BASIC ACCOUNTING

PRINCIPLES

Presented by:
FERNANDO A MOLINA

Basic Accounting
Principles
basic

accounting principles form the

groundwork on which more detailed,
complicated, and legalistic
accounting rules are based.
Financial Accounting Standards
Board (FASB) uses the basic
accounting principles as a basis for
their own detailed and
comprehensive set of accounting
rules and standards

 GAAP

is exceedingly useful because it attempts to

standardize and regulate accounting definitions,
assumptions, and methods.

there

is consistency from year to year in the

methods used to prepare a company's financial
statements.

confident

conclusions when comparing one

company to another, or comparing one company's
financial statistics to the statistics for its industry.

Basic Accounting
Principles
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.

Economic Entity Assumption

Money Unit Assumption
Going Concern Assumption
Time Period Assumption
Cost Principle
Full Disclosure Principle
Dual Aspect Principle
Revenue Recognition Principle
Matching Principle
Materiality
Conservatism

Economic Entity Assumption

This principle assumes that, for

accounting purposes, the business
enterprise and its owners are two
separate independent entities. Thus,
the
business
and
personal
transactions of its owner are
separate.

Money Unit Assumption

resources

(assets) and obligations

(liabilities) of a company are
measured in monetary terms

Going Concern Assumption

Assumes

that a company will

continue to exist long enough to
carry out its objectives and
commitments and will not liquidate
in the foreseeable future.

Time Period Assumption

assumes that it is possible to report

the complex and ongoing activities
of a business in relatively short,
distinct time intervals

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

Full Disclosure Principle

If certain information is important to

an investor or lender using the
financial statements, that
information should be disclosed
within the statement or in the notes
to the statement.

Dual Aspect Principle

This

concept assumes that every

transaction has a dual effect, i.e. it
affects two accounts in their
respective opposite sides.

Revenue Recognition
Principle

revenues are recognized as soon as

a product has been sold or a service
has been performed, regardless of
when the money is actually received

Matching Principle
expenses

are incurred in order to

generate revenues, therefore,
expense should be charged against
(deducted from) income in the
accounting period that the related
sale (revenue) is recognized

Materiality

Professional judgment is needed to

decide whether an amount is
insignificant or immaterial and
should be reported in the financial
statement

Conservatism

If a situation arises where there are

two acceptable alternatives for
reporting an item, conservatism
directs the accountant to choose the
alternative that will result in less net
income and/or less asset amount.

ACCOUNTING
THEORIES

Accounting Theory

defined as logical reasoning in the

form of a set of broad principles that
provide a general frame of reference
by which accounting practice can be
evaluated
and
guide
the
development of new practices and
procedures

Descriptive Theory
It

explains the causes and effects of

the day-to-day events of our life.

Normative Accounting
Theory

mainly concerned with the future

acts in the light of the present daily
phenomena

Evaluative Accounting Theory

helps to know about the quality and

quantity of any object or event or
the qualitative quantity and
quantitative quality

Inductive Accounting
Theory

examines and analyses the

happenings of past events

Deductive Accounting Theory

the accounting theory which is

prepared by following the method of
deduction

Generally Accepted
Theories

can be applied equally in all cases

and are adopted by all

References:

http://www.accountingcoach.com/accountingprinciples/explanation
http://www.accounting
theory.weebly.com/accounting-and-itsobjectives.html
Corporate Finance Text and Philippine Cases Vol.1
, Roy C. Ybanez, Alberto R Ilano, 2009.

Good Day!