Aguinaldo, Kathreen L.

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1. Goods are sold on August 10,2019 for P25,000 but payment will be received on 9 September 2019.
The sales revenue is recorded in August 2019.

*The Accounting concept referred to the given example is Accrual Basis of Accounting. Under this
concept, it records accounting transaction for revenue when it is earned and expenses when incurred.
Case is applied as Accrual Basis of Accounting because even though the payment from the goods that
has been sold will be received on the 9th of September 2019 which is next month, the sales revenue has
been recognized and recorded in the month of August 2019 which when the goods are sold with the
payment of P25,000. The significance of this concept is that it provides more accurate measure of a
company’s profitability into account all revenue and expenses regardless of cash collections and
expenditures.

2. Mr Accounting started business investing P300,000. He purchased furniture for P150,000 and goods
intended for sale P50,000 and P100,000 remain on hand. After on month of operation, he takes away
goods costing P5,000 and cash P15,000. The transaction was recorded as his Drawings.

*Separate Entity Concept was referred the the given example. With this concept, the business and the
owners of the business are separate from each other. Only the transaction of the business are recorded
in the books of accounts while the personal transactions of the owner are not recorded. The concept is
applied because as he took away goods that cost P5,000 and cash P15,000 he recorded it as
Withdrawals. So, there is a recognition of the goods and cash that was took off from the business that
recorded as drawings and not owned by the business anymore. Separate Entity concept is essential
because the financial position and performance of the business can be measured properly and by
applying it, you’ll know whether the business is earning or not.

3. XY Company purchased a machine for P250, 000. An amount of P2,500 was spent on transporting the
machine to the factory site. In addition P2000 were spent on installation. The total amount at which the
machine will be recorded in the books of account would be the sum of all the items. The market price of
the machine is P300,000.

*The Accounting concept referred to the given example is historical Cost concept. Under this concept,
assets are initially recorded at their original cost. It is applied in the given example because the machine
that will be recorded in the books of account would be the sum of all the items which is P250,000. It will
be recorded at the value at which it was purchased rather than the market price which is P300,000. It is
significant for it is used to reflect the amount of capital expended to acquire an asset and useful for
matching against changes in profits or expenses relating to the asset purchased as well as for
determining past opportunity cost.