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Acctg Book Summary
Acctg Book Summary
ACCOUNTING is “the process of identifying, measuring and communication economic information to permit informed
judgments and decisions by users of the information’s.” –(American Association of Accountants)
1. Identifying
2. Measuring
3. Communicating
IDENTIFYING is the process of analyzing events and transactions to determine whether or not they will be recognized.
Recognition refers to the process of incorporating the effects of an accountable event in the financial statements
through journal entry.
Only accountable events are recognized (i.e., journalized).
- An accountable event is one that affects the assets, liabilities, equity, income or expenses of an entity. It is
also known as economic activity, which is the subject matter of accounting. Only economic activities are
emphasized and recognized in accounting.
- Non-accountable events are not recognized but disclosed only in the notes, if they have accounting
relevance.
1. External events – are events that involve an entity and another external party.
i. Exchange (reciprocal transfer) – an event wherein there is a reciprocal giving and receiving of economic
resources or discharging or economic obligations between an entity and an external party.
Examples: sale, purchases, payment of liabilities, receipt of notes receivable in exchange for accounts
receivable, and the like.
ii. Non-reciprocal transfer – is a “one way” transactions in that he arty giving something does not receive anything
in return while the party receiving does not give anything in exchange.
Examples: donations, gifts or charitable contributions, payment of taxes, imposition of fines, theft,
provision of capital by owners, distribution to owners, and the like.
iii. External event other than transfer – an event that involves changes in the economic resources or obligations of
an entity caused by an external party or external source but does not involve transfer of resources or obligations.
Examples: changes in fair values and price levels, obsolescence, technological changes, vandalism, and the
like.
2. Internal events – are events that do not involve an external party,
i. Productions – the process by which resources are transformed into finished goods.
Examples: conversion of raw materials into finished goods, production of farm products, and the like.
ii. Casualty – an unanticipated loss from disasters or other similar events.
Examples: loss from fire, flood, and other catastrophes
MEASURING involves assigning numbers, normally in monetary terms, to the economic transactions and events.
Several measurement bases are used in accounting which include, but not limited to, historical cost, fair value, present
value, realizable value, current cost, and sometimes inflation-adjusted cost. The most commonly used is historical cost.
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
Financial statements are said to be prepared using a mixture of cost and values. Cost include historical cost and current
cost while values include the other measurement bases.
When measurement is unaffected by estimated, the items measured are said to be valued by fact.
COMMUNICATING is the process of transforming economic data into useful accounting information, such as financial
statement and other accounting reports, for dissemination to users. It also involves interpreting the significance of the
processed information.
1. Recording – refers to the process of systematically committing into writing the identified and measured
accountable events in the journal entries.
2. Classifying – involves the grouping similar and interrelated items into their respective classes through posting in
the ledger.
3. Summarizing – putting together or expressing in condensed form the recorded and classified transactions and
events. This includes the preparation of financial statement and other accounting reports.
Interpreting the processed information involves the computation of financial statement ratios.
Accounting involves the activities of identifying, measuring, and communicating information that is usefuol in
making economic decisions.
Recognition refers to the process of incorporating the effects of an accountable event in the financial statements
through journal entry.
External events are events which involve an entity and another external party. It includes (a) exchanges, (b) non-
reciprocal transfer, and (c) external events other than transfers.
Internal events are events which do not involve an external party. It includes (a) production and (b) casualties.
Measuring is the accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events. Several measurement bases are used in preparing financial statements.
Financial accounting is the branch of accounting that focuses on the general-purpose financial statements.
General purpose financial statements are those that cater to the common needs of a wide range of external
users.
External users are those who do not have the authority to demand financial reports tailored to their specific
needs.
The four sectors in the practice of accountancy are: (a) academe, (b) commerce and industry, (c) academe, and
(d) government.
The accounting standards used in the Philippines are the PFRSs, which are based on the IFRSs. The PFRSs
comprise the following: (1) PFRSs, (2) PASs, and (3) Interpretations.
The Financial Reporting Standards Council (FRSC) is the official accounting standard setting in the Philippines.
Financial reporting standards continuously change primarily in response to users’ needs.