Introduction to Accounting Terminologies

INTRODUCTION TO ACCOUNTING

I. BASIC PRINCIPLES OF ACCOUNTING

a. Cost Principle

- This is the concept where a business should only record its assets, liabilities, and equity investments at

their original purchase costs rather than on their market value.

b. Accrual Principle

- This is the concept where a business should record transactions in the period when they actually occur,

rather than in the periods when there are cash flows associated with them.

c. Revenue Principle

- This is the concept where a business should only recognize revenue when the business has
substantially

completed the earnings process.

d. Matching Principle

- This is the concept where a business should record all expenses for a period that are associated with
the

revenue on the same period.

e. Full Disclosure Principle

- This is the concept where a business should communicate all materials and relevant facts concerning
the financial statements to all its users.

II. BASIC ASSUMPTION IN ACCOUNTING

a. Monetary Unit Assumption

- This is the concept where a business should only record transactions that can be stated in terms of a
unit of currency. This concept keeps a business from engaging in an excessive level of estimation in
deriving the value of its assets and liabilities.

b. Time Period Assumption

- This is the concept where a business should report the results of its operations over a standard period
of time.

c. Business Entity Assumption

- This is the concept where a business should keep separate the transactions of a business from those of
its owners and other businesses. This prevents intermingling of assets which can cause considerable
difficulties when the financial statements of a fledgling business are first audited.

d. Going Concern Assumption