FINANCIAL ACCOUNTING AND REPORTING
entity’s assets, liabilities or equity
Definition of Accounting:
ACCOUNTING STANDARDS COUNCIL
 Is a SERVICE ACTIVITY / professional
 Provided by a certain person (which is the
accountant)
 Provides quantitative financial information
about economic entities needed in making
economic decisions
Accountants – distributes the report/ information
primarily quantitative in nature to make economic
decision by user of information
 Primary purpose is to provide
information to be used in making
economic decision by the users of
reports
Accounting Standards Council (ASC) – former standard
setting body in the Philippines
COMMITTEE ON ACCTG
TERMINOLOGIES OF AICPA
 Is the ART of recording, classifying and
summarizing financial information (primarily
quantitative in nature) and interpreting the
results
AMERICAN ACCOUNTING ASSOCIATION
 Is the PROCESS of identifying, measuring and
communicating economic information to permit
informed judgment and decision by users of
information
Key take away:
1. Accounting is used-based discipline.
 User of the reports is the boss; no user
no report (which is FS)
 Financial Statement is the main output
of accounting
2. Accounting is quantitative in nature.
3. Accounting is subject to interpretation.
 Subject to analyzation
 Subject to interpretation by different
users
Three Aspects of Accounting Process
1. Identifying Process (Analytical Component) –
analyzing events or transactions to determine
whether they will be recognized or not
 Recognition process – is journalizing
the transaction or event
 Accountable Events – ang
nirerecognize; these are events or
transactions that has an impact on
 Non-accountable events – are not
recognized but are disclosed to notes to
financial statements if they are relevant,
if not relevant or material, ignore
completely
 it is Subjective (isinasalang alang ang
kapakanan ng users) – should beneficial
to the users
Type of Accountable Events:
 External Events – involving the entity
and another entity, it is a man-made
transaction
o Exchange – Reciprocal transfer
(give and take), ex. Sales
o Non-reciprocal Transfer – one
way transaction (it’s either may
magbibigay pero wala ka
marereceive or may nareceive
ka pero wala ka binigay), ex.
donation, payment of taxes,
theft
o External Events other than
transfer – walang transfer na
naganap pero nagkaroon ng
change sa resources ng entity,
ex. change in fair value,
vandalism
Transfers can be voluntary or
involuntary. Ex. of involuntary transfer
is theft.
 Internal Events – do not involve
outside party (transactions or events
were made because of the entity itself),
ex. production, casualty (nonman made
transaction)
2. Measuring Process (Technical Component) –
process of determining the monetary amounts
 Assigning amounts to items the entity
recognized
 Comes after identification process
 With technical basis (standard, source,
documents, etc.)
3. Communicating Process (Formal
Component) – preparing & distributing of
accounting reports to users of accounting
information
 Formal Presentation – nawawala ang
reliability kapag hindi formally
presented
Republic Act 9298 – also known as the Philippine
Accountancy Act of 2004
 Law regulating the practice of
accountancy
Philippine Regulatory Board of Accountancy
(PRBOA) – authorized by law to promulgate the rules
and regulations
Fields of Accountancy:
1. Public Accountancy (Public Interest) –
rendering of accounting & auditing service to
one or more client on a fee basis
Auditing – common service, external
auditing
 Verify the financial information
contained on FS
 Opinion of auditor as to the
fairness of FS (auditor’s report)
Attest Function of CPA in public
practice – nagpapaiba sa public
practice sa lahat ng fields of
accountancy
 Give statement related to the
statement given by the other
(confirmation)
Management Advisory Services – no
precise coverage, can tackle anything
related to business
 Helps client on its problem,
maximize its resources and
achieve its goals
Taxation
 Compliance – preparation of the
tax return
 Planning – practitioner & the
client plans the taxes that the
company will pay in the future;
process on how to reduce taxes
legally
Limitations:
Certificate of Accreditation
 Requires 3 years of meaningful
experience
 Compliance of certain CPD units (120
credit units)
NO CORPORATION FORM is allowed to be
registered for the practice of public accountancy
2. Private Accountancy – employment in the
private sector (accounting field)
Controller – highest accounting officer
in a business organization (Chief
Accountant)
3. Education/ Academe – employment in an
education institution which involves teaching of
board exam subjects, finance & other related
subjects
4. Government – employed in the government to a
position in an accounting profession related or
taxation
Philippine Financial Reporting Standards (PFRS) –
laws in accounting used as a guide in preparation of FS
 Principle Based rather than rule
based – guiding principle rather than
law
 Pwdeng hindi sundin pero need ng
detailed explanation kung bakit hindi
sinunod at kung anung treatment and
sinunod
 Considered as generally accepted
accounting principle (GAAP)
 Sets out recognition, measurement,
presentation and disclosure requirements
dealing with specific transactions and
events that are important in general
purpose financial statement
 Apply to all profit-oriented entity in
preparing general purpose FS
(regardless of ownership)
 Specific/ special purpose FS – internal
reporting (management)
 General Purpose FS – sakop ng PFRS,
external reporting (external users,
directed toward the common
information needs of a wide range of
users
Structure of PFRS
1. Title
2. Objective (goal of the standard)
3. Scope (any limitation of the scope of
PFRS is made clear in the standard)
4. Paragraph (provision)
 BOLD TYPE – indicates Main
Principle
 PLAIN TYPE – indicates
supporting principle
 Have equal authority
Standard Setting Bodies
FRSC (2006
IASB (2001 est)
est)
Financial International
Reporting Accounting
 Standard Standard APO – Accredited Professional Organization (PICPA)
Council Board
Setting Local Intenational  The chairman & all the members of FRSC are
Successor of ASC IASC appointed by the PRC upon recommendations of
Pronouncement PFRS IFRS BOA in accordance with APO, with 3 years term
Creator BOA (2006) IFRS (2001) and renewable for another term (which is 3
years)
 Interpretations are issued to give authoritative  Any member of the ASC is not disqualified from
guidance on issues that are likely to receive being appointed to FRSC
divergent or unacceptable treatment, in the  FRSC members are required to render service to
absence of such guidance the council on a part-time basis without
o Papasok on issues/transactions na hindi compensation
specifically inaddress ng PFRS  The chairman should be a senior practitioner in
Philippine Interpretations Committee (PIC) – any scope of accounting practice
nagseset ng interpretations, created by FRSC
FRSC ASC Standard Setting Process (Social Process)
Creator BOA PICPA (1981) PFRS are developed through a due process that
Pronouncement PFRS PAS involves accountants & various interested parties or
8 members individuals
15 members +
Composition including
Chairman Step 1: Consideration of the pronouncements of
Chairman
Board of IASB
1 1  Ang FRSC as much as possible ay hindi
Accountancy
Bangko Sentral ng gumagawa ng sariling standard, galing
1 1 sa IASB
Pilipinas (BSP)
Bureau of Internal Step 2: Formation of task force, when deemed
1 - necessary, to give advice to FRSC
Revenue
Commission on Step 3: Issuing for comment an exposure draft
1 - approved by a majority of the FRSC member
Audit
APO (Public  Exposure draft – distribute to various
Practice, Private interested party to have them a glimpse
Accountancy, 8 4 (ano ung initial standard na iaapprove/
Academe, iseset ng FRSC)
Government)  Comment Period – 60 days, short period
Major Org. of FS appropriate by FRSC not less than 30
1 1 days (minimum of 30 days, maximum of
users
Security and 60 days)
Exchange 1 1 Step 4: Consideration of all comments received
Commission within the comment period, and when appropriate,
Insurance preparing a comment letter to IASB
1 - Step 5: Approval of a standard or an interpretation
Commission
by a majority of the FRSC members (8 members may
approve the standard)
IFRS – global phenomenon, promote uniform
accounting standard all over the world
Conceptual Framework for Financial Reporting
PFRS is collectively known as:
 Summary of general terms and concepts that
 PFRS – nasa loob pa din nia lahat ng standard na
underlie the preparation & presentation of FS
ginawa ng lumang standard setting body,
 General purpose FS (including consolidated FS
 PAS – tawag sa standard na ginawa ng ASC
– same scope as PFRS
 Philippine Interpretations
 Commonly known as Mother Standard – lahat
o They have same level of authority
ng standard na sineset is nakapattern sa
conceptual framework
PAS – ang gagamitin na standard hanggat walang
bagong standard na nagagawa ang FRSC
  Decision Usefulness – underlying theme of
framework; usefulness of information in making
economic decision
 guide in developing future PFRS and in
resolving accounting issues not directly
addressed by existing PFRS (Basic Purpose)
Hierarchy:
1. Direct Standard (specific) PRFS
2. Related standard
3. Conceptual Framework (general terms &
concept)
4. Other GAAP
5. Accounting Literature
Specific Purpose:
1. Assist:
a. FRSC – developing future PFRS
and reviewing existing PFRS
 Promoting harmonization
of regulations, accounting
standards & procedures
relating to the
presentation of FS
b. FS preparers – applying PFRS
c. FS users – interpreting information
in FS
d. Auditors – forming an opinion as to
whether the FS conforms with PFRS
2. To provide information to those who are
interested with the work of FRSC
a. Conceptual Framework is not a
PFRS.
 Nothing in the
conceptual framework
can override any specific
provision of any specific
PFRS
 If there is a conflict, the
requirements of the PFRS
(specific concept) shall
prevail over the
conceptual framework
(general concept)
 Conceptual framework is
not applicable if it can’t
result to a reliable and
relevant information
Underlying Assumption (postulates) – basic notions or
fundamental premises on which the accounting process
is based
 Concepts or theories kung saan
nkapattern or nakabased ang accounting
process
Going Concern (continuity assumption) – recognized
by the new conceptual framework as the only underlying
assumption
 Assumes that the business will continue
to operate indefinitely
 It is the foundation of Cost Principle
Examples of Going Concern:
1. Classification of current and non-current asset &
liability
Current – makoconsume, marerealize,
or expected to be paid within one
reporting period (1 year)
Non-current – makoconsume,
marerealize or expected to be paid for
more than 1 reporting period
2. Accrual of income and expenses and
prepayments and unearned income
3. Depreciation of PPE, amortization of intangible
asset – cost allocation for proper valuation of
asset
Accrual Principle – income is recognized when earned
rather that when received/ collected; expense is
recognized when incurred rather than when paid
Accounting Entity – entity is viewed separately from its
owner
 Business entity concept – business is
considered as an artificial being
Time Period Principle – supports going concern
principle
 Life of entity is divided into series of
reporting period (12 months ang may
either be Calendar year or fiscal year)
Calendar Year – ends December 31
 Pwdeng hindi 1-year ang reporting
period for the first year of business
 Kahit mag start ng ex. March, December
pa din ang end
Fiscal Year – ends 1 year after the beginning of
the operation (ex. March 2021 start, March 2022
ang end, lagging 1 year
Monetary Unit Principle (support cost principle) –
accounting information should be stated in a common
measurement basis (Philippine Peso)
 Purchasing power of peso is regarded as
Constant
 Stability of monetary unit –
disregarded any changes in purchasing
power
 Identifiability – identifies what
measurement to be used

 PRFS and conceptual framework applies to all
profit-oriented entities regardless of ownership
 PFRS prevails over the Conceptual Framework
 Old conceptual framework – divided into 5
chapters
 New Conceptual Framework – divided into 8
chapters
Scope of Conceptual Framework for Financial
Reporting
Chapter 1: Objective of Financial Reporting
(Foundation of Conceptual Framework) – financial
reports are addressed to the USERS
Classification of USERS:
1. Primary users – primarily or directly addressed
to them
 INVESTORS (constitute the EQUITY)
 LENDERS/ OTHER CREDITORS
(constitutes the LIABILITY)
Provides resources to the entity
2. Other users
 EMPLOYEES – stability and
profitability
 CUSTOMERS – long term relationship
 GOVERNMENT – regulatory, paying
the correct taxes
 PUBLIC – various
 For LENDERS (makapagbayad ng utang plus
interest)
o LIQUIDITY – ability of the entity to
pay its currently maturing obligations
(short term loans)
o SOLVENCY – ability to pay short term
as well as long term obligation (ability
to pay all of its obligation)
Over all Objective of Financial Reporting
 Provide financial information about the entity
that is useful to primary users (investor, lenders
& other creditors) in making economic decisions
whether or not they will provide resources to the
entity
Specific Objective (PAR)
 Providing resources
 Assessing cash flows
 Resources, claims and changes in resources and
claims of entity
o Hindi ibig sabihin na profitable na ang
entity ay stable na din ang kanyang net
cash flows
Limitations:
 Can’t provide all information because it is for
general purpose financial statements
 Can’t show the exact/ true value of the entity –
but helps estimates
 General purpose financial reports are based on
estimates and judgment rather than exact
depiction
Chapter 2: Qualitative Characteristics of Useful
Information – what type of information should the
financial reports contain
Fundamental Qualitative Characteristics
 Qualities that make the information useful to the
users
 Addresses the Content or Substance of
Information (ano dapat ang ireport)
Ingredients:
RELEVANCE – capacity of information to change
decision made by the user
Predictive Value – ability of information in
predicting or forecasting outcome of events
Confirmatory Value – information enables
users to conform or correct earlier expectation
 In order for the information to be relevant it
must have both Predictive and Confirmatory
Value
 Materiality is NOT an ingredient of relevance
but as a SPECIFIC ASPECT (all material
information are relevant but not all relevant
information is material)
 Information is useful if it is being addressed by
the FUNDAMENTAL QUALITATIVE
CHARACTERISTIC. It is useful if it is relevant
and faithfully represented.
 Bago maging material ang information kelangan
muna may mawala/magkamali pare marealize na
useful ito. Materiality is based on JUDGMENT.
Factors to be considered:
 Relative size of the item in
relation to the total of the group
to which the item belongs –
Materiality is NOT based on
 absolute size but on relative size
(need to compare to others)
 Nature of the item – regardless
of the size, if the value of the
item is material, then it is
material
FAITHFUL REPRESENTATION (new term for
RELIABILITY) – tapat na pamamahayag (will result to
a RELIABLE INFORMATION)
3 Ingredients:
1. COMPLETENESS – kelangan complete in
details kasi kapag kulang magkakaroon ng doubt
2. NEUTRALITY – without BIAS
3. FREE FROM ERRORS – no error
Not an ingredient of Faithful Representation but
SPECIFIC ASPECT:
 SUBSTANCE OVER FORM – if there is a
conflict between substance and form, substance
shall prevail over the legal form
 CONSERVATISM – if you have alternatives,
always choose the alternative that has a least
impact on your equity (recognize probable/
possible losses but not recognize possible gains)
Enhancing Qualitative Characteristics (V-CUT) –
enhances the usefulness of information, supports
fundamental qualities
 Addresses the form or presentation of
information (paano dapat ireport)
VERIFIABILITY – implies consensus (different
knowledgeable & independent observers are agreeing
on something)
COMPARABILITY – identifies similarities &
differences between different sets of information
provided
Intra-comparability – same entity but different
periods are presented (financial acctg focuses on this)
Inter-comparability – same period but different
companies are reporting
Ingredients of Comparability:
a. Consistency
b. Reporting Period
UNDERSTANDABILITY – financial information must
be comprehensible or intelligible if it is to be useful
(have at least basic knowledge in accounting)
TIMELINESS – having information available to
decision makers in time to influence their decision
(nawawala ang usefulness ng information kapag hindi
napresent timely)
Chapter 3: Financial Statements & Reporting Entity
– addresses who reports and saan ilalagay ung useful
information na nirereport sa user
Financial Statement – report containing the
useful information to be reported to the users
 Contains purely financial information
 Contains the element of FS
Reporting Entity – an entity who must or
choose to prepare the FS and is not necessarily a legal
entity
 CONSOLIDATED – applies to parent
& subsidiary report
 UNCONSOLIDATED – applies to
parent report only
 COMBINED – applies to report of two
reporting entity not linked by parent-
subsidiary relationship
Chapter 4: Elements of Financial Statement –
quantitative information shown in the statement of
financial position & statement of comprehensive income
a. Assets shown in Financial Position
b. Liabilities (Balance Sheet)
c. Equity
d. Income shown in Fin. Performance
e. Expense (Income Statement)
ASSETS – resources controlled by the entity as a result
of a past event that brings economic benefit to the entity
Characteristics:
a. Controlled by the entity – power to govern
economic benefits and restricting others to enjoy
the same benefit
b. Result of a past transaction or event (can’t
arise from future event) – walang magiging asset
kung wala pang nangyayari; nagkakaroon lang
sa mga transaction/ event na nangyari na
c. Provides future economic benefits
Not essential characteristic of Asset:
a. Tangibility – hindi required para maging
asset; kelangan may Physical Form
 b. Ownership – need lang controlled ng entity,
may mga asset na hindi owned ng entity
pero controlled
LIABILITIES – present obligation of an entity to
transfer economic resources as a result of past events
Characteristics:
a. Present Obligation – obligation NGAUN but
not necessarily na ngaun isesettle (pwde isettle
sa future)
b. Arises from past transaction/ events – same
with asset
c. Settlement of Liability requires an
OUTFLOW OF RESOURCES
EQUITY – residual interest in the asset of an entity after
deducting all of its assets
 Also known as NET ASSETS
ASSET is directly related to EQUITY.
LIABILIITY is inversely related to EQUITY.
INCOME – increase in equity resulting from increase in
asset of decrease in liability
 Increase in equity other than owner’s transaction
(contribution or withdrawal)
 Encompasses Revenue and Gains
Revenue – arises from ordinary course of
business; presented in the FS at GROSS
AMOUNT
Gains – arises from incidental or peripheral
operations; presented in the FS at NET
AMOUNT (net of direct cost)
Comprehensive Income:
a. Profit or Loss
b. Other Comprehensive Income
General Rule:
Income is part of Profit or Loss unless it will be
classified as OTHER COMPREHENSIVE INCOME.
OTHER COMPREHENSIVE INCOME:
1. Unrealized gain or loss on Financial Asset
measured at Fair Value through OCI (ex.
investment in equity & debt securities)
2. Gains or loss on translating financial statement
of foreign operations – lumalabas kapag
tinatranslate ung FS into functional currency
Transaction Gain/Loss – Profit/ Loss
Translating Gain/ Loss - OCI
3. Revaluation Surplus during the year
4. Unrealized gain or loss from derivative contracts
designated as cash flow hedge
Cash flow hedge – OCI
Fair Value hedge – Profit/ Loss
5. Remeasurement of defined benefit plan
including actuarial gains or loss on defined
benefit obligation
EXPENSE – decrease in equity other than owner’s
transaction
 Encompasses both expense (arise from normal
course of business) and losses (arise from
incidental operation of business)
Chapter 5: Recognition & Derecognition
Recognition – process of reporting the elements on the
face of the FS of an entity
 Item is recognized when it is reported in the face
of FS
Criteria:
a. Meet first the definition of an asset,
liability, income and expense
b. Recognizing it would provide useful
information
 Recogntion criteria applies only to asset,
liability, income or expense. There is NO
EQUITY RECOGNITION CRITERIA
(because it is a residual interest)
Expense Recognition Principle – application of
MATCHING PRINCIPLES
Matching Principles – recognizing expense as
you recognized revenue (matching the cost to the related
revenue)
 There is no cost if there is no revenue
3 Applications:
1. Cause and Effect Association (Strict Matching)
2. Systematic and Rational Allocation – expense
recognition is based on COST ALLOCATION
over the number of years (ex. Depreciation)
3. Immediate Recognition – recognized expense
because you already incurred it without any
recognition of related revenue
Derecognition – opposite of Recognition
 Removal of an item from the FS
 Occurs when the item no longer meets definition
of asset, liability, income or expense
 Every time there is derecognition, it will create
income or expense
  Derecognizing an item if you are transferring the flow from continually using it/ expected to
control (for asset) obliged the liability
 NOT ALL TRANSFERS REQUIRE
DERECOGNTIION Current Cost – updated historical cost (magkano ang
item kung bibilhin ko today); difference in timing
Chapter 6: Measurement – process of determining or
assigning MONETARY AMOUNTS on elements of FS Chapter 7: Presentation & Disclosure
(recognized elements)  General presentation and disclosure concepts
 Focus on presentation and disclosure objectives
Under old conceptual framework: rather than rules
a. Historical Cost  Classify information (sorting of elements with
b. Current Cost similar nature, function & measurement basis
c. Realizable Value (grouping of item)
d. Present Value – most relevant financial  Aggregation of information (adding together of
measurement elements that have shared characteristics are
included in same classification)
COST (Original Cost/ Historical Cost) – based on
TRANSACTION PRICE of the element at the time of Chapter 8: Concepts of Capital & Capital
recognition Maintenance

Historical Cost of an Asset – is the Concepts of Capital:

consideration or amount paid to acquire the asset plus a. Financial Capital – invested money or
transaction cost purchasing power
Historical Cost of a Liability – is the  Adopted by most entities
consideration received to incur lia bility minus  Supports Historical Cost Principle
transaction cost b. Physical Capital – productive capacity of entity
(productivity of entity)
Transaction price – amount na pumasok or lumabas  Measured at Current Cost
because of that transaction (Historical Cost)
Capital Maintenance Approach (Net Asset Approach)
Current Value – measures the updated amount to reflect - related to the computation of NET INCOME or
the conditions at the measurement date COMPREHENSIVE INCOME
Fair Value – presyo kung magkano mabebenta  Net income is derived based on the movement of
 Not an entity’s specific measurement net asset (equity)
 Price that would be received to sell an asset or
paid to transfer liability
 Basis of amount to be assigned on item depends Net changes in Equity xx
on what happen to the market Less:
 Based on External Market Condition Additional Investment xx
Add:
Value in Use (related to asset) – continue to use and Withdrawals/ Investment xx
kapag wala na at ididispose na, use this Comprehensive Income xx
measurement (value na madederive kapag ginamit Less:
ang asset) Other Comprehensive Income xx
Add:
Fulfillment Value – related to Liability Other Comprehensive Loss xx
 Both are measured at PRESENT VALUE Net Income xx
 Both are entity’s specific measurement
because the basis is Cash Flow generated by
an item
 Walang Transaction Cost na kasama ang
value in use & fulfillment value, unlike CASH AND CASH EQUIVALENTS
historical cost, magkakaroon lang ng
transaction cost at the ultimate disposal of  No specific standard governing cash & cash
the asset/ ultimate fulfillment of liability. equivalent (only related standard which is
Hindi kasama kapag pinag uusapan ung cash PFRS9)
  Escrow Deposit – Not Cash (with
Subtopic: restrictions of more than 1 year; long-
a. Cash & Cash Equivalents term investment)
b. Bank Reconciliation 4. Compensating Balance
c. Proof of Cash  RESTRICTED (formal) – Not Cash
(short/long term investment; depende
CASH – defined as MONEY kung gaano katagal ang restriction)
 Defined as money, coins and currencies and  UNRESTRICTED (informal) – Cash (if
other instruments (ex. checks) that are payable the problem is silent)
in cash and immediately acceptable by the bank
for immediate credit (definition in accounting) Restricted Not Cash

Recognition: no specific basis how to recognize ITEM

(use provision of PAS 1, 4th criteria) Unrestricted Cash
 An item is a current asset if it is a cash or cash 5. Bank Overdraft – over withdrawal sa savings
equivalent unless it is restricted for use or for accounts, demand deposits, etc.
settlement of liability for more than 12 months
after reporting period General Rule: NOT PART OF CASH (current
 For it to be cash it should be UNRESTRICTED liabilities)
FOR USE; kapag restricted automatic hindi Except:
cash a. Maintains two or more
Measurement: depends if it is in accounts on the SAME
a. Local Currency – FACE VALUE BANK
b. Foreign Currency – FACE VALUE but b. Bank overdraft is
translated to our currency at SPOT RATE IMMATERIAL (kelangan
c. Deposit in Financial Institutions (Bank) – sabihin ng problem kung
NET REALIZABLE VALUE (marerecover immaterial)
sa bank)  Part of Cash (iooffset sa Cash Balance)

Face Value – kung anu nakikita sa face ng item 6. Cash Fund – amount set aside for a certain
Spot Rate – closing rate (rate at the end of the year) purpose

Composition (sinong item ang cash, sino ang hindi)
1. Cash on Hand – automatic cash (coins &
currencies
2. Checks
 Normal Checks - Cash
 Traveler’s, Manager’s
Cashier’s Check - Cash
 Undelivered and postdated checks
o Maker entity – Cash
o Receiver entity – not cash
 Staled checks
o Maker entity – Cash
o Receiver entity – not Cash
3. Cash in Bank (deposits)
 Demand Deposit – Cash (non-interest
bearing)
 Savings Deposit – Cash (interest
bearing)
 Time Deposit – Not Cash (with
restriction for 3 months; cash
equivalent/ short term investment)
 To acquire asset
o Current asset – Cash
o Non-current asset – Not Cash
 To acquire liability
o Current Liability – Cash
o Non-current Liability – Not
Cash
 To be used in day-to-day operation (ex.
Petty cash, Revolving, charge, Travel) –
Cash
If the item is CURRENT, fund is current (part of
cash)
Fund is PARALLEL to the item being funded.
Examples of funds used to settle liabilities:
o Current – dividend fund, interest fund,
payroll fund
o Non-current fund – pension fund,
insurance fund, bond sinking fund,
preference share redemption fund
Cash Equivalents (PAS 7) – maturity is important to be
considered as Cash equivalent
  Short term, highly liquidated investment
 Almost readily convertible to cash
anytime
Investment:
 Debt Investment – can only be
classified as cash equivalent
 Equity Investment – can’t be classified
as Cash Equivalent
o Not readily convertible to cash
o NO MATURITY
SHORT TERM (recognition) – acquired 3 months or
less before its maturity
Composition:
 Acquisition Date: kelangan binili 3
months or less before maturity
 Maturity Date – 3 months or less
 List: (kapag kasama dito part of Cash)
o Time Deposit (always CE)
o Money Market Instruments
o Treasury Bills
 Treasury Notes – not
cash (maturity is more
than 3 months)
 Treasury Bonds – Not
cash (maturity is more
than 1 year)
o Commercial Papers
Other Topics:
1. Accounting for Petty cash Fund – entity has PCF
to pay small amounts of misc. expense
 Imprest Fund System – intact ung
balance
o ang nirereplenish lang na
expense ay ung may valid
support
o makikita agad ang cash
shortage/ overage
o kapag silent ang problem
Imprest ang ginagamit
 Fluctuating Fund System – pabago
bago ung balance ng petty cash fund
o ang nirereimburse is ung kulang
para mabuo ung PCF
2. Fraudulent Activities in Cash
 Window Dressing – intentional
manipulation of accounting records so
that it could be pleasing to the eyes of
the users of Fs
 Lapping – kung ung nagrerecord ay
siya ring may hawak ng pera; pagtapal
ng collection ng ibang customer sa
balance ng ibang customer
 Kitting – made at year end; the
accountant maximizes the delay of
recording the transactions of bank;
conceal the shortage of money in bank
3. Accounting for Cash Shortage and Overage
 Cash shortage/ overage – accountability
is not equal accounted
 Accountability is the should be amount;
nkalagay sa record
 Accounted is the actual amount;
nabilang na amount
Cash Shortage = accountability > accounted
Cash Overage = accountability < accounted
BANK RECONCILIATION – reports made monthly
by the company to reconcile the balance per book and
balance per bank
Reconciling Items:
Book reconciling items:
1. Credit Memo – increases in bank accounts that
is not yet recorded in the book (ex. interest
income, collections of AR by the bank in behalf
of the company)
2. Debit Memo – decreases in the bank account
not yet recorded in the book (ex. bank charge,
NSF checks (bounce check))
Bank reconciling items:
1. Deposit in Transit – deposits na hindi pa
nadadagdag sa bank account
2. Outstanding Checks – checks na hindi pa
naprepresent sa bank for payment; excludes
CERTIFIED CHECKS
Two types of Errors:
1. Error in Receipts/ collections
 Under receipt (add)
 Over receipt (deduct)
2. Error in Disbursement/ payment
 Under disbursement (deduct)
 Over disbursement (add)
RECEIPTS are Directly to CASH.
DISBURSEMENTS are inversely related to CASH.
Two reasons why balance per book and balance per bank
is not equal:
 Timing Difference
 Error – kung sino nagkamali sia ang
magaadjust
Certified Checks – are checks already accepted by the
bank in the first place; good as cash or presented as
payment
 NSF checks kapag redeposited nawawala sa
pagiging debit memo
 Cost na kelangan maincur in order to
create a receivable
 Need to be capitalized to asset
Subsequent Measurement (measurement every
reporting date)
AMORTIZED COST = BEG. BALANCE ±
AMORTIZATION – PRINCIPAL REPAYMENT –
IMPAIRMENT LOSS

PROOF OF CASH- two date-bank reconciliation; Principal repayment – installment payment ng

expanded bank recon receivables

Receipts Classification (as to presentation in FS)

 Total debits of current month (book)
 Total credits of current month (bank)
Disbursement
 Total credits of current month (book)
 Total debits of current month (bank)
Credit Memo – sa receipt lang makikita
Debit Memo – sa disbursement lang makikita
Prior Month Error – check the journal entry
Current Month Error – check the nature of the error
 Trade receivables – arises in the ordinary
course of business
o Most of the time CURRENT ASSET
(realizable within 12 months or
operating cycle whichever is longer)
 Operating cycle – assumed to be
more than 15 months
 Non-Trade receivables – receivable arising
from other sources
o CURRENT ASSET – if realizable
within 12 months only; hindi sinasama
sa consideration ang operating cycle

Special Case of Proof of Cash Presentation

 NSF checks redeposited during the current  Presented in Current Asset as “TRADE AND
month (minus minus on receipt and OTHER RECEIVABLES”
disbursement sa bank)  If the problem is silent, examples:
 Error in prior month not recorded during the
current month Advances to Shareholders Non-current Asset
Advances to affiliates Long Term Investments
Advances to Suppliers Current Asset
RECEIVABLES Deduction to SHE, unless
Subscription to
 Financial asset short term presented as
Receivables
 Representing contractual rights to receive cash Current Asset
or other financial asset Debit Balance in Accounts
Current Asset
 PFRS 9 – standard governing financial Payable
instruments Accrued Income Current Asset
Claims Receivable Current Asset
Measurement: Current Asset, unless long
term presented as Non-
Initial Measurement (measurement at initial current Asset
recognition
Loan Receivable – long tern non trade receivable
FAIR VALUE + TRANSACTION COST
 Kapag ang trade receivable is NET OF CREDIT
BALANCE, add back the amount to get the
Transaction cost – directly attributable cost gross amount of receivable.
 Trade Accounts Receivable Gross Ending Balance = Balance – Principal Repayment

Initial Measurement: binabawas na ung trade discount
INVOICE PRICE OR TRANSACTION PRICE
Invoice Price – price charge to customer, excluding any
related trade discount or net of trade discount
Two types of Discounts:
1. Trade Discount – binibigay for VOLUME
purchases
 Hindi nirerecord sa books
2. Cash Discount – biinibigay sa customer after
you billed them and they pay within a certain
discount period
 Binibigay in order for customer to pay
shortly or pay on time
 Para mapabilis ung collection
 Nirerecord sa books
Impairment Loss – decrease in the value of asset
wherein the recoverable amount is lower than the
carrying amount
 Magkakaroon ng impairment kung ang
makokolekta sa receivable ay amounts
na mas mababa sa amount na
nakarecord sa libro
Doubtful Account Expense – the amount that is
uncollectible for AR
Credit sales – creates accounts receivable
Write off – process of derecognizing AR after it was
determined to be worthless

Methods in Accounting for Cash Discount:

1. Gross Method pertains to initial

2. Net Method recording

Net Method – theoretically correct method

 According to PFRS 15 as much as
possible, the revenue to be recorded is
net of any cash discount
Gross Method – practically correct method
Notes receivable as payment – transaction that has NO
GROSS EFFECT in income statement
NET METHOD  Reclassification transaction
METHOD
AR to be AR to be
recorded is recorded is JE: Notes receivable xx
Initial Recording GROSS OF already NET OF Accounts Receivable xx
CASH CASH
DISCOUNT DISCOUNT Sales Return – maybe from cash sales or credit sales
Sales Discount Can only be seen Not seen in net  Ang ilalagay na sales return is from CREDIT
Account in gross method method SALE
Sales Discount Not seen in gross Can only be seen
forfeited/ loss method in net method Recoveries – collection of previously written off AR
 Does not affect AR
Sales Discount Forfeited/ Loss – presented as other
income Treatment for recoveries:
 Exclude recoveries from collections
Subsequent Measurement:  Magdebit ng recovery kapag included sa
collection
 Kapag may recovery sa problem at sinabi na
NET REALIZABLE VALUE = GROSS ENDING hindi kasama sa collection, IGNORE
BALANCE - ALLOWANCE
Allowances: estimated allowance
 Allowance for Sales return
 Allowance for Sales Discount
 Allowance for Freight Charge
Freight terms:
Buyer: FOB Shipping Points / Freight Collect
Seller: FOB Destination / Freight Prepaid
Freight Charge – hindi subject sa Cash Discount
Shipping point – nagkakaroon ng transfer of ownership
upon shipping
Destination – dun palang nagkakaroon ng transfer of
ownership
FOB Destination Freight Collect – nagkicrerate ng
Allowance for Freight Charge
 Allowance for Bad Debts
Methods:
1. Direct Write off Method – nag rerecognize ng
doubtful accounts expense kapag may write off
2. Allowance Method (required by PFRS) –
nagrerecognize ng expense kapag doubtful
palang; promotes conservatism
Income Statement Method:
Percent of Credit Sales = Doubtful Account Expense
Balance Sheet Method:
Percent of Accounts Receivable & Aging = Allowance
for Doubtful Accounts
Aging – variation of % of Accounts receivable
 Percentage of uncollectibility ang need sa
pagcompute
NOTES RECEIVABLE – an asset representing a right
to receive cash or another asset supported by a
PROMISSORY NOTE
Classifications:
Short term
a. Interest Bearing FACE VALUE
b. Non-interest Bearing FACE VALUE
Long Term
a. Interest Bearing
 With reasonable rate FACE VALUE
 With unreasonable rate PRESENT VALUE
b. Non-interest bearing PRESENT VALUE
Generally:
Ang initial measurement ng Notes Receivable is
kung anu ung amount na nkalagay sa promissory note
Except: Interest bearing with unreasonable rate & Non-
interest bearing note
Types of Interest rate:
 Nominal interest rate – agreed rate
 Effective interest rate – implied rate
Process of Discounting – process of converting an
amount to its PRESENT VALUE; pagbaba ng amount
 Pinaghihiwalay ung interest & principal amount
 Sa short-term kaya hindi present value ang
measurement ng Non-interest bearing note kasi
discounting is IMMATERIAL, macocollect
kaagad (Financing cost is insignificant; kapag
significant ang financing, PRESENT VALUE)
 Rate is reasonable if nominal rate is equal to
effective rate. Rate is unreasonable if nominal
rate is not equal to effective rate.
 All notes receivable measured at present value
are notes receivable wherein NOMINAL
INTEREST is not equal to EFFECTIVE
INTEREST
Subsequent Measurement (All NR)
AMORTIZED COST
 Ung mga naka present value lang ang nag
aamortized
  Notes receivable measured at face value hindi COGS (xx)
nag aamortized. Interest Income xx
Gains xx
Steps to compute Present Value:
Non trade:
1. Know the Contractual Cash Flow Gain/ loss on sales xx
 Long term Non-interest bearing (1CCF) Interest Income xx
– as if principal Xx
 Long term Interest bearing w/ 4. Interest Income
unreasonable rate (2CCF)  Kapag nka face value, interest income is
o As if principal based sa nominal rate
o Nominal interest  Kapag nka present value, interest
2. Know the timing of cash flow income is based on effective interest
 Lump sum or annual 5. Carrying Amount – Amortized cost (use
 Dictates the present value factor to be amortization table)
used
3. Compute the Present Value Factor:  If silent ang problem, all GROSS SALES ay
 Present value of 1 CREDIT SALES.
o Timing of cash flow is lump  Actual sales return ang nilalagay sa t-account ng
sum AR
 Present value of ordinary annuity of 1
o Timing of cash flow is
ANNUAL, EQUAL & W/OUT
INTERRUPTION (1st payment
is 1 period after) JE for Estimated sales return:
 Present value of ordinary annuity due
Sales return xx
o Timing of cash flow is
Allowance for sales return xx
ANNUAL, EQUAL & W/OUT
INTERRUPTION (1st payment JE for Actual sales return:
is TODAY)
4. Compute the PRESENT VALUE
Allowance for sales return xx
 Present Value = Cash Flow x Present
Accounts receivable xx
Value factor
 Mismong sales return ang binabawas para
 If not equal ung payment at may interruption, go
makuha ang Net sales
back to present value of 1.
 Kapag ang Aging is based on accounts which are
overdue, mag aapply ung aging factor sa account
Frequently Asked Questions:
na lagpas na sa overdue
1. Initial Measurement – depends on classification
Loans Receivable
2. Revenue
 Financial asset wherein a financial institution
 Sales amount – trade
(bank) grants or lends mony to another entity
 Selling price – non trade
 Same as long term notes receivable interest
 Downpayment- if there is any, add to the
income bearing with unreasonable rate
initial measurement of Notes Receivable

 According to PAS 18:

o Revenue is measured as the fair value of
consideration received (downpayment)
& fair value of consideration receivable
(initial measurement of NR)
3. Net Amount presented in P/L

Trade:
Sales xx