ACCOUNTIN

G CONCEPTS
AND
PRINCIPLES
At the end of this lesson, the learners will
be able to:
• enumerate the principles of accounting;
• differentiate each principle; and,
• apply the accounting principle in a business
setting
Concept map and statement of previous lesson
•Connect to a real life situation
1. Remind the learners that the topic
revolves on possible violations of the
principles and that they need to be
aware of it. 2. Hand out a copy of an
article made specifically for this lesson
• Read and answer the text quietly for 10 minutes.
Petness First Petshop
Juan dela Cruz opened his pet shop business called Petness First Petshop. He
opened a bank account for his business and deposited PHP500,000. The business
earned PHP50,000 but he had doubts with the recorded expense of PHP60,000. He
is not sure if he should include the following items as expenses:
Salary expense 20,000
Rent expense 10,000
Utilities expense (at home) 15,000
Utilities expense (at the store) 10,000
Insurance expense 5,000
Withdrawals 10,000
TOTAL 60,000
4. Ask the students what they think should not be
included as expenses. Then explain why.
• Follow up statement :
The activity is an application of the Business
Entity Principle which is one of the most
important principles in accounting. Other
principles of accounting will be discussed in the
next section.
• 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.
BUSINESS ENTITY PRINCIPLE
GOING CONCERN PRINCIPLE
•Going concern principle – business is
expected to continue indefinitely.
Example: When preparing financial
statements, you should assume that
the entity will continue indefinitely.
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
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
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.
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 purchase
ACCRUAL ACCOUNTING PRINCIPLE
Revenue should be recognized when earned regardless of
collection and expenses should be recognized when
incurred regardless of payment. On the other hand, the
cash basis principle in which revenue is recorded when
collected and expenses should be recorded when paid. Cash
basis is not the generally accepted principle today.
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.
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.
DISCLOSURE PRINCIPLE
All relevant and material
information should be reported.
Example:
The company should report all
relevant
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.
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.
Group Activity - Instruction:
• Teacher assigned 6 group to perform a case
scenario about the Accounting Principles.
• Each group create a business real life scenario
on Accounting Principle and after present it to
the class about this scenario.
• Then for conclusion answer the case what
kind of Accounting Principle they presented.
Group Activity:
• Accounting principles. Indicate which principles are 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.
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.
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.
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.
5. Purchased a hammer at a cost of PHP500. This was recorded as an asset and expense to decrease
its value by PHP50 per year for 10 years.
6. A food company ordered a machine needed in the assembly line of its production department.
Upon order, the machine was immediately listed as one of its assets.
A. Concept check. Answer the following multiple choice questions:
1. The accounting guideline that requires financial statement information to
be supported by independent, unbiased evidence other than someone's
belief or opinion is the:
a. Business entity principle d. Cost principle
b. Monetary unit principle e. Objectivity principle
c. Going-concern principle
2. The principle that requires every business to be accounted for separately
and distinctly from its owner or owners is known as the:
a. Objectivity principle d. Revenue recognition principle
b. Business entity principle e. Cost principle
c. Going-concern principle
3. The rule that requires financial statements to reflect the assumption
that the business will continue operating instead of being closed or
sold, unless evidence shows that it will not continue, is the:
a. Going-concern principle d. Cost Principle
b. Business entity principle e. Monetary unit principle
c. Objectivity principle
4. To include the personal assets and transactions of a business's owner
in the records and reports of the business would be in conflict with the:

a. Objectivity principle d. Going-concern principle

b. Realization principle e. Revenue recognition principle
c. Business entity principle
5. The objectivity principle:
a. means that information is supported by independent, unbiased evidence
b. means that information can be based on what the preparer thinks is true
c. means that financial statements should contain information that is optimistic
d. means that a business may not re-organize revenue until cash is received
6. Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle
requires Marian to keep her personal financial information separate from the financial
information of Mosely Accounting Services?
a. Monetary unit principle c. Cost principle
b. Going-concern principle d. Business entity principle
7. Which of the following accounting principles would require that all goods and services
purchased be recorded at cost?
a. Going-concern principle c. Cost principle
b. Continuing-concern principle d. Business entity principle
B. Matching. Match the following words with their definition:
a. Going concern principle e. Time period principle h. Monetary unit principle
b. Objectivity principle f. Cost principle i. Accrual accounting principle
c. Matching principle g. Disclosure principle j. Conservatism principle
d. Materiality principle
___________________ 1. All relevant information should be included in the financial reports
___________________ 2. In case of doubt, assets and income should not be overstated.
___________________ 3. Assume that the company will continue indefinitely.
___________________ 4. All transactions should be supported by unbiased evidence.
___________________ 5. Expenses should be recorded in the period when the revenue is generated.
___________________ 6. Minimal costs incurred should be recorded as an expense.
___________________ 7. A Philippine company should report financial statements in pesos.
___________________ 8. A barber who performs services for a client should record revenue.
___________________ 9. Statement of Financial position should be recorded as of December 31, 2015.
___________________ 10. A company that purchases furniture should record it at its acquisition price
Homework activity:
1.Ask the learners to think of two real life
examples. Select only two principle discussed.
2. Ask the learners to interview a business owner
and ask them about their accounting practices.
The students should identify if there has been any
violation of the accounting principles.