CHAPTER 2 Accounting Concepts and Principles -Reviewer PDF

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CHAPTER 2ACCOUNTING CONCEPTS ANDPRINCIPLES (assumptions or postulates) are a set of logical ideas and procedures that guide the accountant in recording and communicating economic information.BASIC ACCOUNTING CONCEPTS Separate entity concept - the business is viewed as a separate person, distinct fr...

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uncertainty. CHAPTER 2 ACCOUNTING CONCEPTS AND PRINCIPLES  (assumptions or postulates) are a set of logical ideas and procedures that guide the accountant in recording and communicating economic information. BASIC ACCOUNTING CONCEPTS 1. Separate entity concept – the business is viewed as a separate person, distinct from its owner(s). Only the transaction of the business are recorded in the book of accounts and the personal transactions of the business owner(s) are not recorded. 2. Historical cost concept - (cost principle) assets are initially recorded at their acquisition cost.

3. Going concern assumption - the business is assumed to continue to exist for an indefinite period of time. 4. Matching - ( association of cause and effect) some costs are initially recognized as assets and charged as expenses only when the related revenue is recognized. 5. Accrual Basis of Accounting - economic events are recorded in the period in which they occur rather than at the point in time when they affect cash. 6. Prudence - (conservatism) the accountant observes some degree of caution when exercising judgments needed in making accounting estimates under conditions of

7. Time Period -(periodicity or accounting period concept) the life of the business is divided into series of reporting periods. 8. Stable monetary unit -assets, liabilities, equity, income and expenses are stated in terms of a common unit of measure, which is the peso in the Philippines. 9. Materiality concept -guides the accountant when applying accounting principles because accounting principles are applicable only to material items. 10. Cost - Benefit - (cost constraint) the cost of processing and communicating information should not exceed the benefits to be derived from it.

11. Full disclosure principle - is related to both concepts of materiality and cost - benefit. Information communicated to users reflect a series of judgmental trade-offs. 12. Consistency concept - a business shall apply accounting policies consistently and present information consistently from one period to another. ACCOUNTING STANDARDS  Accounting concepts and principles are either explicit or implicit. RELEVANT REGULATORY BODIES 1. Securities and Exchange Commission (SEC) -tasked with regulating corporations, including partnership. The SEC requires

corporations and partnerships to file audited financial statements. 2. Bureau of Internal Revenue (BIR) - tasked in collecting national taxes and administering the provisions of the Tax Code. 3. Bangko Sentral ng Pilipinas (BSP) - tasked in regulating banks and other entities performing banking functions....