FUNDAMENTALS OF ACCOUNTANCY, BUSINESS

AND MANAGEMENT 1
MONDAY 10:30AM-12:30PM
MR. DENNIS C. DE DIOS
CURRICULUM GUIDE
STUDENT’S EXPECTATIONS
REQUIREMENTS:

Ballpen
Pencil
Eraser
Calculator
10 column columnar sheet
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS
AND MANAGEMENT 1
THE NATURE OF ACCOUNTING AND ITS BUSINESS ENVIRONMENT
WHAT IS ACCOUNTING?
 Accounting is the systematic process of measuring and reporting relevant financial
information about the activities of an economic organization or unit. Its underlying
purpose is to provide financial information. It is capable of being expressed in monetary
terms.
 The American Institute of Certified Public Accountants (AICPA) defines accounting as the
art of recording, classifying, and summarizing in a significant manner and in terms of
money, transaction, and events, which are part at least of a financial character, and
interpreting the result thereof.
 The Philippine Institute of Certified Public Accountants (PICPA) defines accounting as a
service activity. Its function is to provide quantitative information, primarily financial in
nature, about economic entities, that is intended to be useful in making economic
decisions.
THE NATURE OF ACCOUNTING
The nature of accounting is in its definition as follows: 
Accounting is a systematic process.
Process is a series of actions that produce something or that lead
to a particular result. As such, the performance of the four
aspects of accounting, which are recording, classifying,
summarizing, and interpreting, leads to communicating to its
users the relevant financial information needed by the parties
interested.
Accounting is an art.
Art is a skill acquired by experience, study, or observation. It
is also defined as an occupation requiring knowledge or skill.
The four aspects of accounting require both knowledge and
skill through experience, study, or observation as a means to
produce the key end product which are the financial reports.
Accounting is a service activity.
Service is the occupation or function of serving. Activity is something
that is done as work or for a particular purpose. Combining the
meaning of the two words, accounting is a work or occupation for
serving a particular purpose. Hence, since its purpose is to provide
financial information, the data that it will process in terms of the four
aspects of accounting should be expressed in monetary terms. In
short, it is interested in activities that can be measured and expressed
in terms of the value of money.
THE FOUR ASPECTS OF ACCOUNTING
 Recording – writing down of business transactions chronologically in the books of account as
they transpire.
 Classifying – sorting of similar and related business transactions into three categories of
assets, liabilities, and owner’s equity.
 Summarizing – preparing the financial statements from the transactions recorded in the books
of account that are designed to meet the information needs of its users.
 Interpreting – representing the qualitative and quantitative financial information about the
business transactions in a language comprehensible to the users of financial statements. By
interpreting the data in the financial statements, users are able to determine the financial
standing of the company as well as its stability and growth potential. Users interpret financial
information relating to specific business decisions. This makes accounting the language of
business.
THE BASIC FUNCTION OF ACCOUNTING IN BUSINESS
 The aspects of accounting can be summed up to one basic function which
is the generation of relevant and timely financial information for
interested parties. The data provided by accountants can assist investors,
government agencies, creditors, and management in making sound
decisions. The financial information provided about the activities of an
economic organization makes it easily comprehensible for users to assess
its financial position as of a given time and results of operations for a
given period. This qualitative and quantitative financial data used by users
relating to specific business decisions makes accounting the language of
business.
THE HISTORY OF ACCOUNTING

 A Brief History of Accounting

“It is believed that the very origin of writing itself may have developed out of
early marks used to keep account of goods at ancient warehouse more than 5,300
years ago. The notion that pre-numerical accounting systems pre-dated even
written language, didn’t come as a surprise to many historians and archeologists
who have long since recognized that the history of human civilization as largely
indistinguishable from the history of commerce.”
 Ancient Accounting in Egypt, Mesopotamia, Greece and Rome
The history of accounting dates back to ancient times. The abacus which functioned as a
calculator in the ancient times was developed by the Sumerians in 5,000 BCE (Before
Common Era) followed by the papyrus which was developed by ancient Egyptians in 4,000
BCE. The papyrus not only allowed recording of commercial transactions but also
transcription of religious text, music, literature, and more. In Egypt, archeologist Dr. Gunter
Dreyer of the German Institute of Archeology unearthed clay tablets considered to be among
the oldest written tax accounting records. In the tomb of King Scorpion I in Egypt, he
discovered old stone labels believed to date back to 3,000 BCE or around 5,300 years ago.
These old stone labels were complete with marks representing amounts of oil and linens
which were believed to be paid to the king as taxes.
 Mesopotamia had clay tokens and clay tablets to record their loans, herds, crops, and system of trade. The
scribes who performed extensive duties in writing and recording in the Mesopotamian civilization are the
equivalent of present-day accountants. Aside from writing down commercial transactions, scribes assured that
the agreements were in compliance with the detailed code requirements for commercial transactions.

 The Greeks also made significant contributions to the development of accounting. In 600 BCE, they introduced
money in the form of coins. Moreover, they adopted the Phoenician writing system and invented Greek
alphabet which they used to facilitate record-keeping. As early as those times, bankers in Greece offered credit
and helped people transfer funds to banks in other cities as evidenced by the banker’s books of account. It was
the same in Rome where accounting helped establish their finance and legal system. In fact, the Romans
introduced the use of an annual budget which coordinated estimated revenues and taxes paid by the citizen in
relation to the nation’s expenditures. A cash book was maintained by households for their expenses.
 In England, William the Conqueror took possession of all properties in
the name of king upon his invasion. In 1086, the Domesday Book
contained all the real estate surveyed by William the Conqueror and the
taxes due to them. To date, the Pipe Roll or the Great Roll of Exchequer
is the most ancient surviving accounting record in the English language.
This contains the yearly accounting of rents, fines, and taxes due to the
King of England, from 1130 to 1830.
14TH CENTURY – THE BIRTH OF DOUBLE-ENTRY BOOKKEEPING

 During the 14th century, Luca Pacioli of Italy, otherwise known as Friar Luca dal Borgo, a
mathematician, friend, and contemporary of Leonardo da Vinci, and considered to be the
“Father of Accounting” wrote Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Everything about Arithmetic, Geometry and Proportion). One section of
this book, De Computis et Scripturis (Of Reckonings and Writings), is composed of 36
short chapters that describe bookkeeping. The accounting cycle, similar to the modern day
accounting cycle is also included in this book. The book also explains extensively used
balance sheet of today, the method of using memorandums, journals and ledgers, the use of
accounts such as assets, liabilities, owner’s equity, revenue and expenses, year-end closing
entries, and the use of trial balance to prove a balanced ledger.
 Pacioli credited Benedetto Cotrugli, for the original idea of the double-entry
bookkeeping. Cotrugli’s manuscript of Della Mercatura et del Mercante
Perfetto (of Trading and the Perfect Trader), which contains a brief description
of the double entry of bookkeeping, was never printed. Actually, not only
Luca Patioli, but the Italians are broadly recognized to be the father of
accounting for their marked contribution to the improvement of trade and
commerce. The business-minded early capitalist Venetian merchants used
double-entry system of recording in the late 15th Century to calculate their
earnings and profits.
20TH CENTURY – THE EVOLUTION OF MODERN ACCOUNTING
STANDARDS

 The American Institute of Certified Public Accountants (AICPA), the first national professional
association for Certified Public Accountants (CPA), was formed in the young but prosperous nation
of the United States of America. Because of the economic depression, the Securities and Exchange
Commission (SEC) was formed. Periodic reports vouched by certified public accountants were
filed all publicly-traded companies who had to register with the SEC before selling their securities
to the public. Thus, the AICPA was tasked to set the accounting and auditing standards for these
reports until the establishment of the Financial Accounting Standards Board (FASB) in 1973. The
FASB is the result of the demand for more reliable and comparable financial reporting by the
Congress and SEC. Thus, the FASB and the Governmental Accounting Standards Board (GASB)
are currently two of the significant authorities establishing the generally accepted accounting
principles (GAAP) in the U.S. On the other hand, in response to the continuing expansion of
businesses, large accounting firms offered consultancy services aside from their auditing function.
THE INFORMATION AGE

 The Information Age, otherwise known as the Computer Age, Digital Age, or
New Media Age, has brought about a significant change in the work load of
accountants. Manual, tedious and time-consuming tasks were replaced by
faster and more accurate computer methods. Transactions can be consummated
online with the help of the internet. Various software applications in
accounting have been developed to expedite procedures and accommodate the
numerous needs and demands of the different businesses.
21ST CENTURY – ACCOUNTING IN THE MODERN TIMES

 The 21st century opened with the replacement of the International Accounting
Standards Committee (IASC) by the International Accounting Standards
Board (IASB) established in January 2001. In the same year, the Enron
Scandal, the greatest corporate fraud case recorded in American History,
caused Arthur Andersen, one of the top audit firms in the United States to
close business. In order to protect investors from corporate misinformation,
the Sarbanes-Oxley Act was passed by the US Congress in 2002. This
imposed tougher restrictions on accountants conducting consultancy services.
 The year 2008 witnessed tougher times with the economic recession in the
United States. In response to the Great Recession, the Dodd-Frank Act was
signed into federal law on July 21, 2010. This contains sixteen major areas of
reform, including Financial Stability, Orderly Liquidation Authority, Transfer
of Powers to the Comptroller, the FDIC, and the Fed, Regulations of Advisers
to Hedge Funds and Others, Insurance, Improvements to Regulation, Wall
Street Transparency and Accountability, Payment, Clearing and Settlement
Supervision, Bureau of Consumer Financial Protection, Federal Reserve
System Provisions, Improving Access to Mainstream Financial Institutions,
Pay It back Act, Mortgage Reform, and Anti-Predatory Lending Act.
 With constant developments in modern technology and the globalization of
businesses, accountants continue to cope up with changing trends. Many
countries including the Philippines have adopted the International Accounting
Standards (IAS) and International Financial Reporting Standards (IFRS) in
order to support comparability and understandability of financial statements
across globe. As a result, the accountants of today face greater and more
complicated responsibilities. In addition, technology today reduces time,
effort and cost of recordkeeping, minimizes errors as well as processes, and
summarizes large volumes of data input. As such, accountants must always be
updated with the latest innovations affecting their profession.
THE BUSINESS ENVIRONMENT - THE DIFFERENT BRANCHES
OF ACCOUNTING

 Financial Accounting – It deals with the theoretical framework covering accounting

principles and concepts relative to measurement and valuation as applied to assets,
liabilities, stock holder’s equity, retained earnings, revenue, and expense accounts in
relation to the preparation and presentation of financial statements. These financial
statements include disclosure requirements as governed by the generally accepted
accounting principles (GAAP).
The financial information provided by financial accounting is used for decision making by
both internal and external users. Internal users include owners, shareholders, and management
while external users include creditors, potential investors, employees, and government
agencies.
Management Accounting – The Institute of Management
Accountants (IMA) defines management accounting as a profession
that involves partnering in management decision making, devising,
planning and performance management systems, and providing
expertise in financial reporting and control to assist management in
the formulation and implementation of an organization’s strategy.
 Government Accounting – Section 109 of Presidential Decree (PD) No.
1445 states that government accounting encompasses the process of
analyzing, classifying, summarizing, and communicating all
transactions involving the receipts and disposition of government funds
and property, and interpreting the results thereof. The agencies
responsible in performing government accounting functions are the
Commission of Audit (COA), the Department of Budget and
Management (DBM), and the Bureau of Treasury (BTr).
 Auditing – It is the examination and review of accounting reports in order to
ascertain their fairness, propriety, and reliability. The independent auditor’s
opinion provides reasonable assurance that the financial statements under
examination fairly present the company’s financial position and results of
operation in accordance with the generally accepted accounting principles
(GAAP).
Tax Accounting – Tax services provided by accountants include the
preparation of monthly value added tax, percentage tax, expanded
withholding tax returns, quarterly and annual tax returns, and any
other taxes applicable to business. Accountants work closely with
clients in order to avoid tax problems with the Bureau of Internal
Revenue (BIR) and other local agencies through proper tax
compliance while advising clients about ways and measures to
minimize taxes.
Cost Accounting – It includes the collection, determination,
allocation, assessment, interpretation, and control of cost
data, particularly the cost of production in a manufacturing
concern. The cost of production includes raw materials,
direct labor, factory overhead, and all other costs involved
incident in each stage of production of the finished goods.
Accounting Education – It involves planned grading and
formal teaching in an educational institution. The
professional accountant imparts knowledge to students
enrolled in an accounting subject either in basic accounting
or in higher accounting subjects. Accountants in the
academe usually take post graduate studies to achieve the
required tenure.
Accounting Research – It involves conducting a careful and
diligent study aimed at discovering and interpreting facts, revising
accepted theories in the light of new facts, or the practical
application of such new or revised theories for the generation of a
new knowledge. It includes collecting information about a
particular subject in order to decide and implement new standards
in accounting, presenting current events that might affect the
profession, or discovering new theories that will have an impact on
existing accounting knowledge.
EXERCISE
_____________ 1. Validation of financial statements
_____________ 2. Preparation of tax returns
A. Financial Accounting _____________ 3. Presentation of costs incurred in business operations
B. Cost Accounting _____________ 4. Accounting for public funds
C. Management Accounting _____________ 5. Recording and presentation of financial records to
external users
D. Government Accounting _____________ 6. Accounting help managers and owners plan and
E. Tax Accounting manage their business
F. Auditing _____________ 7. Development of accounting curriculum in
educational institutions
G. Accounting Education _____________ 8. Provision of guidance for compliance to tax
H. Fiduciary Accounting obligations
I. Forensic Accounting _____________ 9. Management of the business, possessions, and/or
property of another individual or
  party.
____________ 10. Branch of accounting involved in criminal or civil
cases investigations
EXERCISE

F 1. Validation of financial statements

A. Financial Accounting E 2. Preparation of tax returns
B. Cost Accounting B 3. Presentation of costs incurred in business operations
C. Management Accounting D 4. Accounting for public funds
A 5. Recording and presentation of financial records to external users
D. Government Accounting C 6. Accounting help managers and owners plan and manage their
E. Tax Accounting business
F. Auditing G 7. Development of accounting curriculum in educational institutions
E 8. Provision of guidance for compliance to tax obligations
G. Accounting Education H 9. Management of the business, possessions, and/or property of
H. Fiduciary Accounting another individual or party.
I. Forensic Accounting I 10. Branch of accounting involved in criminal or civil cases
investigations
 
USERS OF FINANCIAL INFORMATION

Internal Users – These are the primary users of financial

information who are inside the reporting entity and are
directly involved in managing the company’s daily
operations. They are the decision makers who make the
strategic and operational decisions for the company.
Investors/Owners/Stockholders
These parties provide the financial resources to keep the
business going. They decide whether to invest or not
depending on the estimated amount of income on the
investment. Upon investment, they would want to know the
financial position or results of operation of their business
investment.
Management
Organizational managers use financial information to set goals for
their companies. Managers evaluate their progress towards these
goals and use financial data as a guide for future management actions.
Employees
Although the employees are not directly involved in decision
making of the company, they are nonetheless interested in
the financial information of the company to determine if they
have a future in the company.
External Users – These are the secondary users of financial
information who are parties outside the company. They may
not be directly involved in the company’s operations but
their decisions may significantly affect the business entity.
Financial Institutions/Creditors
Before extending credits, financial institutions use
financial information to determine the capacity of the
business organization to pay its obligations and their
interests at the appropriate time.
Government
Financial information is important for tax purposes and
in checking of compliance with Securities and
Exchange Commission (SEC) requirements.
Potential Investors/Creditors
Before making an investment or extending credit, potential
investors and creditors may not only be interested in the
company’s current financial position and results of operations,
but also in the company’s financial history. This should give
them the assurance that their investment will yield a
reasonable rate of return or the credit extended will be paid
within reasonable period of time.
EXERCISE

____________ 1. Collection of taxes

____________ 2. Job stability in the company
____________ 3. Set goals for their companies and evaluate their progress towards these goals
____________ 4. Determines the capacity of the business organization to pay its obligations and
their interests at the appropriate time
____________ 5. Decide whether to invest or not depending on the estimated amount of income
on the investment
EXERCISE

Government 1. Collection of taxes

Employees 2. Job stability in the company
Management 3. Set goals for their companies and evaluate their progress towards these goals
Potential Creditors 4. Determines the capacity of the business organization to pay its obligations and
their interests at the appropriate time
Investors/Owners/Stockholders 5. Decide whether to invest or not depending on the estimated amount of
income on the investment
TYPES OF BUSINESS ORGANIZATIONS
 Sole/Single Proprietorship is a business owned and managed by only one
person.
 Advantages
There are minimal costs and requirements in the formation.
The owner can withdraw the assets and profits of the business anytime at his or
her own discretion.
Decision making is solely in the hands of the owner.
The duration of the life of the business solely depends on its owner.
Disadvantages
Resources are limited as the capital is provided only by the owner.
The liability of the owner is unlimited as he or she accountable to all
creditors of the business.
Infusion of knowledge in the management of the business is limited
to one person only, which is the owner.
 Partnership is a business organization owned and managed by two or more
people who agree to contribute money, property, or industry to a common
fund for the purpose of earning a profit.
 Advantages
There are minimal costs and requirements in the formation.
There are more funds contributed from the investment of the partners.
There is infusion of more knowledge, experience, and skills from two or more
partners.
There can be division of labor between or among partners.
 Disadvantages
The partners are liable for the actions of each partner as a result of mutual
agency.
A general partner has unlimited liability if the partners are limited partners or
are insolvent.
Disagreement between or among partners can lead to the withdrawal of one or
more partners.
The death, retirement, withdrawal, or incapacity of a partner results in the
dissolution of the partnership.
Admission of a new partner depends upon the approval if the other partners.
 Corporation is a form of business organization managed by an elected board of directors.
The investors are called stockholders and the unit of ownership is called share of stock.
 Advantages
The stockholders only have limited liability, as their liability extends only up to the amount
of their capital investment.
A corporation has continuous existence as its life is indefinite.
There is more infusion of funds from the stockholders or investors.
Shares of stocks can be transferred without the consent of other shareholders.
Management of the corporation is vested upon its board of directors.
 Disadvantages
A corporation entails many requirements and is more costly than a partnership.
The government exercises strict control over corporations and imposes high taxes.
Shareholders have little or no participation in the management of the corporation.
Distribution of net income depends upon the declaration of dividends by the board of
directors.
In large corporations, there is formal or impersonal relationship between employees and
management due to the big numbers of employees. Hence, chances of creating a personal
and friendly atmosphere in the corporate setting are minimal.
 Cooperatives under Section 3 of Republic Act 6938, a cooperative is a duly
registered association of persons, with a common bond of interest, who have
voluntarily joined together to achieve a lawful common social or economic
end, making equitable contributions to the capital required and accepting fair
share of the risks and benefits of the undertaking in accordance with
universally accepted cooperative principles. In short, a cooperative is an
association of small producers and consumers who come together voluntarily
to form a business which they own, manage, and patronize.
Advantages
The prices of products offered to consumers are lower due to
direct purchases of cooperative members from producers or
manufacturers.
Cooperatives are managed by the members themselves; thus,
saving on management costs which leads to lower prices of
products inuring to the benefit of the consumers.
Disadvantages
There is limited capital due to underprivileged members.
The cooperative is strictly for members only and shares
cannot be transferred to non-members.
Lack of efficient management as it is managed only by its
members.
THREE TYPES OF BUSINESS ACTIVITIES/OPERATIONS

 Service is a type of business operation engaged in the rendering of services. A

service type of business earns based on the skill or quality of service it offers.
In order for the business to grow, its people or employees have to be trained.
For example, a well-known hair cutter cannot perform all hair and makeup
services to his or her customers. He/ She must train employees to replicate
the quality of the service he/she renders. Constant monitoring, evaluating,
and updating of knowledge of the staff are necessary. He/ She has to
continuously maintain, if not improve, the quality of service offered to his/her
customers. Examples: dental clinic, barber shop, laundry service
Trading/Merchandising is type of business engaged in the buying
and selling of products. Merchandising includes the process of
managing and marketing the products sold to its customers. Sales
have to be optimized in order to make money. Customer demands
have to be satisfied with the quality of products sold. The tedious
processes of forecasting, purchasing, pricing, and marketing of
products in order to generate sales are essential in the trading or
merchandising business. Examples: grocery, sari-sari store
Manufacturing is engaged in the production of items to be sold. It
involves the purchasing and converting of raw materials to finished
goods. This type of business incurs overhead costs aside from the
wages and materials used in the production of goods. A rise in
price in one of these costs causes an increase in the price of goods
produced. Aside from this, there are certain expenses incurred even
during periods of non-manufacturing such as rent, insurance,
worker benefits, and machine depreciation. Hence, careful
planning is involved in manufacturing. Examples: shoe factory,
food processing
EXERCISE
Determine the type of business organization formed in each case. Then, determine the
type of activities or operations performed by the business.

Ema Dela Cruz and Emman Cruz were classmates since elementary. They went to college
together and recently passed the board exam for certified public accountants. They decided to
form Dela Cruz and Cruz Auditing Services.

Alexander, Jerwin, and three more friends, who are mechanical engineers, decide to open a
plant where they can produce machines to be sold to big factories in order to cut labor cost.
Because the cost of starting the business is substantial, they decide to invite incorporators to
generate more funds.

Anthony Lee, a Marketing student, is looking for a business to help him fund his studies. He
decides to rent a stall near the university and hire a sales lady to help him sell the school
supplies he buys from Divisoria. Mark-up is usually 25% of the cost.
EXERCISE
Determine the type of business organization formed in each case. Then, determine the
type of activities or operations performed by the business.

Ema Dela Cruz and Emman Cruz were classmates since elementary. They went to college
together and recently passed the board exam for certified public accountants. They decided to
form Dela Cruz and Cruz Auditing Services. Service Activity; Partnership

Alexander, Jerwin, and three more friends, who are mechanical engineers, decide to open a
plant where they can produce machines to be sold to big factories in order to cut labor cost.
Because the cost of starting the business is substantial, they decide to invite incorporators to
generate more funds. Manufacturing Activity; Corporation

Anthony Lee, a Marketing student, is looking for a business to help him fund his studies. He
decides to rent a stall near the university and hire a sales lady to help him sell the school
supplies he buys from Divisoria. Mark-up is usually 25% of the cost.
Merchandising Activity; Sole Proprietorship
ACCOUNTING CONCEPTS AND PRINCIPLES

 Generally Accepted Accounting Principles (GAAP) 

 These are broad, general statements or “rules” and “procedures” that serve as guides in the
practice of accounting.
 These are standards, assumptions, and concepts with general acceptability.
 These are measurement techniques and standards used in the presentation and preparation
of financial statements.
 Accounting System comprises the methods used by a business to keep records of its
financial activities and to summarize these accounts in periodic accounting reports.
 Transaction is a completed action which can be expressed in monetary terms.
FUNDAMENTAL CONCEPTS
 Entity Concept regards the business enterprise as separate and distinct from its owners and from
other business enterprises.
 Periodicity is the concept behind providing financial accounting information about economic
activities of an enterprise for specified time periods. For reporting purposes, one year is usually
considered as one accounting period.
  An accounting period may be classified as either of the following:

Calendar year – a twelve-month period that starts on January 1 and ends on December 31
Fiscal year – a twelve-month period that starts on any month of the year other than January and
ends twelve months after the starting period.
Note: A natural business year is any twelve-month period that ends when business activities are their
lowest point.
Going Concern is a concept which
assumes that the business enterprise
will continue to operate indefinitely.
EXERCISE

Write the letter of the correct answer on the blank

provided.
1.Assumes that business has the ability to operate
A. Entity indefinitely.

B. Periodicity 2. The business organization is separate and distinct

from its owners.
C. Going Concern
3. Financial accounting provides information about
the activities on an economic enterprise for specified
time periods.
ANSWER

Write the letter of the correct answer on the blank

provided.
C 1.Assumes that business has the ability to operate
A. Entity indefinitely.

B. Periodicity A 2. The business organization is separate and

distinct from its owners.
C. Going Concern
B 3. Financial accounting provides information
about the activities on an economic enterprise for
specified time periods.
BASIC ACCOUNTING PRINCIPLES

 Objectivity Principle states that all business transactions that will be entered
in the accounting records must be duly supported by verifiable evidences.
 Historical Cost means that all properties and services acquired by the
business must be recorded at their original cost.
 Accrual Principle states that income should be recognized at the time it is
earned such as goods are delivered or when services have been rendered.
Likewise, expenses should be recognized at the time they are incurred, such
as when goods and services are actually used and not at the time when the
entity pays for those goods and services.
 Adequate Disclosure states that all material facts that will significantly affect
due financial statements must be indicated.
 Materiality means that financial reporting is only concerned with information
significant enough to affect decisions. This refers to the relative importance of
an item or event. An item is considered significant if knowledge of it would
influence prudent users of financial information.
 Consistency means that approaches used in reporting must be uniformly
employed from period to period to allow comparison of results between time
periods. Any changes must be clearly explained.
EXERCISE!

Write the letter of the correct answer on the blank 1. All business transactions that will be entered in the accounting
provided. records must be fully supported by verifiable evidence.
A. Historical Cost
2. Approaches used in reporting must be consistently employed from
B. Objectivity period to period.

C. Conservatism (Prudence) 3. Financial reporting is concerned with significant information enough

to affect evaluation and decisions.
D. Accrual Principle

E. Full Disclosure 4. All properties and services acquired by the business must be recorded
at its original cost.
F. Consistency
5. Revenue is recognized when actually earned.
G. Materiality
6. Expense is recognized when actually incurred or used.

7. All material facts that will significantly affect the financial statements
must be indicated.
ANSWER

Write the letter of the correct answer on the blank B 1. All business transactions that will be entered in the accounting
provided. records must be fully supported by verifiable evidence.
A. Historical Cost
F 2. Approaches used in reporting must be consistently employed from
B. Objectivity period to period.

C. Conservatism (Prudence) G 3. Financial reporting is concerned with significant information

enough to affect evaluation and decisions.
D. Accrual Principle

E. Full Disclosure A 4. All properties and services acquired by the business must be
recorded at its original cost.
F. Consistency
D 5. Revenue is recognized when actually earned.
G. Materiality
D 6. Expense is recognized when actually incurred or used.

E 7. All material facts that will significantly affect the financial

statements must be indicated.
Thank you and
God Bless 