LEARNING ACTIVITY SHEETS

BOOKKEEPING NC III
ACCOUNTING CONCEPTS AND PRINCIPLES
Example: Mr. Clark’s sushi business is experiencing
difficulty, but he is still
MELCS: This activity was designed and written so that you expecting it to continue that is why he still updates his
will be able to know and apply books of account.
different accounting concepts and principles in various 3. Time Period Principle
cases (ABM_FABM11-IIIb-c- 15- The financial statements are usually divided into specific
16). time intervals. The business should report the financial
At the end of this activity, you are expected to: statements appropriate to a specific period.
a. explain the varied accounting concepts and principles Example: Teresita is an accountant of ABC Company. Her
and boss requires her to prepare financial statements every
b. solve exercises on accounting principles as applied in month.
various cases 4. Monetary Unit Principle
Any amount involved in the business is stated into a single
Accounting Concepts and Principles
monetary unit.
Just as dancers have their concepts when it comes Example: A fast food chain has branches all over the world
to dancing, and each of us has our own principles in life, but their financial statements must be reported in peso
accounting has different concepts and principles that must since they also have branch here in the
be applied in every transaction. In accounting, there are Philippines.
basis or assumptions every time we record a transaction. In 5. Business Entity Principle
order for the accountants and everyone who is involved to In this principle, there is a separation and distinction of
have a concrete and united answer, they need to follow transactions between the business enterprise and its
the generally accepted rule for accounting. Professionals owner or investor.
sometimes argue when they record a transaction Example: Aling Babes, the owner of a mini grocery store,
differently but it doesn't mean that one of them is wrong. separates the assets and liability of her business from her
They may simply have different accounting concepts and personal transactions. All transactions of the
principles. The purpose of accounting concepts and business will be just in the business while her personal
principles is to justify every action or way of recording matters will be hers only.
transactions of the owners. There are different concepts 6. Cost Principle
and principles that may be applied and followed by the This is an accounting principle wherein accounts should be
business. As you go on, these accounting concepts and recorded initially at cost as well as assets at their
principles will unfold. respective cash amounts at the time the asset was
purchased.
Example: When the owner of a sari-sari store buys a
Let us now discuss and elaborate on what the accounting calculator, it should be recorded in the cash register at its
concepts and principles are. price when it was bought.
In doing financial reports and in recording business 7. Accrual Accounting Principle
transactions, there are certain In this principle, revenue should be recognized when
rules and principles that are to be followed. earned regardless of collection. Same goes with expenses
Here are the Accounting Concepts and Principles, (Ballada, which are recorded when incurred regardless
2017). of payment. But in the Cash Basis Principle, revenue is
1. Materiality Principle logged when collected, and expenses should be recorded
This includes all assets that are immaterial to make a when paid. A Cash Basis is not generally an accepted
difference in the principle today.
financial statements which the company should record as Example: When a painter finishes performing his services,
an expense. he should record it as revenue even if his professional fee
Example: Robi, an accounting clerk, purchased a friction is still uncollected. When the painter has to
pen. She estimated it to have a useful life up to three pay his studio rent, he should record it as an expense even
months. Since a friction pen is immaterial relative to if it is unpaid.
assets, it should be recorded as an expense. 8. Matching Principle
2. Going-Concern Principle In this principle, cost should be matched with the revenue
This means that the business is expected to continue generated. It requires that the expenses incurred during a
indefinitely.

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 LEARNING ACTIVITY SHEETS
BOOKKEEPING NC III
ACCOUNTING CONCEPTS AND PRINCIPLES
period be recorded in the same period in which the related
revenues are earned.
Example: Siony sold the goods to her customers, the
revenue increases and the
inventories decrease. The reduction of the inventories in
relation to revenues is called the cost of goods sold and it
should be recorded in the period in which the
revenues were earned.
9. Disclosure Principle
All necessary, relevant, and material information should be
reported in this principle for transparency.
Example: Aleena bought a computer for her computer Activity 2
shop. She made sure that it was recorded on the financial Directions: State what accounting principle has been
reports. applied on each number.
10. Conservatism Principle Choose your answers from the box. Write your answers on
This is also known as prudence. Assets and income should a separate sheet
not be overstated while liabilities and expenses should not of paper.
be understated. In case of doubt, expenses should be Materiality Monetary unit
recorded at a higher amount. Revenue should be Conservatism Cost
recorded at a lower amount. Time period Revenue Recognition
Example: Suppose an asset owned by Mico, like inventory Objectivity Going Concern
was bought for Php 20,000.00 but can now be bought for Disclosure Business entity
Php 15,000.00. Then the company must immediately write
down the value of the asset to at Php 15,000.00 because of
the lower cost in the market. But if the inventory was 1. The owner of a supermarket made a transaction with
bought for Php 20,000.00 and now has a market value of her friends for personal use, he did not let his personal
Php 25,000.00, it must still be shown as Php 20,000.00 on transaction intrude with his business.
the books because the gain is only recorded when the 2. Babu believes that his business operations will continue
inventory in spite of some difficulties.
or asset is sold. 3. Vilma, a veterinarian, performs a service on Bebang's pet
11. Objectivity Principle dog without a payment being received. Vilma should not
In this concept, financial statements of an organization record the service revenue yet.
must be presented with supporting solid evidence and the 4. Aling Violeta bought a cash register for her grocery store
intent behind this principle is to keep the management and and she recorded it on its
the department of accounting from making financial price.
statements that are affected by their opinions and biases. 5. Mr. Lopez has his shoe branch in America and the
Example: Martimart Enterprise is trying to get a financing financial records there are in dollars.
from Madas Bank for some expansion but the enterprise’s 6. Ms. Maricar kept all the relevant information on the
bank wants to see a copy of its financial statements before accounting firm she is working on and she ensured that
it approves loan of the enterprise. The enterprise’s everything was written and recorded on the financial
bookkeeper prints out an income statement from its reports.
accounting system and mails it to the bank. Most likely, 7. Vien is a cashier in a supermarket. She ensures that all
Madas Bank will reject this financial statement because an transactions are rightly recorded.
independent party did not prepare it. 8. Charlie prepares financial statements yearly as what his
boss wanted.
Activity 1- Word Hunt 9. Dodong bought a building for the space of his business
worth Php 200,000.00. After a month, the building cost
Directions: Analyze and Hunt for accounting principles in
Php 300,000.00. Dodong recorded Php 200,000.00 as
the letter grid. Write your answers on a separate sheet of
the cost of his building.
paper.
10. An accounting clerk purchased a pen. Since a pen is
immaterial relative to assets, she recorded it as an
expense.
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 LEARNING ACTIVITY SHEETS
BOOKKEEPING NC III
ACCOUNTING CONCEPTS AND PRINCIPLES
C. cost principle
Activity 2 D. business entity principle
Directions: Choose the letter that corresponds to the 7. The accounting principle that requires all goods and
correct answer. Write the letter services purchased to be
of your answers on a separate sheet of paper. recorded at cost is the _______.
A. going-concern principle
1. The accounting guideline that requires financial B. continuing-concern principle
statement information to be supported by independent, C. cost principle
unbiased evidence other than someone's belief or D. business entity principle
opinion is the _______. 8. The business files for bankruptcy when it is not in the
A. objectivity principle _______.
B. monetary unit principle A. going concern Principle
C. going-concern principle B. matching principle
D. cost principle C. materiality principle
2. The principle that requires every business to be D. monetary unit principle
accounted separately and distinctly from its owner or 9. The statement that is correct in relation to Cost Principle
owners is known as the _______. is _______.
A. objectivity principle A. cost is relevant.
B. business entity principle B. cost is reliable.
C. going-concern principle C. only letter a is correct.
D. revenue recognition principle D. letter a and b are correct.
3. The rule that requires financial statements to reflect the 10. Matching principle is important because
assumption that the business will continue operating proper matching of_____ and _____
instead of being closed or sold, unless evidence gives a more accurate report.
shows that it cannot continue is the _______. A. revenue and expenses
A. going-concern principle B. cash and expenses
B. business entity principle C. cost and expenses
C. objectivity principle D. value and expenses
D. cost principle 11. The transactions of the business are separated from
4. To include the personal assets and transactions of a the personal transactions of
business' owner in the records and reports of the business the owner. This principle is stated by _______________.
would be in conflict with the _______. A. business entity
A. objectivity principle B. matching principle
B. realization principle C. objectivity
C. business entity principle D. going-concern
D. going-concern principle 12. The business will run in an indefinite time. This
5. The objectivity principle means _______. principle stated is from ____.
A. the information is supported by independent, unbiased A. going-concern Principle
evidence B. conservatism
B. the information can be based on what the preparer C. accrual
thinks is true D. business entity
C. financial statements should contain information that is 13. Conservatism is also known as _______.
optimistic A. prudence
D. a business may not reorganize revenue until cash is B. patience
received C. frugality
6. Marian Mosely is the owner of Mosely Accounting D. generosity
Services. The accounting principle that requires Marian to 14. Mr. Pedro makes his financial reports monthly. What
keep her personal financial information kind of principle his accountant performs_______Principle.
separated from the financial information of Mosely A. time period
Accounting Services is _______. B. conservatism
A. monetary unit principle C. revenue recognition
B. going-concern principle D. accrual
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 LEARNING ACTIVITY SHEETS
BOOKKEEPING NC III
ACCOUNTING CONCEPTS AND PRINCIPLES

15. It requires the expenses incurred during a period to be

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