Fabm 1 PS 11 Q3 0402

Lesson 4.
Application of Accounting
Concepts and Principles
Fundamentals of Accountancy, Business,

and Management 1
Accountancy, Business, and Management
1
Although the famous
adage says, “Ignorance is
not an excuse.”, an
individual may still violate
these rules and regulations
if they are not aware of it.
2
The same is true in the
business world. One wrong
move may compromise the
operations of a business or
affect the company’s position
in the market.
3
Quick Look
Securities and Exchange Commission

The Securities and Exchange Commission (SEC) is a government agency
mandated to regulate corporations and financial institutions. It is also
established to protect the public from investing in scams and other
related fraudulent business activities.
4
Quick Look
Securities and Exchange Commission

To uphold its mandate, one of SEC’s tasks is to assess all the financial
statements submitted by corporations. The Securities Regulation Code
(SRC) ensures that financial reports are audited by independent Certified
Public Accountant (CPA). Moreover, the SRC Implementing Rules and
Regulations (IRR) contain conditions for internal record keeping and
accounting controls for businesses to follow.
5
Quick Look
Questions to Ponder
1. What is the function of the Securities and Exchange Commission?

2. What is the role of a Certified Public Accountant in performing the
mandate of the Securities and Exchange Commission?
3. How can the public benefit from the mandate of the Securities and
Exchange Commission?
6
Learning Competency
Solve exercises on accounting principles as applied in various

cases (ABM_FABM11-IIIb-c-16).
7
Learning Objectives
At the end of this lesson, you should be able to do the following:
● Give examples of transactions applying accounting concepts

and principles.
● Differentiate accounting concepts and principles.
● Analyze violations of accounting concepts and principles in
business transactions.
8
How do accounting concepts and principles
affect a business’ economic activities?
9
Application of Accounting Concepts and Principles
● sets of rules and guidelines that a business follows when

preparing financial reports
● ensure that a company’s reports are valid, reliable,
consistent, and comparable
10
11
Business Entity Mr. Wilkins owns an

Concept electronic company and
drives a personal luxury car.
Financial transactions must According to the business
be recorded separately entity concept, Mr. Wilkin’s
from those of its owners luxury car should not be
and other businesses. counted as part of his
company’s assets.
12
Monetary Unit Mr. Nagoya, the CEO of Tokyo

Concept Builders, invested additional
capital in the form of 20
hectares of land. Under the
Record only the monetary unit principle, the
transactions that can be said investment can not be
expressed in terms of a recorded unless there is a
currency. statement of value in terms
of a common monetary unit.
13
Going Concern
One of the branches of Star
Principle
Company will close because
of financial instability.
Assume that a business Shutting down one of its
entity will operate branches does not harm the
indefinitely. capacity of the other
branches to operate.
14
Time Period Principle Gamma Company rendered

services to Meta Company
in the second quarter; this
transaction must be
Financial transactions must reflected in Gamma
be reported in a standard Company’s income
period of time. statement for the said
quarter.
15
Objectivity Principle
Company NYZ was audited
by an external auditor and
was asked to provide
Financial reports must be customers' receipts to
validate its financial
based on solid evidence.
statements.
16
Cost Principle Roma Cleaning Services

bought equipment for
₱60,000 and is estimated to
Acquired assets, liabilities, be worth ₱30,000 in four
and equity investments years. The business should
should be recorded at their record the equipment at
original cost. ₱60,000 despite the price
adjustment in the future.
17
Accrual Accounting
JM Builders received an
Principle
electricity bill on December
26 and intended to pay it on
recording revenues when January 15. The bill should
earned and expenses as be recorded as an expense
incurred at year-end even if it is not
yet paid.
18
Revenue Recognition
Principle Mexico Auditing performed
services for Best Retails on
credit. Mexico Auditing
guides businesses on how
should recognize this
and when revenue is to be transaction as revenue even
recognized if it is not yet paid.
19
Check Your Progress
1
What is the difference between accrual accounting principle
and revenue recognition principle?
Answer area
20
Matching Principle Monday Company gives

bonuses to its employees
every year, paid in the
Revenues are reported following year. The business
together with related should record the bonus as
an expense in the same
expenses in the same
year that the employees
reporting period.
earned it.
21
Full Disclosure
Principle
O Company is involved in a
should include all relevant lawsuit. The business
and necessary information should disclose that it has a
relevant to the pending lawsuit that could
affect its financial situation.
understanding of the
financial statements
22
Conservatism Red Residences is in a

Principle lawsuit against its
● assets and revenue competitor. The business
should not be should not report possible
gains from the lawsuit
overstated
because the case hasn’t
● liabilities and expenses been decided on yet.
should not be Therefore, the gain is not yet
understated final.
23
Materiality Principle
Grace Company may not
depreciate an asset worth
₱200.00 over its useful life
companies can ignore some
of five years and may
misstatements if the impact
outright record it as an
is immaterial expense.
24
Philippine Financial Reporting Standards
Closer L
o ok
Businesses in the Philippines follow the Philippine Financial

Reporting Standards (PFRS) when preparing financial reports.
Most of the PFRS are adopted from the International Financial
Reporting Standards (IFRS), but some with modifications and
amendments. These standards are based on the Generally
Accepted Accounting Principles (GAAP).
25
Suspension of Trading of Shares of PAL Holdings in the PSE
Case Stu
dy
The trading of shares of PAL Holdings in the Philippine Stock

Exchange was suspended last June 18, 2021 because its
auditor, SyCip Gorres Velayo & Co. (SGV & Co.), was not able to
give an opinion on PAL’s audited financial statements.
Keren Concepcion Valmonte, “PAL share trading halted on audit disclaimer,” BusinessWorld, June 18, 2021,
https://www.bworldonline.com/pal-share-trading-halted-on-audit-disclaimer/, last accessed on March 11, 2022.
26
Case Stu
dy
The failure to give an opinion violates Rule 68 of the Securities

Regulation Code (SRC). Rule 68 requires all companies to
submit audited financial statements with an unqualified
opinion from their respective auditor.
27
Case Stu
dy
An unqualified opinion from an auditor means that the

financial reports submitted to them were accurate and fair.
To cite SGV & Co., the auditing firm was “unable to obtain
sufficient appropriate audit evidence” for an opinion on PAL’s
financial statement.
28
Case Stu
dy
The role of auditors and the Securities and Exchange

Commission is important because they ensure that
companies present their financial reports accurately and
fairly.
29
Keep in Mind
● Accounting is driven by various concepts and principles that

businesses must adhere to when dealing with financial
information. These guidelines are essential to guarantee that
statements are comprehensive and constant.
30
Keep in Mind
31
Keep in Mind
● Accounting concepts and principles guide businesses in

analyzing economic events and when preparing financial
reports. They help companies track errors and avoid
fraudulent activities.
32
Try This
True or False.
1. Personal transactions made by the owner cannot be

recorded in the business’s accounting books.
True False
33
Try This
True or False.
2. A business may remove financial data that may affect the

image of the business among its users.
True False
34
Try This
True or False.
3. An asset that has a negligible impact on the business’s

financial statements can be reported as an expense.
True False
35
Try This
True or False.
4. A business purchased insurance that is good for one year

and recorded expenses right away.
True False
36
Try This
True or False.
5. When a business paid rent in advance, the cost of rent that
should be recorded as an expense is equivalent to the
worth of a prepaid rent that expired.
True False
37
Practice Your Skills
Correct the sentences to make them adhere to accounting concepts and
principles and make the transactions valid.
1. White Logistics suffered from losses due to low demand. Its

cash flow is below target and all measures have been taken
into consideration. The owner took the advice of the
financial manager to permanently suspend operations.
Answer area
38
Practice Your Skills
Correct the sentences to make them adhere to accounting concepts and
principles and make the transactions valid.
2. Bright Tutorial Service purchased land worth ₱560,000.00.

It is estimated that the price of the land two years from
now will be ₱880,000.00. The business recorded land as
₱880,000.00 since land is known to appreciate over time.
Answer area
39
Challenge Yourself
Answer the following questions.
1. What do you think are the challenges that businesses face
when implementing the rules and regulations in reporting
financial data?
Answer area
40
Challenge Yourself
Answer the following questions.
2. Choose an accounting concept or principle and provide a

business transaction where it should be applied.
Answer area
41
Photo Credits
Slide 1: money-profit-finance-business-2696228.jpg, by nattanan23 is licensed under Pixabay License via Pixabay.
Slide 2: compliance-observance-consent-5899190.jpg, by geralt is licensed under Pixabay License via Pixabay.
Slide 3: startup-whiteboard-room-indoors-3267505.jpg, by StartupStockPhotos is licensed under Pixabay License via

Pixabay.
42
Bibliography
Accounting Tools, Inc. “Basic Accounting Principles”. Last modified June 15, 2021.
https://www.accountingtools.com/articles/2017/5/15/basic-accounting-principles
“Mandate, Mission, Values and Visions.” Securities and Exchange Commission. Accessed January 28, 2022.
https://www.sec.gov.ph/about-us/mandate-mission-values-and-vision-2/.
Valmonte, Karen Concepcion. “PAL share trading halted on audit disclaimer. BusinessWorld, June 18, 2021.
https://www.bworldonline.com/pal-share-trading-halted-on-audit-disclaimer/.
Wood, Frank, and David Horner. Business Accounting Basics. Harlow: Pearson Education Limited, 2010.
43

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Lesson 4.

Fundamentals of Accountancy, Business,

Securities and Exchange Commission

Securities and Exchange Commission

1. What is the function of the Securities and Exchange Commission?

Solve exercises on accounting principles as applied in various

At the end of this lesson, you should be able to do the following:

● Give examples of transactions applying accounting concepts

● sets of rules and guidelines that a business follows when

Business Entity Mr. Wilkins owns an

Monetary Unit Mr. Nagoya, the CEO of Tokyo

Time Period Principle Gamma Company rendered

Cost Principle Roma Cleaning Services

Matching Principle Monday Company gives

Conservatism Red Residences is in a

Businesses in the Philippines follow the Philippine Financial

The trading of shares of PAL Holdings in the Philippine Stock

The failure to give an opinion violates Rule 68 of the Securities

An unqualified opinion from an auditor means that the

The role of auditors and the Securities and Exchange

● Accounting is driven by various concepts and principles that

● Accounting concepts and principles guide businesses in

1. Personal transactions made by the owner cannot be

2. A business may remove financial data that may affect the

3. An asset that has a negligible impact on the business’s

4. A business purchased insurance that is good for one year

1. White Logistics suffered from losses due to low demand. Its

2. Bright Tutorial Service purchased land worth ₱560,000.00.

2. Choose an accounting concept or principle and provide a

Slide 1: money-profit-finance-business-2696228.jpg, by nattanan23 is licensed under Pixabay License via Pixabay.

Slide 2: compliance-observance-consent-5899190.jpg, by geralt is licensed under Pixabay License via Pixabay.

Slide 3: startup-whiteboard-room-indoors-3267505.jpg, by StartupStockPhotos is licensed under Pixabay License via

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