Fundamentals Of ABM 1 Week 2, Quarter 3 PDF

FUNDAMENTALS OF ABM 1 WEEK 2, QUARTER 3  REVIEW CATEGORIZE WHETHER THE FOLLOWING IS INTERNAL OR EXTERNAL USER OF ACCOUNTING. 1. MANAGEMENT 2. CREDITORS 3. TAX AUTHORITIES 4. EMPLOYEES 5. INVESTORS  ACTIVITY OBSERVE THE FOLLOWING EXPENSES: 1. SAL...

FUNDAMENTALS OF ABM 1 WEEK 2, QUARTER 3  REVIEW CATEGORIZE WHETHER THE FOLLOWING IS INTERNAL OR EXTERNAL USER OF ACCOUNTING. 1. MANAGEMENT 2. CREDITORS 3. TAX AUTHORITIES 4. EMPLOYEES 5. INVESTORS  ACTIVITY OBSERVE THE FOLLOWING EXPENSES: 1. SALARIES EXPENSE – P5,000 2. RENT EXPENSE – P5,000 3. UTILITIES EXP. (OFFICE) – P10,000 4. INSURANCE EXPENSE – P12,000 5. WITHDRAWALS - P5,000 6. UTILITIES EXP. (HOME) – 3,000 QUESTIONS: 2. WHAT SHOULD BE INCLUDED AS EXPENSES? 3. WHAT SHOULD NOT BE INCLUDED AS EXPENSES? WHY? 4. WHAT PRINCIPLES OF ACCOUNTING DOES NOT CONFORM WITH THESE TRANSACTIONS?  ABSTRACTION In doing financial reports and in recording business transactions, there are certain rules and principles that are to be followed. ACCOUNTING CONCEPTS AND PRINCIPLES Here are the accounting concepts and principles, (Ballada, 2017). 1. Materiality Principle This includes all assets that are immaterial to make a difference in the financial statements which the company should record as an expense. Example: Robi, an accounting clerk, purchased a friction pen. She estimated it to have a useful life up to three months. Since a friction pen is immaterial relative to assets, it should be recorded as an expense. ACCOUNTING CONCEPTS AND PRINCIPLES 2. Going-concern Principle This means that the business is expected to continue indefinitely. Example: Mr. Clark’s sushi business is experiencing difficulty, but he is still expecting it to continue that is why he still updates his books of account.. ACCOUNTING CONCEPTS AND PRINCIPLES 3.Time Period Principle The financial statements are usually divided into specific time intervals. The business should report the financial statements appropriate to a specific period. Example: Teresita is an accountant of ABC company. Her boss requires her to prepare ACCOUNTING CONCEPTS AND PRINCIPLES 4. Monetary unit principle Any amount involved in the business is stated into a single monetary unit. Example: A fast food chain has branches all over the world but their financial statements must be reported in peso since they also have branch here in the Philippines. ACCOUNTING CONCEPTS AND PRINCIPLES 5. Business Entity Principle Indistinction this principle, there is a separation and of and transactions its between the business enterprise owner or investor. Example: Aling babes, the owner of a mini grocery store, separates the assets and liability of her business from her personal transactions. All transactions of the business will be just in the ACCOUNTING CONCEPTS AND PRINCIPLES 6. Cost principle This is an accounting principle wherein accounts should be recorded initially at cost as well as assets at their respective cash amounts at the time the asset was purchased. Example: When the owner of a sari-sari store buys a calculator, it should be recorded in the cash register at its price when it was bought. ACCOUNTING CONCEPTS AND PRINCIPLES 7. Accrual Accounting Principle In this principle, revenue should be recognized when earned regardless of collection. Same goes with expenses which are recorded when incurred regardless of payment. But in the cash basis principle, revenue is logged when collected, and expenses should be recorded when paid. A cash basis is not generally an accepted principle today. Example: When a painter finishes performing his services, he should record it as revenue even if his professional fee is still uncollected. When the painter ACCOUNTING CONCEPTS AND PRINCIPLES 8. Matching principle In this principle, cost should be matched with the revenue generated. It requires that the expenses incurred during a period be recorded in the same period in which the related revenues are earned. Example: revenue Siony sold the goods to her customers, the increases the and the Inventories decrease. The reduction of inventories goods sold in relation to revenues is called the cost of and it should revenues were be recorded in the period in which the earned. ACCOUNTING CONCEPTS AND PRINCIPLES 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 shop. She made sure that it was recorded on the financial reports. ACCOUNTING CONCEPTS AND PRINCIPLES 10. Conservatism Principle This is also known as prudence. Assets and income should not be overstated while liabilities and expenses should not be understated. In case of doubt, expenses should be recorded at a higher amount. Revenue should be recorded at a lower amount. Example: suppose an asset owned by Mico, like inventory was bought for Php 20,000.00 but can now be bought for 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 bought for Php 20,000.00 and now has a market value of Php 25,000.00, it must still be shown as Php 20,000.00 ACCOUNTING CONCEPTS AND PRINCIPLES 11. Objectivity Principle In this concept, financial statements of an organization must be presented with supporting solid evidence and the intent behind this principle is to keep the management and the department of accounting from making financial statements that are affected by their opinions and biases. Example: Martimart enterprise is trying to get a financing from Madas bank for some expansion but the enterprise’s bank wants to see a copy of its financial statements before it approves loan of the enterprise. The enterprise’s bookkeeper prints out an income statement from its accounting system and mails it to the bank. Most likely, Madas bank will reject this financial statement ACCOUNTING CONCEPTS AND PRINCIPLES Generalization: 1. What is the purpose of accounting concepts and principles? 2. Can you name some accounting concepts and principles? Name them.