DISCUSSION NO.
3 - Revenue and Expenses
Conceptual Framework and the Accounting
Process
1. These are the means by which
information accumulated and
processed in financial accounting is
periodically communicated to users.
FINANCIAL STATEMENTS
- refers to how the accounting
information is communicated
(method)
- the ultimate goal of financial
accounting
- to make efficient and effective
business decisions
2. These are statements that have been
prepared for use by those who are not
in a position to require an entity to
prepare reports tailored to their
particular information needs.
GENERAL PURPOSE FINANCIAL
STATEMENTS
- Ones which are released to the
public
- Objective
- End goal of financial accounting –
preparation general purpose
financial statements
- Special purpose FS are those
specifically tailored for a particular
function/user. Primarily for internal
users. Tax schedule, employee
schedule, schedule of real estate
tax.
3. Enumerate the components of a
complete set of financial statements.
a. Statement of Financial Position
- Assets, Liabilities and Owner’s
Equity
b. Statement of Comprehensive
Income/Financial Performance
c. Statement of Changes in Equity
- Involves the investments and
drawings
d. Statement of Cash Flows
- Classify the cash transactions
(operation, investing and financing)
- Involves the flow of cash in the
entity
e. Notes to Financial Statements
- Contains supplemental information.
- Primarily disclosures.
4. Who has the primary responsibility for
the preparation and presentation of the
financial statements of an entity?
REPORTING ENTITY/MANAGEMENT
- They are liable because they are the
ones making the decision.
5. In order to achieve fair representation
of financial statements the same should
be prepared in accordance with
_____________.
PHILIPPINE FINANCIAL REPORTING
STANDARDS (PFRS)
- To be able to compare a set of
accounting information with the
standards.
6. This means that income is recognized
when earned regardless of when
received and expense is recognized
when incurred regardless of when paid.
ACCRUAL ACCOUNTING
- We do not care about cash
7. An entity shall present a complete set
of financial statements at least
________.
ANNUALLY/ONCE A YEAR
- The GAAP requires the entity to
present a complete set of financial
statement at least once a year.
 - The entity is not in violation when
preparing the statements monthly,
quarterly and etc.
8. This is a complete, comprehensive and
single document promulgated by IASB
establishing the concepts that underlie
financial accounting.
CONCEPTUAL FRAMEWORK FOR
FINANCIAL REPORTING
- GAAP VS CF
 Reconcile the two of them. The
CF was made with the GAAP in
mind.
 Exercise professional judgment
9. Enumerate the ingredients of Faithful
Representation.
a. Completeness
- There are no hidden transactions.
b. Neutrality
- Not biased, objective
c. Freedom from Error
- No errors or omissions, no
manipulation
10. It is a pervasive constraint on the
information that can be provided by
financial reporting.
COST CONSTRAINT
- There is a trade-off. For the most
honest accountants are expensive.
- It is a bottle-neck, a hindrance to
accurate financial accounting.
- It is that the benefits of information
should exceed its cost. Information
that would be useful for a decision
may be just too expensive to justify
providing it.
11. Which accounting concept holds that to
the maximum extent possible, values
on the financial statements shall be
based on arm’s length transactions?
VERIFIABILITY
12. Changing the method of inventory
valuation should reported in the
financial statements under what
enhancing quality of accounting
information?
COMPARABILITY
13. It requires that relevant information
should be presented in a way that
facilitates understanding and avoids
erroneous implications. It is the result
of the principle of adequate disclosure.
COMPLETENESS
14. Comparability within an entity is the
quality of information that allows
comparisons within a single entity
through time or from one accounting
period to the next. Another term for
comparability within an entity is
__________.
HORIZONTAL
COMPARABILITY/INTRACOMPARABILITY
15. This is the process of reporting an asset,
liability, income or expense on the face
of the financial statements of an entity.
RECOGNITION
- We do not recognize items in the
notes to financial statements (but
relevant)
- Opposite of Recognition is
Disclosure
16. These refer to the quantitative
information shown in the statement of
financial position and statement of
comprehensive income.
ELEMENTS OF FINANCIAL STATEMENTS
17. It is a present obligation of an entity
arising from past events, the settlement
 of which is expected to result in an
outflow from the entity of resources
embodying economic benefits.
LIABILITY
18. Enumerate the general criteria used to
recognize a particular element of
financial statements.
a. Probable
- It is probable that any future
economic benefit associated with
the item will flow to or from the
entity.
b. Reliably Measureable
- The item has a cost or value that
can be measured with reliability.
19. In accordance with the income
recognition principle, for income to be
recognized, it should be probable that
future economic benefits will flow to
the entity as a result of an increase in
______ or a decrease in ______.
ASSET – LIABILITY
20. These represent items that meet the
definition of income but do not arise in
the course of the ordinary regular
activities.
GAINS
- Income encompasses both revenue
and gains.
- Revenue – any income earned from
the normal business operations.
21. Give at least 3 examples of expense
that may be recognized as such in the
financial statements.
a. Utilities Expense
b. Supplies Used/Supplies Expense
c. Salaries and Wages/Salaries
Expense
22. This is the process of determining the
monetary amounts at which the
elements of financial statements are to
be recognized and carried in the
statement of financial position and
statement of comprehensive income.
MEASUREMENT/MEASURING
23. It is the system of collecting and
processing transaction data and
disseminating financial information to
interested parties.
ACCOUNTING INFORMATION SYSTEM
24. It is a set of data gathering, analyzing,
and reporting functions designed to
provide management with the
information it needs to carry out its
functions.
MANAGEMENT INFORMATION SYSTEM
25. These are the specific principles, bases,
conventions, rules and practices applied
by an entity in preparing and presenting
financial statements.
ACCOUNTING POLICIES
- Are set of standards that govern
how a company prepares its
financial statements.