2H2

Generally Accepted
Accounting Principles
Prepared by:
Armocilla
Lugay
Escarilla
Madrigal
Ramos
Tobias
Ms. Lolita Pujol

Generally Accepted Accounting

Principle (GAAP)
Rules that govern how accountants
measure, process and communicate
financial information
Ensures that consistent accounting
procedures are followed in recording
the events created by business
transactions
and
in
preparing
financial statements

Generally Accepted Accounting

Principle (GAAP)
The Business Entity
Concept
The Continuing Concern
Concept
The Time Period
Concept
The Consistency
Principle
The Principle of
Conservatism
The Objectivity Principle

The Materiality
Principle
The Monetary-unit
Concept
The Full Disclosure
Principle
The Cost Principle
The Revenue
Recognition
Convention
The Matching Principle

The Business Entity Concept

From an accounting standpoint, the business firm
is treated as a separate economic entity
Only

the

business

entitys

activities

and

transactions should be recorded and reported

The personal activities of the owner(s) and other
business entities are accounted for separately,
unless the activities have direct impact upon the
business firm

The Continuing Concern Concept

Recognizes that a firm will remain in
operation for the foreseeable future
The firm is expected to continue to
operate long enough to meet its
obligations and fulfill its plans

The Time Period Concept

Recognizes

that

timely

financial

reports must be made to those who

need the information in these reports
Can

be

monthly,

quarterly

annually
The year is the basic time unit

or

The Consistency Principle

States

that

once

an

accounting

method has been adopted, it should

be consistently followed from period
to period in order for accounting
information to be comparable

The Principle of Conservatism

Holds that when equally correct accounting

alternatives

are

available

for

recording

or

reporting a transaction, the accountant should

select the alternative that will result in least
favorable outcome for the business in the
current period
Minimize

any

overstatement

of

assets

income and understatement of liabilities

and

The Objectivity Principle

States that all business transactions must
be supported by objective evidence proving
that the transaction did in fact occur

When independent evidence is not available

to document the results of a business
transaction, estimates must be made

The Materiality Principle

States that material events must be
accounted for according to
accounting rules

The Monetary-unit Concept

Holds

that

business

transactions

must be recorded and reported in

terms of money
Peso is the monetary unit in the
Philippines

The Full Disclosure Principle

Requires that the financial statements of a

business should be complete and should

report

sufficient

economic

information

relating to the business entity to make the

statements understandable
Information may be: financial statements

or supplementary attachments

The Cost Principle

Holds that most assets and liabilities
are recorded at their transaction cost
Provides an objective and verifiable
basis for the initial recording of
assets and liabilities

The Revenue Recognition

Convention
States that revenue resulting from
business

transactions

should

be

recorded only when a sale has been

made or earned

The Matching Principle

Requires

that

the

entitys

operational

efforts (expenses) be matched to the

entitys

operational

accomplishments

(revenues)
States that all expenses must be recorded

in the accounting period as the revenue

which they helped to generate

The Matching Principle

2 Accounting Methods for determining
where to record the result of a
business transaction:
Cash Accounting
Records the result of business transactions
only when cash is received or paid out

Accrual Accounting
Adjusts the accounting records by recording
expenses which re incurred during an
accounting period but which are not actually
paid until the following period; already
earned but not yet collected

Reference/s
Accounting
Restaurants:
(2007)

by

for
A
Ma.

Hotels
User

Perspective

Elenita

Cabrera, pages 50-54

and

Balatbat