Public. Enterprises affect members of the public in a variety of ways.
For example, enterprises may make a substantial contribution to the
local economy in many ways including the number of people they
employ and their patronage of local suppliers. Financial statements
may assist the public by providing information about the trends and
recent developments in the prosperity of the enterprise and the
range of its activities.

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 Customers Who
Buy Products and
Services Sold by
the Business
Employees Who Government
are paid wages Agencies That
and salaries and Regulate and
provided Other Collect Taxes from
Benefits the Business

BUSINESS
ENTITY Individuals and
Suppliers/ Vendors Financial Institutions
of Materials, Who Invest MOney in
services, supplies, the Business as
Owners, Not Creditors;
Parts, Tools, the Business has to
Equipment, and earn profit on their
Machines Bought Banks and Other capital invested in the
by the Business Financial venture (Sources of
Institutions who Equity Capital)
Lend money to the
business on which
interest is paid
(Source of Debt
Capital)

FUNDAMENTAL CONCEPTS
Several fundamental concepts underlie the accounting process. In
recording business transactions, accountants should consider the following:

Entity Concept. The most basic concept in accounting is the entity concept.
An accounting entity is an organization or a section of an organization that
stands apart from other organizations and individuals as a separate

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economic unit. Simply put, the transactions of different entities should not
be accounted for together. Each entity should be evaluated separately.

Periodicity Concept. An entity’s life can be meaningfully subdivided into

equal time periods for reporting purposes. It will be aimless to wait fort he
actual last day of operations to perfectly measure the entity’s net income.
This concept allows the users to obtain timely information to serve as a basis
on making decisions about future activities. For the purpose of reporting
to outsiders, one year is the usual accounting period.

Stable Monetary Unit Concept. The Philippine peso is a reasonable unit of

measure and that its purchasing power is relatively stable. It allows
accountants to add and subtract peso amounts as though each peso has the
same purchasing power as any other peso at any time. This is the basis for
ignoring the effects of inflation in the accounting records.

NEED FOR GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

In a sole proprietorship, adherence to proper accounting rules is important

even though the owner is usually deeply involved in the firm’s activities
and is the person primarily interested in its financial affairs. However,
creditors, suppliers, and others must also be able to rely on the financial
statements prepared for a sole proprietorship. When the business is a
partnership or a corporation, it is even more important that operations be
properly accounted for because owners are unlikely to be intimately
involved in the activities of the firm. Generally accepted accounting
principles make financial statement meaningful and useful, regardless of
the type of business organization.

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18
CRITERIA FOR GENERAL ACCEPTANCE OF AN ACCOUNTING
PRINCIPLE

The general acceptance of an accounting principle usually depends on how

well it meets three criteria: relevance, objectivity and feasibility

A principle has relevance to the extent that it results in information that is

meaningful and useful to those who need to know something about a
certain organization.

A principle has objectivity to the extent that the resulting information is

not influenced by the personal bias or judgment of those who furnish it.
Objectivity connotes reliability and trustworthiness. It also connotes
verifiability, which means that there is some way of finding out whether
the information is correct.

A principle has feasibility to the extent that it can be implemented without

undue complexity or cost. These criteria often conflict with one another. In
some cases, the most relevant solution may be the least objective and the
least feasible.
BASIC PRINCIPLES

Accounting practices follow certain guidelines. The set of guidelines and

procedures that constitute acceptable accounting practice at a given time is
GAAP, which stands for generally accepted accounting principles. In order
to generate information that is useful to the users of financial statements,
accountants rely upon the following principles:

1. Objectivity Principle. Accounting records and statements are based on

the most reliable data available so that they will be as accurate and as
useful as possible. Reliable data are verifiable when that can be
confirmed by independent observers. Ideally, accounting records are
based on information that flows from activities documented by

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 objective evidence. Without this principle, accounting records would be
based on whims and opinions and is therefore subject disputes.
2. Historical Cost. The principle states that acquired assets should be
recorded at their actual cost and not at what management thinks they
are worth as at reporting date.
3. Revenue Recognition Principle. Revenue is to be recognized in the
accounting period when goods are delivered or services are rendered or
performed.
4. Expense Recognition Principle. Expenses should be recognized in the
accounting period in which goods and services are used up to produce
revenue and not when the entity pays for those goods and services.
5. Adequate Disclosure. Requires that all relevant information that would
affect the user’s understanding and assessment of the accounting entity
to be disclosed in the financial statements.
6. Materiality. Financial reporting is only concerned with information
that is significant enough to affect evaluations and decisions.
Materiality depends on the sizes and nature of the item judged in the
particular circumstances of its omission. In deciding whether an item
or an aggregate of items is material, the nature and size of the item are
evaluated together. Depending on the circumstances, either the nature
or the size of the item could be the determining factor.
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING (2018)
Purpose
The Conceptual Framework for Financial Reporting describes the objective
of, and the concepts for, general purpose financial reporting.

The revised Conceptual Framework deals with the objective of financial

reporting, the qualitative characteristics that determine the usefulness of
information in financial statements; financial statements and the reporting
entity; the definition, recognition, derecognition and measurement of the

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elements from which financial statements are constructed; presentation and
disclosure; and concepts of capital and capital maintenance.
OBJECTIVE OF FINANCIAL REPORTING

The objective of general-purpose financial reporting is to provide financial

information about the reporting entity that is useful to existing and
potential investors, lenders and other creditors in making decisions relating
to providing resources to the reporting entity (or the entity). Those
decisions involve decisions about:

(a) buying, selling or holding entity and debt instruments;

(b) providing or settling loans and other forms of credit; or
(c) exercising rights to vote on, or otherwise influence, management’s
actions that affect the use of the entity’s economic resources.

QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL

INFORMATION

The qualitative characteristics of useful financial reporting identify the

types of information are likely to be the most useful to users in making
decisions about the reporting entity on the basis of information in its
financial report. The qualitative characteristics apply equally to financial
information in general purpose financial reports as well as to financial
information provided in other ways.

Financial information is useful when it is relevant and represents faithfully

what it purports to represent. The usefulness of financial information is
enhanced if it is comparable, verifiable, timely and understandable.

Fundamental Qualitative Characteristics

Relevance and faithful representation are the fundamental qualitative

characteristics of useful financial information. Information must be both
relevant and faithfully represented if it is to be useful. Neither a faithful
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representation of an irrelevant phenomenon nor an unfaithful
representation or a relevant phenomenon helps users make good decisions.

What makes financial information useful?

 Relevance
 Faithful Representation

Relevance
Relevant financial information is capable of making a difference in the
decisions made by users. Financial information is capable of making a
difference in decisions if it has predictive value, confirmatory value, or
both. The predictive value and confirmatory value of financial information
are interrelated.

Relevant information influences the economic decisions of users by helping

them evaluate past, present or future events, or confirming, or correcting,
their past evaluations. Information about financial position and past
performance is frequently used as the basis for predicting future financial
position and performance and other matters in which users are directly
interested. To have predictive value, information need not be in the form
of an explicit forecast.

Confirmatory and predictive roles are the principal ingredients of relevance

and are interrelated. Financial information has a confirmatory role when it
is used to confirm or correct the decision-maker’s earlier expectations. It is
an analysis of the relationship between prediction and outcomes. The
information is used to assess how well management has performed its
function by comparing its achievements with expectations.

Financial information has a predictive role when it is used to make

predictions of, for instance, future cash flows or income. For example,
historical information can be extrapolated to make predictions about the

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future. Therefore, for information to be relevant, it should assist in either
the confirmation of past predictions or in the making of new predictions.

What makes information relevant?

Information that influences decisions

Predictive Confirmatory
value value

Interrelated

Information is material if omitting it or misstating it could influence

decisions that users make on the basis of financial information about a
specific entity. Materiality is an entity-specific aspect of relevance based on
the nature or magnitude (or both) of the items to which the information
relates in the context of an individual entity’s financial report.

Faithful Representation
General purpose of financial reports represents economic phenomena in
words and numbers. To be useful, financial information must not only be
relevant, it must also represent faithfully the phenomena it purports to
represent. This fundamental characteristic seeks to maximize the
underlying characteristics of completeness, neutrality and freedom from
error.

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Completeness. A complete depiction includes all information necessary for
a user to understand the phenomenon being depicted, including all
necessary descriptions and explanations. For example, a complete
depiction of a group of assets would include, at a minimum, description of
the nature of the assets in the group, a numerical depiction of all of the
assets in the group, and a description of what the numerical depiction
represents (for example, historical cost or fair value).

Neutrality. Free from bias. A neutral depiction is not slanted, weighted,

emphasized, de-emphasized or otherwise manipulated to increase the
probability that financial information will be received favorably or
unfavorably by users. Neutral information does not mean information with
no purpose or no influence on behavior. On the contrary, relevant financial
information is, by definition, capable of making a difference in users’
decisions.

Neutrality is supported by the exercise of prudence, which is the exercise

of caution when making judgements under conditions of uncertainty. The
exercise of prudence means that assets and income are not overstated and
liabilities and expenses are not understated. Equally, the exercise of
prudence does not allow for the understatement of assets or income or the
overstatement of liabilities or expenses. Such misstatements can lead to the
overstatement or understatement of income or expenses in future periods.

Freedom from Error. No errors or omissions in the description of the

phenomenon, and the process used to produce the reported information
has selected and applied with no errors in the process. In this context, free
from error does not mean perfectly accurate in all aspects.

To be perfectly faithful representation, a depiction should have these

characteristics: completeness, neutrality and freedom from Error.

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Enhancing Qualitative Characteristics

Comparability, verifiability, timeliness and understandability are

qualitative characteristics that enhance the usefulness of information that is
relevant and faithfully represented.

UNDERLYING ASSUMPTION

Going Concern
The financial statements are normally prepared on the assumption that an
enterprise is a going concern and will continue in operation for the
foreseeable future. Hence, it is assumed that the enterprise has neither the
intention nor the need to liquidate or curtail materiality the scale of its
operations.

This assumption underlies the depreciation of assets over their useful lives.
If an entity expects to liquidate in the near future, its assets are valued at
their worth at liquidation rather that original cost.

The framework states that the going concern assumption is an underlying

assumption. Thus, the financial statements presume that an entity will
continue in operation indefinitely or, if that presumption is not valid,
disclosure and a different basis of reporting are required.

ELEMENTS OF FINANCIAL STATEMENTS

Financial statements portray the financial effects of transactions and other

events by grouping them into broad classes according to their economic
characteristics. These broad classes are termed the elements of financial
statements. The elements directly related to the measurement of financial
position in the balance sheet are assets, liabilities and equity.

The elements directly related to the measurement of performance in the

income statement are income and expense. The statement of changes in
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financial position usually reflects income statement elements and changes
in balance sheet elements.

MEASUREMENT OF THE ELEMENTS OF FINANCIAL STATEMENTS

Elements recognized in financial statements are quantified in monetary
terms. This requires the selection of a measurement basis. A measurement
basis is an identified feature – for example, historical cost, fair value, value
in the use and fulfillment value or current cost – of an item being measured.
Applying a measurement basis to an asset or liability creates a measure for
that asset and for related income and expenses.
Source: Ballada, W. Accounting Fundamentals: Made Easy. Fifth Edition. 2019 Issue.
Domdane Publishers.

TRUE OR FALSE. Read and analyze each statement below carefully.

Write “T” if the statement is correct and “F” if is incorrect. Write your
answer on the blank space provide before each number.

_____ 1. Manufacturing companies purchase goods that are ready for sale
and then sell these to customers.
_____ 2. The elements directly related to the measurement of financial
position in the balance sheet are assets, liabilities and equity.

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_____ 3. An accounting principle has relevance to the extent that it can be
implemented without undue complexity or cost.
_____ 4. The accounting process for all three types of business
organizations is generally the same.
_____ 5. Authoritative bodies may develop standards for certain types of
transaction on the basis of logic in the absence of clearly defined practices.
_____ 6. Most enterprises adopt a financial concept of capital in preparing
their financial statements.
_____ 7. Nonprofit organizations need similar financial information as
businesses.
_____ 8. The accounting records of the sole proprietorship include the
proprietor’s personal financial records.
_____ 9. Classification of financial data is achieved through the preparation
of financial statements.
_____10. A sole proprietorship can have more one owner.
_____11. Government agencies require financial information from
enterprises as part of their regulatory function.
_____12. Shareholders or stockholders are personally liable for corporate
debts.
_____13. Recognition is the process of determining the monetary amounts
at which the elements of the financial statements are to be recognized.
_____14. Each partner is personally liable for any debt incurred by the
partnership.
_____15. If each entity made up its own accounting rules, there could be no
basis for comparing the earnings and financial position of different firms.

Multiple Choice. Read each statement below and encircle the letter
that corresponds to your answer.

1. It is the capacity of information to make a difference in decision by

helping users evaluate past, present or future events, or confirming, or
correcting, their past evaluations.
a. Understandability
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 b. Comparability
c. Neutrality
d. Relevance

2. Those who lend money or deliver goods and services before being paid
are called
a. Investors
b. Debtors
c. Underwriters
d. Creditors

3. The attributes of relevance include all except

a. Predictive value
b. Feedback value
c. Materiality
d. Neutrality

4. Financial reporting is concerned only with the information that is

significant enough to affect evaluation or decision
a. Cost and benefit
b. Comparability
c. Materiality
d. Timeliness

5. The effects of transactions and other events are recognized when they
occur and not as cash or its equivalent is received or paid, and they are
recorded and reported in the financial statements of the periods to
which they relate.
a. Accrual
b. Going concern
c. Time period
d. Monetary unit

28
6. It is the ability to bring together for the purpose of noting similarities
and dissimilarities.
a. Understandability
b. Comparability
c. Consistency
d. Relevance

7. It is the result of the standard of adequate disclosure.

a. Substance over form
b. Completeness
c. Faithful representation
d. Neutrality

8. Financial reports communicated after an accounting decision has been

made defeat the primary purpose of which characteristic?
a. Timeliness
b. Materiality
c. Conservatism
d. Adequate disclosure

9. This accounting concept justifies the usage of accruals and deferrals?

a. Stable monetary unit
b. Going concern
c. Materiality
d. Consistency

10. The financial information must be comprehensible or intelligible if it is

be useful.
a. Completeness
b. Comparability
c. Relevance
d. Understandability

29
11. According to the conceptual framework, the usefulness of providing
information in financial statements is subject to the constraint of
a. Representational faithfulness
b. Consistency
c. Timeliness
d. Cost

12. Stating assets and liabilities and changes in then in terms of a common
financial denominator is a prerequisite in measuring financial position
and periodic net income.
a. Accrual
b. Exchange price
c. Unit of measure
d. Measurement of economic resources and obligations

13. They encompass the conventions, rules, and procedures necessary to

define what is the accepted accounting practice.
a. Accounting concepts
b. Conceptual frameworks
c. Accounting assumptions
d. Generally accepted accounting principles

14. Which is not a service entity?

a. Car dealer
b. Law firm
c. Stock brokerage
d. Recruitment agency

15. Accountants do not recognize that the value of the peso changes over
time. The concept is called the
a. Cost principle
b. Entity concept
c. Going concern concept
d. Stable monetary unit concept
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16. The periodicity concept
a. Involves dividing the life of a business entity into accounting
periods of equal length thus enabling the financial users to
periodically evaluate the results of business operations.
b. Results from the Bureau of Internal Revenue requirement that
taxable income be reported on an annual basis.
c. Requires that all companies prepare monthly, quarterly and
annual financial statements.
d. Requires all companies to use a fiscal year ending December 31.

17. Which of the following accounting concepts states that an accounting

transaction should be supported by sufficient evidence to allow two or
more qualified individuals to arrive at essentially similar conclusion?
a. Stable monetary unit
b. Matching
c. Objectivity
d. Periodicity

18. The concept of the accounting entity is applicable

a. Only to business organizations
b. Whenever accounting is involved
c. Only to the legal aspects of business organizations
d. Only to the economic aspects of business organizations

19. Which of the following is true?

a. Partners are personally liable for the liabilities of the partnership
if the partnership is unable to pay
b. Partners can normally transfer their partnership interests with
ease.

31
 c. Shareholders are personally liable for the liabilities of the
corporation if the entity is unable to pay
d. Normally, shareholders can only sell their ownership interests
when the corporation terminates

20. The matching principle implies that expenses

a. should be equal to the cash payments made during the period
b. should be offset against the revenue produced by these
expenditures.
c. For a period should be equal in amount to the revenue
recognized during the period
d. Should be deducted from revenue in the period in which the
suppliers of the goods or services are paid.

32
 Click the link below and watch
the video for you to learn more
about the topic.

1. https://youtu.be/JQgxQv_oZDc- Fundamental Business Model

2. https://www.google.com/url?sa=t&source=web&rct=j&url=https://
www.senate.gov.ph/publications/AG%25202012-03%2520-
%2520MSME.pdf&ved=2ahUKEwizpr-4-
qbqAhXEdXAKHXq8DI8QFjAZegQIDRAB&usg=AOvVaw32Gr6ob4
LWYC2mZl_shdv-&cshid=1593432160947 – Micro, Small and Medium
Enterprises
3. https://youtu.be/lggY48vEe2w - Accounting concepts and principles
4. https://www.cliffsnotes.com/study-guides/accounting/accounting-
principles-i/principles-of-accounting/generally-accepted-accounting-
principles- Accounting concepts and principles
5. https://youtu.be/4q0tCc4qYi4- Introduction to the Conceptual
Framework
6. https://youtu.be/hLhrGQz6ho - Conceptual Framework for Financial
Reporting 2018: Chapter 1
7. https://youtu.be/fncMDDLnGPY - Chapter2: Qualitative
Characteristics of Useful Financial Information
8. https://youtu.be/Tv7ozRLP-74 - Chapter 3: Financial Statements and
the Reporting Entity
9. https://youtu.be/78Z8WeDfWcl - Chapter 4: The Elements of the
Financial Statements

33
10. https://youtu.be/xznbsgLANYE - Chapter 5: Recognition and
Derecognition
11. https://youtu.be/CmoLxzGeQdY - Chapter 6: Measurement
12. https://youtu.be/RRbruaaSm8U - Chapter 7: Presentation and
Disclosure
13. https://youtu.be/zjsOG5PrHDQ - Chapter 8: Concepts of Capital and
Capital Maintenance

34
 COURSE POLICIES
EXPECTATIONS FROM STUDENT

The student’s responsibility is to come to each online class prepared.

She/he is also expected to take all examinations on the date scheduled.
She/he should read assigned problems in the MS Teams prior to class.
She/he is expected to submit required assignments, activities, performance
tasks on time set by the instructor.
ACADEMIC DISHONESTY

All students are expected to be academically honest. Cheating, lying and

other forms of unethical behavior will not be tolerated. Any student found
guilty of cheating in examinations or plagiarism in submitted course
requirements will receive an F or failure in the course requirement or in the
course. Plagiarism refers to the use of books, notes or other intellectual
property without giving proper attribution to its author, or representing the
work of another person as one’s own; Cheating refers to securing help in a
test; copying tests, assignments, reports or term papers; collaborating with
other students during an examination or in preparing academic work;
signing another student’s name on an attendance sheet; or otherwise
practicing scholastic dishonesty.
POLICY on ABSENCES

The allowed number of absences for the students enrolled in a 1 ½ hour

class is 7sessions – based on student handbook. Request for excused
absences or waiver of absences must be presented upon reporting back to
class. Special examinations will be allowed only in special cases, such as
prolonged illness. It is the responsibility of the student to monitor her/his
own tardy incidents and absences that might accumulate leading to a grade
of “FA.” It is also her responsibility to consult with the teacher, chair or
dean should her/his case be of special nature.

35
The above rule on absences is still in effect and enforceable even during
online classes but students are given due consideration for reasons beyond
the control of the students.
GRADING SYSTEM
Grade Component Weight

 Written Task 20%

 Performance Task 50%
 Final Exam/ Output 30%

Passing Score: 70% of the total score

Computation
Written Task Grade x 0.20
+
Performance Task Grade x 0.50
+
Final Exam/ Output Grade x 0.30
Final Grade
Passing Grade = 3.00
Condition for Passing: Final Exam Grades must be 3.00 or Better.

36
 CONSULTATION SCHEDULE

 Faculty Member:
 Contact Number: `
 E-mail Address:

CONSULTATION HOURS
DAY TIME PLATFORM

Prepared: CARYL JEAN E. DONQUE, MBA

Faculty

Checked: FELVYS J. CORPUZ, MBA

Assistant Dean

Noted: ILYN R. DAGUMAN, DBA

Institute Dean

Approved: NORIEL B. ERAP, ED. d

VPAA

GADTC VISION

GADTC is integral to Tangub City’s becoming a center for learning

and eco-cultural tourism by producing God-centered citizens
committed to be the light of the 37
world.
 GADTC MISSION

To provide opportunities for continuing education for faculty and

staff, providing upgraded facilities for quality and research-based
instruction to students towards community engagement and linkages
to industry.

IBFS VISION

The Institute of Business and Financial Services is the source of

research-based knowledge and skills for learning, leader in the
preservation of the environment and cultural heritage and molder of
the youth to become God-centered citizens equipped with values on
integrity compassion and excellence.

IBFS MISSION
1. Providing the students and other stakeholders with the
research-based knowledge and skills for learning and
ideals for the preservations of environment and cultural
heritages through community engagement and linkages.
2. Developing within the students as in depth strategies on
eco-cultural insights and foresights.
3. Transforming the students’ lives in line with values on
integrity, compassion and excellence.

38