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Questions and Answers
What are accounting principles?
What are accounting principles?
Rules and guidelines that companies must follow when reporting financial data.
Which of the following are examples of financial reporting frameworks used in the Philippines? (Select all that apply)
Which of the following are examples of financial reporting frameworks used in the Philippines? (Select all that apply)
The United States uses the same set of accounting principles as the Philippines.
The United States uses the same set of accounting principles as the Philippines.
False
What is the Going Concern Principle?
What is the Going Concern Principle?
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What does the Accrual Principle dictate?
What does the Accrual Principle dictate?
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What does the Consistency Principle ensure?
What does the Consistency Principle ensure?
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What does the Historical Cost Principle require?
What does the Historical Cost Principle require?
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What is dictated by the Materiality Principle?
What is dictated by the Materiality Principle?
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What does the Conservatism Principle suggest?
What does the Conservatism Principle suggest?
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What is the difference between bookkeeping and accounting?
What is the difference between bookkeeping and accounting?
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Study Notes
Accounting Principles
- Rules and guidelines that organizations must follow for financial data reporting.
- International Financial Reporting Standards (IFRS) aim for consistency, transparency, and comparability in financial statements globally.
- IFRS issued by the International Accounting Standards Board (IASB).
- United States uses Generally Accepted Accounting Principles (GAAP) for its financial reporting.
Philippine Financial Reporting Frameworks
- Comprises three main standards:
- Philippine Financial Reporting Standards (PFRSs)
- Philippine Financial Reporting Standard for Small and Medium-Sized Entities (PFRS for SMEs)
- Philippine Financial Reporting Standard for Small Entities (PFRS for SEs).
- Securities and Exchange Commission (SEC) oversees the financial reporting framework for corporations in the Philippines, governed by the Revised Securities Regulation Code (SRC) Rule 68.
GAAP Overview
- A standardized set of rules for financial reporting developed by the Financial Accounting Standards Board (FASB).
- Core concepts include revenue recognition, matching principle, and full disclosure.
- Ensures that income is recognized when earned and expenses are matched to revenues, reflecting true financial performance.
Basic Accounting Principles
- Established to maintain consistency and standardization in financial reporting, facilitating performance comparison across industries.
- Enhance transparency and help prevent financial fraud by providing a reliable reporting framework for stakeholders.
Going Concern Principle
- Assumes continued business operations without plans for liquidation.
- Supports long-term asset depreciation and deferred expense recognition, important for financial stability and investor confidence.
Accrual Principle
- Records income and expenses when they occur, not when cash is exchanged.
- Matches revenues with related expenses, providing an accurate representation of financial health.
Consistency Principle
- Requires the same accounting methods to be used consistently across reporting periods.
- Enhances reliability and aids in the comparison of financial results over time.
Historical Cost Principle
- Assets are recorded at their original purchase price, promoting objectivity and verifiability.
- Maintains stability in financial reporting even if market values fluctuate.
Materiality Principle
- Requires the reporting of all significant financial events that influence decision-making.
- Promotes transparency by focusing on crucial transactions while excluding irrelevant details.
Conservatism Principle
- Encourages caution in financial reporting, such as recognizing expenses and debts immediately while deferring revenue recognition.
- Prevents overestimation of a company's financial health, ensuring a realistic portrayal of finances.
Accounting vs. Bookkeeping
- Bookkeeping involves routine transaction recording (e.g., sales and expenses) with a focus on data entry.
- Accounting interprets and analyzes recorded data, applying principles to derive meaningful financial insights.
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