Each accountable event is recorded in 2 parts - debit and credit.
Double-entry System
The entity is assumed to carry on its operations for an indefinite period of time.
Going concern assumption
The entity is viewed separately from its owners.
Separate entity
AKA: Accounting Entity/ Business entity concept/ Entity concept
a. A, L, E, I and Exp. are stated in terms of a common unit of measure, which is the peso in the Philippines.
b. The purchasing power of the peso is regarded as stable or constant and that its instability is insignificant and therefore ignored.
Stable monetary unit (Monetary unit assumption)
The life of the entity is divided into series of reporting periods. Usually 12 months and may either be fiscal or calendar year period.
Time Period (Periodicity/ Accounting Period)
Information is material if its ommission or misstatement could influence economic decisions. Based on professional judgement depending on the size and nature of the item judged.
Materiality Concept
Cost of processing and communicating information should not exceed the benefits derived from it.
Cost-benefit (Cost constraint/ Reasonable Assurance)
The effects of transactions and other events are recogized when they occur and not as cash as received or paid. Income is recognized when earned and expense is recorded when incurred.
Accrual Basis of Accounting
The value of an asset is determined on the basis of acquisition cost.
Historical cost concept (Cost principle)
All of the components of a complete set of financial statements are interrelated. When users use financial statements for decision making, they need to use each financial statement in conjunction with the other financial statements.
Concept of Articulation
The nature and amount of information included in the financial statemens reflect a series of judgemental trade-offs that strive for:
a. sufficient detail to disclose matters that make a difference to users, yet
b. sufficient condensation to make the information understandable, keeping in mind the costs of preparing and using it.
Full disclosure principle
The financial statements are prepared on the basis of accounting principles that are applied consistently from one period to the next.
Consistency concept
Costs are recognized as expenses when related revenue is recognized.
Matching (Association of Cause and Effect)
The accounting objective is geared towards proper income determination.
Assets = Liabilities + Capital
Entity Theory
The accounting objective is geared towards the proper valuation of assets.
Assets - Liabilities = Capital
Proprietary theory
Applicable when there are two classes of shares issued, ordinary and preferred.
Assets - Liabilities - Preferred SHE = Ordinary SHE
Residual equity theory
The accounting objective is the custody and administration of funds. The objective is directed towards cash flows.
Cash inflows - cash outflows = funds
Used in government and fiduciary accounting
Fund theory
The process of converting non-cash assets into cash or claims for cash. It also deals with revenue recognition.
Realization
The use of caution when making estimates under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.
Conservatism (Prudence)
The one which affects equity LESS is chosen
Costs that are directly related to the earning of revenue are recognized as expenses in the same period the related revenue is recognized.
Matching Concept (Direct association of costs and revenues)
Costs that are not directly related to the earning of revenue are initially recognized as assets and recognized as expenses over the periods their economic benefits are consumed, using some method of allocation.
Systematic and rational allocation
Costs that do not meet the definition of an asset, or ceases to meet the defintion of an asset, are expensed immediately.
Immediate recogntion
