2. OBJECTIVES
At the end of the lesson, learners are
expected to:
1. explain the varied accounting concept and
principles;
2. solve exercises on accounting principles as
applied in various cases and
3. recognize the importance of accounting
principles as applied in various cases
3.
4.
5. • Business entity principle – a business enterprise is
separate and distinct from its owner or investor.
Examples : If the owner has a barber shop, the cash
of the barber shop should be reported separately
from personal cash.
The owner had a business meeting with a
prospective client. The expenses that come with
that meeting should be part of the company’s
expenses. If the owner paid for gas for his personal
use, it should not be included as part of the
company’s expenses.
6. • Going concern principle – business is expected to
continue indefinitely.
Example: When preparing financial statements, you
should assume that the entity will continue
indefinitely.
7. • Time period principle – financial statements are to
be divided into specific time intervals.
Example :
Philippine companies are required to report
financial statements annually.
The salary expenses from January to December
2015 should only be reported in 2015.
8. • Monetary unit principle – amounts are stated into a
single monetary unit
Example :
Jollibee should report financial statements in pesos
even if they have a store in the United States.
IHOP should report financial statements in dollars
even if they have a branch here in the Philippines
9. • Objectivity principle – financial statements must be
presented with supporting evidence.
Example :
When the customer paid Jollibee for their order,
Jollibee should have a copy of the receipt to
represent as evidence.
When a company incurred a transportation expense,
a voucher should be prepared as evidence.
10. • Cost principle – accounts should be recorded
initially at cost.
Example :
When Jollibee buys a cash register, it should record
the cash register at its price when they bought it.
When a company purchases a laptop, it should be
recorded at the price it was purchased.
11. • Accrual Accounting Principle – revenue should be
recognized when earned regardless of collection and
expenses should be recognized when incurred
regardless of payment.
Example:
When a barber finishes performing his services he
should record it as revenue. When the barber shop
receives an electricity bill, it should record it as an
expense even if it is unpaid
12. • Matching principle – cost should be matched with
the revenue generated.
Example:
When you provide tutorial services to a customer and
there is a transportation cost incurred related to the
tutorial services, it should be recorded as an expense for
that period.
13. • Disclosure principle – all relevant and material
information should be reported.
Example: The company should report all relevant
information.
14. • Conservatism principle – also known as prudence.
In case of doubt, assets and income should not be
overstated while liabilities and expenses should not
be understated.
Example:
In case of doubt, expenses should be recorded at a higher
amount. Revenue should be recorded at a lower amount.
15. • Materiality principle – in case of assets that are
immaterial to make a difference in the financial
statements, the company should instead record it as
an expense.
Example:
A school purchased an eraser with an estimated useful
life of three years. Since an eraser is immaterial relative
to assets, it should be recorded as an expense.
16. Accounting principles. Indicate which principles are
follows or violated
1. The owner-manager bought a computer for
personal use. The invoice was given to the accountant
who recorded it as an asset of the business.
17. 2. The statement of financial position of a company
included an equipment purchased from Japan for
350,000 yen. It was reported at that amount in the
statement of financial position while all the other
assets were reported in Philippine pesos.
18. 3. No financial statements were prepared by Michael
Go for his business. He explained that he will prepare
the statements when he closes the business, which he
predicts to take place after 20 years.
19. 4. Aside from owning a shoe store, Albert operates a
canteen. The assets of the canteen are reported in the
statement of financial position of the shoe store.
20.
21. Concept Identification Exercise
Directions: Read the given transaction below. Analyze, which of the amounts
cited above do you think will be included in the business’ financial reports?
Why and what are reasons for including them?
Mr. Susano, a business owner of a Travel Agency invested 100 Million for
additional twenty Electric Jeepneys worth P2,000,000.00 which the owner only
paid half and avail the Auto Loan from Suzuki Motors worth P 1,000.000.00. He
acquired a 1 hectare lot worth 15 Million for his automobiles, construct a small
office spaces for his staff and installed solar panels and paid 10 Million for the
construction company including the labor and solar panel. Secured all the
Permit and Licenses worth P69,000.00. During the first month of operation, he
then paid the Salaries and Wages of his three office staffs and twenty-five
drivers worth P80,000. Paid Insurance for his employees worth 29,000. The
business consumed water worth P28,000.
For one month, the business generated P1,000,000.00 revenue
22. OBJECTIVES
At the end of the lesson, learners are
expected to:
1. Enumerate and explain the elements of the
accounting equations;
2. Illustrate the accounting equation and
3. Apply the accounting equation to analyze
business transactions
23. Instruction:
A list of transactions appears below.
Determine whether there is a
transaction that took place in the
Ofelia’s Garden in each item. If there is,
write “ deal” else “no deal.”
24. 1. Ofelia invested cash, P 100, 000.00 to put up a
garden using the business name “Ofelia’s Garden”.
2.She hired two helpers with a monthly salary of P
8,000.00 each.
3. Bought gardening tools to Berting’s Supplies
amounting to P1,500.00
4. She borrowed P 50,000.00 to Bayabas Rural
Bank for her personal use.
5. Purchased gardening supplies to Juan”s Gardens
on credit
25. 6. Received a phone call from Martha inquiring for
the availability of the 50 pcs of small size adenium
worth P250.00 each.
7.Received bill from Meralco worth P 1,500.00
8. Sold 30 pcs of variegated anthurium to various
customers, P 6,000.00.
9. Martha confirmed her order of 50 pcs of small
size adeniums.
10. Entered into a contact of lease for the venue of
the garden amounting to P 15,000
27. Here are the simple steps you need to follow to calculate
accounting problems with the fundamental accounting
equation accurately
✓Identify the company’s total assets for the period mentioned
✓ Sum up all the liabilities, and list them separately on the
balance sheet
✓ Identify the total of shareholders’ equity and add it with total
liabilities
✓ Check if the total assets equal the sum of liabilities and
equity or capital.
56. Activity: Increase/Decrease
For each transaction, tell whether the Assets (A), Liabilities (L) and Equity (E) will increase (I),
decrease (D) or is not affected (NE).
A L OE
1. The owner invests personal cash in the business. ___ ___ ___
2. The owner withdraws business assets for personal use. ___ ___ ___
3. The company receives cash from a bank loan. ___ ___ ___
4. The company repays the bank that had lent money. ___ ___ ___
5. The company purchases equipment with its cash. ___ ___ ___
6. The owner contributes her personal truck to the business. ___ ___ ___
7. The company purchases supply on credit. ___ ___ ___
8. The company purchases land by paying half in cash and
signing a note. ___ ___ ___
9. The owner withdraws cash for personal use. ___ ___ ___
10. The company repays the suppliers. ___ ___ ___
Editor's Notes
13.02.2024
13.02.2024
Attentiveness to avoid danger
an amount not impacting financial statements significantly. In other words, information is immaterial to an entity if it doesn't impact the financial decisions of users of an entity's financial statements.
BUSINESS ENTITY -a business enterprise is separate and distinct from its owner or investor.
MONETARY UNIT - amounts are stated into a single monetary unit JAPAN,JAPAN SAME
TIME PERIOD - financial statements are to be divided into specific time intervals. SHLD REPORT FINANCIAL REPORT
BUSINESS ENTITY
1. G 2. J 3. A 4. B 5. C 6. D 7. H 8. I 9. E 10. F
