ACCOUNTING

Accounting Concepts and Principles

What is Principle?
A fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning.

∆ Ito ay antas ng kahalagan ng isang bagay o gawain, ang layunin nito ay matukoy ang pinakamainam o mabuti na gawin.

There are 11 Concepts and Principles of Accounting

1. BUSINESS ENTITY PRINCIPLE
A business enterprise is separate and distinct from its owner or investor. 

Pag sinabing nating business entity principle, kailangan separate o naka-hiwalay at distinct o natatanggi mula sa owner.

Yung mga expenses, income, supplies etc. ay dapat naka-hiwalay kung para sa business, para sa business lamang. Hindi mo dapat ipagmix ang business and personal money mo.

Examples: 
If the owner has a barber shop, the cash of the barber shop should be reported separately from personal cash.

Another example:
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.

2. GOING CONCERN PRINCIPLE
Business is expected to continue indefinitely. 

Ang Going Concern Principle ine-expect nito na ang business mo ay hindi mag-clo-close. Indefinitely o walang hanggan.

Example:
When preparing financial statements, you should assume that the entity will continue indefinitely.

∆ Pag gumagawa ka ng Financial statement ina-assume nito na ang business mo mag cocontinue. Sa financial statement diyan na kapaloob ang inflows at outflows ng pera sa business mo. Diyan din kasi masusukat kung ilan ang income mo at mga expenses.

3. TIME PERIOD PRINCIPLE
Financial statements are to be divided into specific time intervals such as a month, a three-month quarter, a six-month interval, or a year.

Example :
Philippine companies are required to report financial statements annually. The salary expenses from January to December 2015 should only be reported in 2015.

4. MONETARY UNIT PRINCIPLE
Amount are stated into a single monetary unit 

So, pagsinabi nating monetary unit principle kung ano ang currency ng pinag originated ng business mo. Kahit nasa Kuwait naka tayo ang isang branch ng business mo pero nasa Philippines naman ang totoong o yung pinaka main nito, Philippine currency parin ang gagamitin

Example:
Jollibee should report financial statements in pesos even if they have a store in the United States.

Another example:
IHOP should report financial statements in dollars even if they have a branch here in the Philippines

5. OBJECTIVITY PRINCIPLE
Financial statements must be presented with supporting evidence.

dito papasok ang mga resido. Lahat dapat ng papasok at lalabas or inflows and outflows of the business ay may resibo, dapat may ebidensya.
Hindi mo pwedeng doctorin.

Example:
When the customer paid Jollibee for their order, Jollibee should have a copy of the receipt to represent as evidence. 

Another example:
When a company incurred a transportation expense, a voucher should be prepared as evidence.

6. COST PRINCIPLE
Accounts should be recorded initially at cost. 

Pagsinabi namang Cost Principle kailangan lahat ng expenses ng business mo ay nakarecord pati na din ang mga inflows. Eto na yung tinatawag nilang Journalizing. Isusulat mo lahat dito kung ano yung binili, magkano ang pinangbili at kelan binili.

Example:
When Jollibee buys a cash register, it should record the cash register at its price when they bought it. o When a company purchases a laptop, it should be recorded at the price it was purchased.

7. 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, 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.

8. 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.

9. DISCLOSURE PRINCIPLE
All relevant and material information should be reported. 

Example:
The company should report all relevant information.

10. 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.

11. 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.