BASIC ACCOUNTING PRINCIPLES AND ASSUMPTIONS

• Economic Entity Principle

• Monetary Unit Assumption

• Specific Time Period Assumption

• Full Disclosure Principle

• Going Concern Assumption

• Matching Principle

• Accrual Basis

• Materiality principle

• Conservatism/Prudence

BASIC ACCOUNTING PRINCIPLES AND ASSUMPTIONS

Economic Entity Principle

the business is distinct and separate from the owners.

Monetary Unit Assumption

all activities are recorded in the same currency (quantifiable).

Monetary Unit Assumption

The purchasing power of currency remainsstatic over time or inflation is generally no considered in the financial reports of the business (stability of the peso).

Specific Time Assumption

the indefinite life of an entity is subdivided into accounting periods (calendar and fiscal year)

Full disclosure principle

required to disclose all information that relates to the function of the financial statements in the notes accompanying the statements

Going concern assumption

assumes the business will continue to exist and function indefinitely in the absence of evidence to the contrary

Matching Principle

accounting for revenue and expenses are matched; cost of merchandise will only be recognized as expenses when it is sold to customers and revenue is earned

Accrual Basis

revenue/expense is recognized when earned/incurred, regardless of when collection/payment is made

Materiality principle

entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an entity’s financial report.

Conservatism/Prudence

when alternatives exist, the alternative which has the least effect on equity shall be chosen. In case of doubt, record any loss and do not record any gain.