PATEROS TECHNOLOGICALCOLLEGE BSOA 1J
Bachelor of Science in Office Administration Principles of Accounting I
Reference: Basic Accounting" by Winlu Ballada Domdane Publishing
Accounting concepts and principles
Fundamental Concepts
Several fundamental concepts underlie the accounting process. In recording business transactions, accountants,
should consider the following:
Entity Concept
The most basic concept in accounting is the entity concept. An accounting entity is an organization or a section of
an organization that stands apart from other organizations and individuals as a separate economic unit. Simply put,
the transactions of different entities should be accounted for together. Each entity should be evaluated separately.
Periodicity Concept
An entity’s life can be meaningfully subdivided into equal time periods for reporting purposes. It will be aimless to
wait for the actual last day of operations to perfectly measure the entity’s profit. This concept allows the users to
obtain timely information to serve as a basis on making decisions about future activities. For the purpose of
reporting to outsider, one year is the usual accounting accounting period.
Stable Monetary Unit Concept
The Philippine peso is a reasonable unit of measure and that its purchasing power is relatively stable. It allows
accountants to add and subtract peso amount as though each peso has the same purchasing power as any other
peso at any time. This is the basis for ignoring the effects of inflation in the accounting records.
Criteria for General Acceptance of an Accounting Principle
Accounting practices follow certain guidelines. GAAP, which stands for Generally Accepted Accounting Principles,
encompass the conventions, rules and procedures necessary to define accepted accounting practice at a particular
time.
Accounting principles are established by humans. Unlike the principles of physics, chemistry, and the other natural
sciences, accounting principles were not deduced from basic axioms, nor can they be verified by observation and
experiment. Instead, they have evolved. This evolutionary process is going on constantly; accounting principles are
not eternal truths. The general acceptance of an accounting principle usually depends on how well it meets three
criteria; relevance, objectivity and feasibility.
A principle has relevance to the extent that it results in information that is meaningful and useful to those who
need to know something about a certain organization.
A principle has objectivity to the extent that the resulting information is not influenced by the personal bias or
judgement of those who furnish it. Objectivity connotes reliability and trustworthiness. It also connotes
verifiability, which means that there is some way of finding out whether the information is correct.
