Professional Documents
Culture Documents
terms
Accounting is the "process of identifying,
measuring, and communicating economic -FS are prepared using mixture of
information to permit informed judgments and costs and values.
decisions by users of the information" (AAA).
FS are mixture of fact and opinion
Important Activities in Accounting
• Valued by Opinion - measurement
1. Identifying - analyzing events and affected by estimates
transactions to determine whether or • Valued by Fact measurement not
not they will be recognized affected by estimates
Recognition - including the effects of an 2. Communicating - transferring economic
accountable event through journal data into useful accounting information
entry for dissemination and interpretation
Three Aspects of Communicating
Accountable Events Non-accountable
Process in Accounting:
Events
1. Recording-writing the accountable
one that affects not recognized as
economic activities accounting; but it it events through journal entry
has accounting 2. Classifying grouping of similar items
relevance it is into their respective classes through
recorded in posting
memorandum entry 3. Summarizing-expressing in
condensed form which include
preparations of accounting reports
Type of Events or Transactions
NOTE: Interpreting the processed
• External Events - involve external information is computing of financial
party statement ratios.
i. Exchange (reciprocal transfer)
- give and receive BASIC PURPOSE OF ACCOUNTING
ii. Non-reciprocal transfer - give ➢ To provide information useful in
but not receive (e.g., making economic decisions
donation, tax) ➢ Economic entity-combination
iii. External event other than of people and property that
transfer- changes in economic uses economic resources to
resources or obligations but achieve certain goals.
no transfer happened (e.g.. Types of economic entity:
price levels, technological a. Not-for-profit entity
changes) b. Business entity
• Internal Events - do not involve Economic activities are activities that affect the
external party economic resources, obligations and the equity
i. Production - resources are
of an economic entity. Economic activities
transformed into finished involve:
goods
ii. Casualty unanticipated loss
1. Production 2. Exchange 3. Consumption - purchasing power is considered stable
4. Income Distribution 5. Savings 6. Investments regardless of instability
• Time Period - life of reporting period of
Types of Information Provided by Accounting
entity, usually 12 months (Calendar Year
1. Quantitative Information - numbers, starts at January 1 ; Fiscal Year - starts
quantities or units on a date other than January 1
• Materiality Concept - a judgment that is
2. Qualitative Information - words or
based on its size and nature
description form; usually found in notes
• Cost-benefit-cost must equal benefit
3. Financial Information-money • Accrual Basis - the effects of
transactions are recognized when they
Types of Accounting Information Classified to
occur and not as cash is received or
User's Need
paid
1. General Purpose Accounting Information - • Historical Cost Concept (Cost Principle) -
common need of most statement users the asset value is based on the
acquisition cost
2. Special Purpose Accounting Information- • Concept of Articulation all the
specific needs of particular users components of a complete set of
The practice of accounting requires the financial statements are interrelated
exercise of: • Full Disclosure Principle - including
enough details to make information
Creative using identifies understandable
Thinking imagination alternative
• Consistency Concept - using the same
and insight solutions
accounting principle of different periods
Critical logical evaluates
• Matching - costs are recognized as
Thinking analysis alternative
solutions expenses when the related revenue is
ACCOUNTING CONCEPTS principles upon which recognized
the accounting process is based (accounting • Entity Theory - proper income
assumptions or accounting theory) determination (A-L+C)-income
statement
• Propriety Theory - proper valuation of
Conceptual Framework and Accounting assets (A-L-C)
Standards Notes - balance sheet
• Residual Equity Theory - applicable
• Double-entry system - debit and credit when there are two classes of shares
• Going Concern Assumption - assumes issued (ordinary and preferred (A-L-
continual operation and not expect to Preferred Shareholder's Equity-Ordinary
end Shareholders Equity)
• Separate Entity-owners personal • Fund Theory - custody and
transactions are separated from the administration of funds (cash inflows -
business cash outflows-fund's)
• Stable Monetary Unit - accountable • Realization - converting non-cash assets
events are expressed in terms of into cash or claims for cash
common unit
• Prudence (Conservatism) use of caution • Cost Accounting systematic recording
when making estimates; does not allow and analysis of cost of materials, labor
deliberate assets' understatement or incident to production and overhead
liabilities' overstatement (e.g., cookie • Auditing-evaluating with established
jar reserve); choosing least effect on criteria and express opinion to ensure
equity E fairness and reliability
• Tax Accounting - preparations of tax
EXPENSE RECOGNITION PRINCIPLES
returns and rendering of tax advice
• Matching Concept (Direct Association of • Government Accounting custody of
Costs and Revenues) - cost that are public funds, its purpose, and the
directly related to the revenue are responsibility and accountability of
recognized as expenses in the same entrusted individual
period • Fiduciary Accounting - handling
• Systematic and Rational Allocation cost accounts managed by a person for the
that are not directly related to the benefit of other
revenue are recognized are assets first • Estate Accounting-handling accounts
and are recognized as expenses when for fiduciaries who wind up the affairs
consumed using some method of of deceased person
allocation (e.g., depreciation, • Social Accounting communicating the
amortization) social and environmental effects of an
• Immediate Recognition cost that do not entity's economic actions to the society
meet or ceases to meet the definition of • Institutional Accounting - for non-
assets are expensed immediately (e.g.. profit entities other than government
casualty and impairment losses) • Accounting Systems - installation of
accounting procedures for the
COMMON BRANCHES OF ACCOUNTING
accumulation of financial data and
• Financial Accounting - focuses on designing of accounting forms for data
general purpose financial statements gathering
>Financial Statement (FS) entity's • Accounting Research - careful analysis
financial position and results of its of economic events and other variables
operations and are communicated to to understand their impact of decisions
users. • Bookkeeping-recording the account or
> Financial Report - FS plus other transaction of an entity
information to help in making efficient - ends with the preparation of trial
economic decisions and is useful to balance
external users. Objectives of financial - does not require interpretation
reporting is to provide information:
1. Entity's economic resources, claims • Accountancy - profession or practice of
and changes accounting either public or private
2. Useful in assessing the entity's practice
management stewardship
PHILIPPINE ACCOUNTANCY ACT OF 2004
• Management Accounting -
(R.A. 9298) Sectors in the Practice of
communication of information for use
Accountancy
by internal users
1. Practice in Public Accountancy-rendering 3. Board of Accountancy (BOA) supervise the
service to more than one client on fee basis registration, licensure and practice of
2. Practice in Commerce and Industry- accountancy in the Philippines
employment in private sector
4. Securities and Exchange Commission (SEC) -
3. Practice in Education/Academe -
regulates corporations and partnership, capital
employment in educational institutions
and investment marks, and the investing public
4. Practice in Government - employment in
Code
government or controlled corporations
NOTE: 2 and 4 are considered private 5. Bureau of Internal Revenue (BIR) -
practice. administers the provisions of the National
Internal Revenue
ACCOUNTING STANDARDS USED IN THE
PHILIPPINES 6. Cooperative Development Authority (CDA)
influences the selection and application
Philippine Financial Reporting Standards (PFRS)
accounting policies by cooperatives
- Philippines GAAP is based on IFRS PFRS is
comprised of: NOTE: Accounting policies prescribes by a
regulatory body are sometimes referred to as
a. Philippine Financial Reporting
regulatory of accounting principles.
Standards (PFRS)
b. Philippine Accounting Standard International Accounting Standards Board (IASB)
(PAS) standard setting body of the IFRS Foundation
c. Interpretations with the main objectives of developing and
promoting global accounting standards.
Reporting standards is necessary to become
Standards issued:
comparable, avoid fraudulent reporting, and
right economic decisions. • International Financial Reporting Standards
(IFRS)
Selection of appropriate accounting policies is
•International Accounting Standards (ASS)
the entity's management responsibility.
•Interpretations
However, the proper application of accounting
principles is the accountant's responsibility. The move to IFRS was primarily brought by the
increasing acceptance of IFRSS world-wide and
ACCOUNTING STANDARD SETTING BODIES AND
increasing internalization of business thereby
OTHER RELEVANT ORGANIZATION
increasing the need for a common financial
1. Financial Reporting Standard Council (FRSC) - reporting standards that minimize, if not
official accounting standard setting body of the eliminate, inconsistencies of financial reporting
Philippine created under RA 9298 among nations
5.Offsetting
• Not offsetting if it measure asset net valuation
STRUCTURE AND CONTENT OF FINANCIAL
allowance, for example, allowances for obsolete
STATEMENT
inventories and of doubtful accounts on
1. Name of the reporting entity
receivables, and accumulated PPE depreciation
2. For whom the statements (individual or group
• Shall not use it unless permitted by PFRS
entity)
• Only permitted when it reflects substance of
3. Date (end or covered period)
the transaction
4. Presentation currency
• Example of offsetting: Using two bank
5. Rounding level used (e.g., thousands, millions
accounts in the same bank (not the same is
prohibited). If the other has negative balance Example:
and the other is positive, therefore offsetting is
okay. ABC Group Statement of Financial Position As of
December 31, 20x2 (in thousand of Philippine
6. Frequency of reporting Peso)
• Prepared at least annually Changes in
reporting period shall disclose the period STATEMENT OF FINANCIAL POSITION
covered, the reason for changing, and the fact Presentation of Statement of Financial
that amount presented are not entirely Position
comparable
CLASSIFIED UNCLASSIFIED
7. Comparative Information PRESENTATION PRESENTATION
• Minimum requirement for comparison is two - shows no distinction - shows distinction
different statements and related notes between current and between current and
noncurrent assets or non-current
• PAS 1 permits addition to the minimum
liabilities - based on liquidity
requirement
= most commonly
• Additional Statement of Financial Position - used
instances to add are: - highlights working
capital and facilitates
the computation of ➢ Refinancing agreement is fully
liquidity and solvency completed on or before balance-sheet
ratios date; or
- Working capital = ➢ Refinancing agreement after balance
Current Assets - sheet date but before FS are authorized
Current Liabilities for issue
- Debt instrument
(mandatory) Not allowed
▸ on the nature of expenses Allowed
d. Translation Allowed 3. Summary of significant accounting policies
difference in foreign 4. Disaggregation (breakdowns) of line items in
operations the other FS and other supporting information
5. Other disclosure required by PFRS
e. Effective portion of Allowed 6. Other disclosure not required y PFRS but is
cash flows relevant in understanding
• The sum of profit or loss and OCI Determination of costs to recognize as asset to
expense is the primary issue in accounting
•Presented here is also the change in non-
inventories Hence, PAS 2 provides guidance in
owner's equity during a periods; owner's is
the determination of costs of inventories,
excluded
including use of cost formulas, and their
subsequent measurement and recognition as
asset then expense.
STATEMENT OF CHANGES IN EQUITY
• Owner/s only
•Shows the following:
a. Effect of change in accounting policy and
correction
b . Total comprehensive income for the period
of error retrospectively
c. For each component of equity, a
reconciliation between the carrying amount at
the beginning and end of period, showing
separately changes resulting from profit or loss,
other comprehensive income, and transaction
with owners
Refer to PAS 7