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Q1WK2-accounting 1
Q1WK2-accounting 1
DEPARTMENT OF EDUCATION
DIVISION OF CABADBARAN CITY
Name : ________________________________________
Grade and Section : ________________________________________
Date : ________________________________________
Introduction
Accounting concepts, principles, and assumptions are essential in the practice of accountancy.
Financial statements become more comparable and more useful to users if these concepts, principles,
and assumptions are followed by businesses. We can look at these as a set of rules that govern the
accounting process.
Pretest
True or False
Directions: Write ASSETS if the statement is True and LIABILITIES if the statement is False.
Learning Competencies:
1. explain the varied accounting concepts and principles - ABM_FABM11-IIIb-c-15
2. solve exercises on accounting principles as applied in various cases -ABM_FABM11-IIIb-c-16
Procedure/Learning Experience
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ENGAGE: Activity 1: Think and Solve
Juan dela Cruz opened his pet shop business called Petness First Petshop. He opened a bank account
for his business and deposited PHP500,000. The business earned PHP50,000 but he had doubts with the
recorded expense of PHP60,000. He is not sure if he should include the following items as expenses of
his business:
Salary expense 20,000
Rent expense 10,000
Utilities expense (at home) 15,000
Utilities expense (at the store) 10,000
Insurance expense 5,000
Withdrawals 10,000
TOTAL 60,000
Guide Questions:
1. On the accounts stated above, what account/s should not be included? Why?
2. How much is the total expenses of the business? Show your computation with the account names.
1. Business entity principle – a business enterprise is separate and distinct from its owner or investor.
Examples:
If the owner has a barber shop, the cash of the barber shop should be reported separately from
personal cash.
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.
3. Time period principle – financial statements are to be divided into specific time intervals.
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 – amounts are stated into a single monetary unit
Example:
Jollibee should report financial statements in pesos even if they have a store in the United States.
IHOP should report financial statements in dollars even if they have a branch here in the
Philippines
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, the 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.
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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.
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.
Self-check 1:
Multiple Choice
Directions: Read each statement and choose the letter of the correct answer. Shade the circle that
corresponds to the correct answer
OOOOO 1. The accounting guideline that requires financial statement information to be
A BCDE supported by independent, unbiased evidence other than someone's belief or
opinion is the:
a. Business entity principle b. Monetary unit principle
c. Going-concern principle d. Cost principle
e. Objectivity principle
OOOOO 2. The principle that requires every business to be accounted for separately and
A BCDE distinctly from its owner or owners is known as the:
a. Objectivity principle b. Business entity principle
c. Going-concern principle d. Revenue recognition principle
e. Cost principle
OOOOO 3. The rule that requires financial statements to reflect the assumption that the
A BCDE business will continue operating instead of being closed or sold, unless evidence
shows that it will not continue, is the:
a. Going-concern principle b. Business entity principle
c. Objectivity principle d. Cost Principle
e. Monetary unit principle
OOOOO 4. To include the personal assets and transactions of a business's owner in the
A BCDE records and reports of the business would be in conflict with the:
a. Objectivity principle b. Realization principle
c. Business entity principle d. Going-concern principle
e. Revenue recognition principle
OOOO 6. Marian Mosely is the owner of Mosely Accounting Services. Which accounting
A BCD principle requires Marian to keep her personal financial
information separates from the financial information of Mosely Accounting Services?
a. Monetary unit principle b. Going-concern principle
c. Cost principle d. Business entity principle
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OOOO 7. Which of the following accounting principles would require that all goods and
A BCD services purchased be recorded at cost?
a. Going-concern principle b. Continuing-concern principle
c. Cost principle d. Business entity principle
OOOO 9. In case of assets that are immaterial to make a difference in the financial
A BCD statements, the company should instead record it as an expense. What accounting
principle is this?
a. Matching Principle b. Materiality Principle
c. Objectivity Principle d. Accrual
1. The owner-manager bought a computer for personal use. The invoice was given to the accountant who
recorded it as an asset of the business.
2. The statement of financial position of a company included an equipment purchased from Japan for
350,000 yen. It was reported at that amount in the statement of financial position while all
the other assets were reported in Philippine pesos.
3. No financial statements were prepared by Michael Go for his business. He explained that he will
prepare the statements when he closes the business, which he predicts to take place
after 20 years.
4. Aside from owning a shoe store, Albert operates a canteen. The assets of the canteen are reported in
the statement of financial position of the shoe store.
5. Purchased a hammer at a cost of PHP500. This was recorded as an asset and expense to decrease its
value by PHP50 per year for 10 years.
6. A food company ordered a machine needed in the assembly line of its production department. Upon
order, the machine was immediately listed as one of its assets.
Self-check 2:
Matching. Match the following words with their definition. Write your answer in the space provided.
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_________________ 10. A company that purchases furniture should record it at its acquisition price.
ACTIVITY 3: RESEARCH
Research about the Philippine Financial Reporting Standards. You will find out that the
PFRS is compose of many standards. Choose one standard and find out the process regarding
how that standard was created. Search also the reasons why there is a need for such a standard.
Write a 250-word essay documenting your research.
Post Test
A. Identification
Directions: Identify the accounting concepts or principles that suits the statement.
__________________ 1. Any personal transactions of its owner should not be recorded in the business
accounting book, and vice versa.
__________________ 2. When a customer paid your product, you should have a copy of that transaction
in the form of a duplicate receipt.
__________________ 3. All transactions in 2019 should only be reported in 2019.
__________________ 4. Preparations of projected income, sales and expenditures document for 2021.
__________________ 5. Your secretary prepares a financial statement in Peso even you have a branch
of your business abroad.
__________________ 6. Assets are recorded at cost, which equals the value exchanged at the time of
their acquisition.
__________________ 7. 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.
__________________ 8. In case of doubt, expenses should be recorded at a higher amount. Revenue
should be recorded at a lower amount.
__________________ 9. 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.
__________________10. 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.
B. Essay/Discussion:
1. Briefly discuss the following:
a. Business Entity principle
b. Objectivity principle
c. Materiality principle
d. Cost principle
e. Matching principle
References:
Commission of Higher Education. (2016) Teaching Guide for Senior High School
Fundamentals of Accountancy, Business and Management 1. K to 12 Transition Program
Management Unit - Senior High School Support Team
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Answer Key
Pre-test
1. Liabilities
2. Assets
3. Liabilities
4. Liabilities
5. Assets
Activity 1:
1. Utility Expense (at home) should not be included because it is a personal expense.
Withdrawal is not an expense.
Self-check 1:
1.E, 2.B, 3.A, 4.B, 5.A, 6.D, 7.C, 8. D, 9. A, 10.B,
Activity 2:
1. G 2. J 3. A 4. B 5. C 6. D 7. H 8. I 9. E 10. F
Activity 3:
Answers may vary
Post Test
A. B.
1. business entity principle Answers may vary
2. objectivity principle
3. time period
4. going concern principle
5. monetary unit principle
6. cost principle
7. matching principle
8. conservatism principle
9. materiality principle
10. accrual accounting principle