Fundamentals in Accountancy, Business, & Management 1: Accounting Concepts and Principles

These flashcards cover the fundamental accounting concepts and principles, including definitions and application examples as discussed in the lecture transcript.

Accounting concepts and principles

The foundational rules and assumptions guiding financial reporting, ensuring consistency, reliability, and comparability.

Business entity principle

A principle stating that a business enterprise is separate and distinct from its owner or investor, meaning personal expenditures and assets should be reported separately from those of the company.

Going concern principle

The assumption that a business is expected to continue indefinitely; financial statements are prepared assuming the entity will not cease operations in the foreseeable future.

Time period principle

The concept that financial statements are to be divided into specific time intervals, such as Philippine companies reporting annually.

Monetary unit principle

The requirement that all financial amounts are stated in a single monetary unit; for example, Jollibee must report in pesos even for its stores in the United States.

Objectivity principle

The requirement that financial statements must be presented with supporting evidence, such as receipts or vouchers, to prove transactions occurred.

Cost principle

The rule that accounts should be recorded initially at cost, meaning assets like a cash register or land are recorded at the price they were purchased for rather than current market value.

Accrual Accounting Principle

A principle where revenue is recognized when earned regardless of collection, and expenses are recognized when incurred regardless of payment.

Cash basis principle

An accounting method, not generally accepted today, in which revenue is recorded only when collected and expenses are recorded only when paid.

Matching principle

The principle that costs should be matched with the revenue they helped generate in the same period.

Disclosure principle

The requirement that all relevant and material information, such as major lawsuits or significant debt, must be reported to investors and shareholders.

Conservatism principle

Also known as prudence, this principle guides accountants to report financial information cautiously, recognizing potential losses sooner and delaying revenue recognition until virtually certain.

Materiality principle

The concept that items immaterial to the financial statements, such as a school eraser with a 3-year life, should be recorded as an expense rather than an asset.