Fundamentals of Accounting

The Accounting Concepts and Principles

Joshua Marie

2025-12-07

Introduction

Objectives

  • Define accounting
  • Identify generally accepted accounting principles
  • Cite examples of accounting concepts and principles
  • Solve exercises on accounting principles

What is Accounting?

Identifying

Recording

Communicating

Fundamental Concepts

Business Entity Concept

Business is separate from owner

Example: Owner’s personal expenses ≠ Business expenses

Going Concern Concept

Business continues indefinitely

Example: Asset depreciation spread over useful life

Periodicity

Financial statements in equal time intervals

  • Calendar Year: Jan 1 - Dec 31
  • Fiscal Year: Any 12-month period

Monetary Unit Concept

All transactions in peso terms

Example: Hiring employees not recorded (no monetary value)

Accrual Basis Concept

  • Revenue: recognized when earned
  • Expenses: recognized when incurred

Example: Services rendered = revenue (even if unpaid)

Basic Principles

The Six Principles

Objectivity Supported by evidence

Cost Original acquisition cost

Full Disclosure All relevant information

Matching Costs match revenues

Consistency Uniform approaches

Materiality Focus on important info

Application

Case 1: Business Entity

Mrs. Labandera’s expenses:

Item Amount Include?
Health Insurance ₱15,000 No
Rent Expense ₱35,000 Yes
Home Utilities ₱8,000 No
Store Utilities ₱12,000 Yes
Withdrawal ₱30,000 No

Total Business Expenses: ₱47,000

Case 2: Accrual & Matching

Ocean Deep Resort:

  • Received ₱150,000 advance payment
  • When recognize revenue? When service rendered
  • When recognize expenses? Match with revenue period

Exercise

Problem

Mr. Castro’s A&Z Aquatic Fishes - February 2021

Revenue: ₱150,000 | Recorded expenses: ₱100,000

Expense Amount
Aircon Repair (residence) ₱12,000
Life Insurance ₱15,000
Rent Expense ₱20,000
Home Utilities ₱4,800
Store Utilities ₱5,200
Salaries ₱35,000
Family Dinner ₱8,000

Solution

Business Expenses:

  • Rent: ₱20,000
  • Store Utilities: ₱5,200
  • Salaries: ₱35,000

✓ Total: ₱60,200

📊 Net Income: ₱89,800

Summary

Key Takeaways

  • Accounting = I-R-C
  • 5 Fundamental Concepts
  • 6 Basic Principles
  • GAAP ensures standardization
  • Apply principles to real situations

Questions?

Thank you! 🎓