Fundamentals of

Accountancy,
Business and
Management 1
Quarter 3 – LAS 2

Prepared by:
Mary Mildred P. De Jesus
Subject Teacher
OPENING
PRAYER
OBJECTIVES:
1. To explain the varied
accounting concepts and
principles;
2. To Solve exercises on accounting
principles as applied in various
cases;

ABM_FABM11-IIIb-c-15-16
EXPECTATIONS:
The information below will help you be a successful
participant in this course.
How is the course designed?
 Lectures

 Video Lectures
 Worksheets
 Activity Game
 Exercises
 Quizzes
 ACCOUNTING
CONCEPTS AND
PRINCIPLES
ACCOUNTING PRINCIPLES
are the rules and guidelines that
companies must follow when reporting
financial data. Accounting principles
help govern the world of accounting
according to general rules and
concepts. They form the groundwork
for the more complicated, detailed and
legalistic rules of accounting.
1. Materiality Principle
also called the materiality constraint,
states that financial information is
material to the financial statements if it
would change the opinion or view of a
reasonable person.
In other words, all important financial
information that would sway the
opinion of a financial statement user
should be included in the financial
statements.
1. Materiality Principle
That concern Example: Small payments such as
postage, stationery, and cleaning
about the expenses should not be disclosed
relevance of separately. They should be grouped
information, and together as sundry expenses.
the size and The cost of small-valued assets such
nature of as pencil sharpeners and paper clips
should be written off to the profit and
transactions that loss account as revenue expenditures,
report in the although they can last for more than
financial one accounting period.
statements.
2. Going-concern Principle
This underlying principle is also known as
the CONTINUING CONCERN CONCEPT.
is the assumption that an entity will
remain in business for the foreseeable
future.
 It assumes that during and beyond the
next fiscal period a company will complete
its current plans, use its existing assets and
continue to meet its financial obligations.
2. Going-concern Principle
Example:
A state-owned company is in a tough
financial situation and is struggling to
pay its debt. The government gives the
company a bailout and guarantees all
payments to its creditors. The state-
owned company is a going concern
despite its poor financial position.
3. Time-period Principle
 It is a period of time that covers certain accounting
functions, which can be either a calendar or fiscal
year, but also a week, month, or quarter, etc.
Accounting periods are created for reporting and
analyzing purposes, and the accrual method of
accounting allows for consistent reporting.
is the concept that a business should report the

financial results of its activities over a standard
time period, which is usually monthly, quarterly, or
annually.
3. Time-period Principle
Example:
 The Philippine companies are required to
report financial statements annually of the
salary expenses from January to December
2015 should only be reported in 2015. ― A 1-
year period‖ cycle must be observed.
4. Matching Principle
It requires that revenues and any related expenses
be recognized together in the same reporting
period. Thus, if there is a cause-and-effect
relationship between revenue and certain expenses,
then record them at the same time.
 In this principle, cost should be matched with the
revenue generated. It requires that the expenses
incurred during a period be recorded in the same
period in which the related revenues are earned
4. Matching Principle
Example:
 For example, if they earn $10,000 worth of
product sales in November, the company will pay
them $1,000 in commissions in December. The
matching principle stipulates that the $1,000 worth
of commissions should be reported on the
November statement along with the November
product sales of $10,000.
5. Monetary Unit Principle
States that you only record business transactions
that can be expressed in terms of a currency. Thus,
a company cannot record such non-quantifiable
items as employee skill levels, the quality of
customer service, or the ingenuity of the
engineering staff.
Themonetary unit principle is also known as the
monetary unit concept and the monetary unit
assumption.
 5. Monetary Unit Principle
Examples:
 The CEO of Fine Enterprise delivers a lecture to the
employees in a special meeting that can be helpful in
raising the employees’ morale and completing the current
projects on time. As the value of the lecture cannot be
measured in terms of money, it cannot be recorded in the
books of accounts of Fine Enterprise.
 The Metro company purchased a tract of land for $25,000 in 2005.
Because of inflation, the worth of the tract of land is now
$40,000.The Metro company cannot adjust its balance sheet
because the monetary unit assumption enforces it to ignore the
impact of inflation.
6. Business Entity Principle
In this principle, there is a separation and

distinction of transactions between the business
enterprise and its owner or investor. Also known as
SEPARATE ENTITY and ECONOMIC ENTITY
CONCEPT)
 In other words, while recording transactions in a
business, we take into account only those events that
affect that particular business; the events that affect
anyone else other than the business entity are not
relevant and are therefore not included in the
accounting records of the entity.
 6. Business Entity Principle
Example:
 Mr. John has acquired a floor of a building
having 3 halls for P11,500 per month. He
uses two halls for his business and one for
personal purpose. According to business
entity concept, only P1,000 (the rent of two
halls) is a valid expense of the business.
7. Full Disclosure Principle
 Financial statements should be prepared to reflect
a true and fair view of the financial position and
performance of the enterprise.
 All material and relevant information must be
disclosed in the financial statements
7. Full Disclosure Principle
Example:
Guitar Emporium is a nationwide guitar retailer. It
reports $10.5M in guitar inventory last year. In the
notes of its financial statements, GE should
disclose its significant accounting policies. This
would include its inventory evaluation methods. GE
should disclose whether its financial statements
are prepared uses FIFO or LIFO inventory cost
methods.
 8. Cost Principle
 The cost principle means items need to be recorded as
the actual price paid. It is the same way when a buyer
buys products, and the recording is done based on the
price paid. In short, the cost principle is equal to the
amount paid for each transaction.
 It is also known as the HISTORICAL 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, whether that purchase
happened last year or thirty years ago. For this reason, the
amounts shown on financial statements are referred to as
historical cost amounts..
 8. Cost Principle
Example:
The cost of fixed assets is recorded at the date of the
acquisition cost. The acquisition cost includes all
expenditure made to prepare the asset for its intended
use. It included the invoice price of the assets, freight
charges, insurance or installation costs.
9. Accrual Accounting Principle
In this principle, revenue should be recognized when
earned regardless of collection. Same goes with
expenses which are recorded when incurred regardless
of payment.
 Cash Accounting Method means that revenue and
expense transactions are recorded as money is
received or paid out.
 Accrual Accounting Method the expenses are
recorded with their related revenues in the period in
which they occur, regardless of when the cash
exchanges hands.
 9. Accrual Accounting Principle
Example:
 Revenue recognition. A company sells P10,000 of green
mangoes to a customer in March, which pays the invoice in
April. Under the cash basis, the seller recognizes the sale in
April, when the cash is received. Under the accrual basis,
the seller recognizes the sale in March, when it issues the
invoice.
Expense recognition. A company buys P500 of office
supplies in May, which it pays for in June. Under the cash
basis, the buyer recognizes the purchase in June, when it
pays the bill. Under the accrual basis, the buyer recognizes
the purchase in May, when it receives the supplier's invoice.
 Recognition criteria for expenses
Association between cause and effect
 Expenses are recognized on the basis of a direct
association between the expenses incurred on the
basis of a direct association between the
expenses incurred and revenues earned
 For example, the sales commissions should be
accounted for in the period when the products
are sold, not when they are paid.
 Recognition criteria for expenses
Systematic allocation of costs
 When the cost benefit several accounting periods, they
should be recognized on the basis of a systematic and
rational allocation method.
 For example, a provision for depreciation should be
made over the estimated useful life of a fixed asset.
 Immediate recognition
 If the expenses are expected to have no certain future
benefit or are even without future benefit, they should be
written off in the current accounting period;
 For example, stock losses, advertising expenses and
research costs
 10. Conservatism Principle
 Revenues and profits are not anticipated. Only
realized profits with reasonable certainty are
recognized in the profit and loss account.
However, provision is made for all known expenses
and losses whether the amount is known for certain or
just an estimation.
This treatment minimizes the reported profits and the
valuation of assets
 10. Conservatism Principle
Example:
Stockvaluation sticks to rule of the lower of cost
and net realizable value. The provision for doubtful
debts should be made. Fixed assets must be
depreciated over their useful economic lives
11. Objectivity Principle
 It states that accounting information and
financial reporting should be independent
and supported with unbiased evidence. This
means that accounting information must be
based on research and facts, not merely a
preparer’s opinion. The objectivity principle is
aimed at making financial statements more
relevant and reliable.
 11. Objectivity Principle
Example:
 Company XYZ has asked an auditing company to
do an external audit of financial records for the
company. When the external auditor started to
validate the records, he asked for receipts from
customers in order to validate the Accounts
receivable. If company XYZ can’t present proper
receipts to the auditor, then the objectivity
principle is violated. As the statements can’t be
verified, so the records can’t be used.
 12. Uniformity Principle

 Different companies within the same

industry should adopt the same accounting
methods and treatments for like
transactions.

 The practice enables inter-company

comparisons of their financial positions
 REFERENCES:
 Florendo, J. G. (2016). Fundamentals of Accountancy, Business, and
Management 1. Rex Bookstore, Manila, Philippines.
 Licuanan, P.B. (2016). Teaching Guide for Senior High School Fundamentals
of Accountancy, Business, and Management 1. Commission on Higher
Education. 4th Floor, Commission on Higher Education, C.P. Garcia Ave.,
Diliman, Quezon City, Philippines
 Valix, Conrado T. et.al. (2015). Financial Accounting, Vol. 1, First part. GIC
Enterprises & Co. Inc • Weygandt, J. et. al. (2012) Accounting Principles 10th ed.
John Wiley & Sons (Asia) Pte. Ltd.
Ferrer R.C. et.al. (2017). Fundamentals of Accountancy, Business and
Management part 1, Bandolin Enterprise, (Publishing and Printing) Bakekang
Sur, Baguio City
 Accounting Theory (n.d.) Retrieved from ttp://accountingtheory.weebly.
com/nature-and-scope- of—accounting
 https://www.myaccountingcourse.com/accounting-principles/objectivity-
principle
“There are no secrets to
success. It is the result
of preparation, hard
work and learning from
failure”.

-Colin Powell,
statesman & 4-star
general-