Relevance - - predict and
confirm your material
value once you pass
1) Predictive Value-
Predict future outcome
2) Confirmatory Value-
evaluation made by user
3) Materiality- affect user
decision
Faithful Representation - -
Complete neutral is free
from error
1) Complete- include all
information
2) Neutral- free from bias
3) Free from Error- but not
required to be perfect
Enhancing Qualitative
Characteristics - -Compare
verify time to understand
1) comparability- enables
users to identify
similarities and differences
among items. example
trend analysis, or Apple vs
Microsoft
2) Verifiability-
independent observers can
reach consensus that a
particular depiction is
faithfully represented.
3) Timeliness- Available to
users on time
4) Understandability-
present clearly Recognition
and measurement in the
financial statements
Full set of Financial
Statement
- Statement of financial
position(Balance sheet )
-Statement of
comprehensive income
- Statement of Cash flow
- Statement of changes in
owner's equity
- Notes to Financial
Statement
Recognition - process that
classifying as
asset,liability, equity,
revenue or expense
Entity Assumption -
Separate corporation or
Going concern Assumption
- Entity will continue to
operate in the foreseeable
future.
Monetary Unit Assumption
- Measure economic
activity
Periodicity Assumption -
Divided into meaningful
time periods quarterly and
yearly
Measurement Principle -
allows assets and liabilities
to be measured at various
bases, including historical
cost, fair value, net reliable
value and present value at
various bases
Accrual Accounting -
Record without exchange
for cash
1)Revenue Recognition
principle- recognized when
it is earned and when it is
realized or realizable
2) Expense Recognition
Principle- Expense are
necessarily incurred to
generate revenue. Expense
incurred to generate a
specific amount of revenue
period are match against
that revenue( for example,
cost of good sold ).
Expenses that do not have
a direct link with revenue
may be recognized when
cash is spent or liabilities
are incurred( for example
selling, general and
administrative expenses)
Full disclosure -
information that would
make difference in the
decision process
Conceptual Framework for
Financial Reporting - A
complete, comprehensive
and single document
promulgated by the
International Accounting
Standards Board.
Conceptual Framework - A
summary of the terms and
concepts that underlie the
preparation and
presentation of financial
statements for external
users. It is also an attempt
to provide an overall
theoretical foundation for
accounting
Conceptual Framework -
Intended to guide standard-
setters, preparers and users
of financial information in
the preparation and
presentation of statements.
Conceptual Framework - It
is the underlying theory for
the development of
accounting standards and
revision of previously
issued accounting
standards. It is also
concerned with general
purpose financial
statements, including
consolidated financial
statements.
Annually - The financial
statements are prepared at
least ___________ and are
directed toward the
common needs of a wide
range of users.
Conceptual Framework - If
there is a standard or an
interpretation that
specifically applies to a
transaction, the standard or
interpretation overrides the
____________
_______________.
Conceptual Framework -
In the absence of standard
or an interpretation that
specifically applies to a
transaction, management
shall consider the
applicability of the
____________
_____________ in
developing and applying
an accounting policy that
results in information that
is relevant and reliable.
Philippine Financial
Reporting Standard/PRFS -
It is to be stated that the
Conceptual Framework is
not a ______________.
Philippine Financial
Reporting
Standards/PFRSs - In case
where there is a conflict,
the requirements of the
______________________
__ shall prevail over the
Conceptual Framework.
Conceptual Framework -
The__________________
______ may be revised
from time to time based on
the IASB's experience of
working with it. However,
revisions do not
automatically result to
changes in the Standards-
not until after the IASB
goes through its due
process of amending a
Standard.
Objective of General
Purpose Financial
Reporting - To provide
financial information about
the reporting entity that is
useful to existing and
potential investors, lenders
and other creditors in
making decisions about
providing resources to the
entity.
Foundation - The objective
of General Purpose
Financial Reporting is the
______________ of the
Conceptual Framework.
Primary users - Include the
existing and potential
investors, lenders and other
creditors. They are the
parties to whom general
purpose financial reports
are primarily directed.
They cannot require
entities to provide
information directly to
them and therefore must
rely on general purpose
financial reports for much
of the financial information
they need. Existing and
Potential Investors - Are
concerned with the risk
inherent in and return
provided by their
investments. They need
information to help them
determine whether they
should buy, hold or sell.
Shareholders - Are also
interested in information
which enables them to
assess the ability of the
entity to pay dividends.
Lenders and other creditors
- Are interested in
information which enables
them to determine whether
their loans, interest thereon
and other amounts owing
to them will be paid when
due.
Lenders - Refer to those
who extend loans. (E.g.,
banks). Other Creditors -
Refer to those who extend
others forms of credit.
(E.g., supplier)
Other users - Include the
employees, customers,
governments and other
agencies, and the public.
They are users of financial
information other than the
existing and potential
investors, lenders and other
creditors. They are the
parties that may find the
general purpose financial
reports useful but the
reports are not directed to
them primarily.
Employees - Are interested
in information about the
stability and profitability of
the entity. They are
interested in information
which enables them to
assess the ability of the
entity to provide
remuneration, retirement
benefits and employment
opportunities.
Customers - They have an
interest in information
about the continuance of
an entity especially when
they have a long-term
inconvenient with or are
dependent on the entity.
Governments and other
agencies - They are
interested in the allocation
of resources and therefore
the activities of the entity.
These users require
information to regulate the
activities of the entity,
determine taxation policies
and as a basis for national
income and similar
statistics.
Public - Entities may affect
these users in a variety of
ways. One example is
when entities make a
substantial contribution to
the local economy in many
ways including the number
of people they employ and
their patronage of local
suppliers. The financial
statements presented by the
entities could assist these
users by providing
information about the trend
and the range of its
activities.
Reporting - The provision
of financial information
about an entity to external
users that is useful to them
in making economic
decisions and for assessing
the effectiveness of the
entity's management.
Annual - The principal
way of providing financial
information to external
users is through the
____________ financial
statements. Financial
Reporting - Encompasses
not only financial
statements but also other
means of communicating
information that relates
directly or indirectly to the
financial statements and
significant ratios.
Financial Reports - Include
not only financial
statements but also other
information such as
financial highlights,
summary of important
financial figures, analysis
of financial statements and
significant ratios. Financial
Reports - Include
nonfinancial information
such as description of
major products and a
listing of corporate officers
and directors.
Financial Reporting - Is
directed primarily to the
existing and potential
investors, lenders and other
creditors which compose
the primary user group.
Primary Users - These are
the parties and users of
financial information that
provide resources to the
entity. Other users -
Information that meets the
needs of the specified
primary users is likely to
meet the needs of
______________ such as
employees, customers,
governments and other
agencies. Overall
Objective of Financial
Reporting - To provide
information that is useful
for decision making.
Conceptual Framework for
Financial Reporting -
States the following
objectives of financial
reporting: a. To provide
information useful in
making decisions about
providing resources to the
entity. b. To provide
information useful in
assessing the cash flow
prospects of the entity. c.
To provide information
about entity resources,
claims and changes in
resources and claims.
Existing and potential
investors - Need general
purpose financial reports in
order to enable them in
making decision Existing
and potential lenders and
other creditors - They need
general purpose financial
reports in order to enable
them in making decisions
whether to provide or settle
loans and other forms of
credit. Financial Reporting
- It should provide
information that is useful
in assessing the amount,
timing and uncertainty of
prospects for future net
cash inflows to the entity.
General Purpose Financial
Reports - Provide
information about the
financial position of a
reporting entity.
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11477470 Financial
Position - Information
about the entity's economic
resources and the claims
against the reporting entity.
In other words, it
comprises the assets,
liabilities and equity of an
entity at a particular
moment of time. Economic
Resources - Are the assets
and claims or the liabilities
and equity of the entity.
Changes in economic
resources and claims -
Information on financial
performance(income and
expenses) and other
transactions and events that
lead to changes in financial
position. Economic
phenomena - Under the
Conceptual Framework,
information on economic
resources, claims and
changes in economic
resources and claims are
called
______________________
_. Economic resources and
claims - Information about
the nature and amounts of
an entity's economic
resources(assets) and
claims(liabilities and
equity) that can help users
to identify the entity's
financial strengths and
weaknesses. Financial
Position - Information
about
______________________
_______ can help users to
assess the entity's liquidity,
solvency and the need for
additional financing.
Liquidity - Is the
availability of cash in the
near future to cover
currently maturing
obligations. In other words,
it refers to the entity's
ability to pay short-term
obligations. Solvency - Is
the availability of cash
over a long term to meet
financial commitments
when they fall due. In
other words, it refers to the
entity's ability to meet its
long-term obligations.
Financial Performance -
Information on
______________________
_______ helps users assess
the entity's ability to
produce return from its
economic resources.
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11477470 General purpose
financial reports - Also
provide information about
the effects of transactions
and other events that
change the economic
resources and claims.
Financial Performance -
Changes in economic
resources and claims result
from
___________________
and from other events or
transactions, such as
issuing debt or equity
instruments. Financial
Performance - The
______________________
of an entity comprises
revenue, expenses and net
income or loss for a period
of time. In other words, it
is the level of income
earned by the entity
through the efficient and
effective use of its
resources. Results of
operations - The financial
performance of an entity is
also known as
______________________
_____ and is portrayed in
the income statement and
statement of
comprehensive income.
Past Financial Performance
- Information about
______________________
________ is usually
helpful in predicting the
future returns on the
entity's economic
resources. Financial
Performance - Information
about
______________________
______ during a period is
useful in assessing the
entity's ability to generate
future cash inflows from
operations. Management's
Stewardship - Information
on how efficiently and
effectively the entity's
management has
discharged its
responsibilities to use the
entity's economic resources
helps users assess the
entity's
______________________
__________________.
Accrual Accounting -
Depicts the effects of
transactions and other
events and circumstances
on an entity's economic
resources and claims in the
periods in which those
effects occur even if the
resulting cash receipts and
payments occur in a
different period. Accrual
accounting - The effects of
transactions and other
events are recognized
when they occur and not as
cash is received or paid.
Simply stated, it means
that income is recognized
when earned regardless of
when received and expense
is recognized when
incurred regardless of
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11477470 Accrual
Accounting - Information
about financial
performance measured in
accordance with
______________________
__________ provides a
better basis for assessing
past and future
performance than
information solely about
cash receipts and payments
during a period.
Limitations of Financial
Reporting - a. General
purpose financial reports
do not and cannot provide
all the information that
existing and potential
investors, lenders and other
creditors need. These users
need to consider pertinent
information from other
sources for example,
general economic
conditions, political events
and industry outlook. b.
General purpose financial
reports are not designed to
show the value of an entity
but the reports provide
information to help the
primary users estimate the
value of the entity. c.
General purpose financial
reports are intended to
provide common
information to users and
cannot accommodate every
request for information. d.
To a large extent, general
purpose financial reports
are based on estimate and
judgment rather than exact
depiction. Accounting
assumptions - Are the
basic notions or
fundamental premises on
which the accounting
process is based. These are
also known as postulates.
Accounting assumptions -
Serve as the foundation or
bedrock of accounting in
order to avoid
misunderstanding but
rather enhance the
understanding and
usefulness of the financial
statements. Going concern
- The Conceptual
Framework for Financial
Reporting mentions only
one assumption, namely
_________________.
Going concern/Continuity
Assumption - Means that
in the absence of evidence
to the contrary, the
accounting entity is viewed
as continuing in operation
indefinitely. In other
words, the financial
statements are normally
prepared on the assumption
that the entity will continue
in operations for the
foreseeable future. Cost
Principle - The going
concern postulate is the
very foundation of the
_____________________.
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11477470 Going Concern -
With this assumption,
assets are normally
recorded at cost. As a rule,
market values are ignored.
Liquidating Concern - If
there is evidence that the
entity would experience
large and persistent losses
or that the entity's
operations are to be
terminated, the going
concern assumption is
abandoned. Accounting
entity - Under this
assumption, the entity is
separate from the owners,
managers, and employees
who constitute the entity.
Accordingly, the
transactions of the entity
shall not be merged with
the transactions of the
owners. Accounting Entity
- The reason for this
assumption is to have a fair
presentation of financial
statements. The personal
transactions of the owners
shall not be allowed to
distort the financial
statements of the entity.
Consolidated Statements -
When parent and
subsidiary relationship
exists,
____________________
for the affiliates are usually
made because for practical
and economic purposes,
the parent and the
subsidiary are a single
economic entity. Time
Period Assumption -
Requires that the indefinite
life of an entity is
subdivided into accounting
periods which are usually
of equal length for the
purpose of preparing
financial reports on
financial position,
performance and cash
flow. One year/12 months -
By convention, the
accounting period or fiscal
period is ___________ or
_____________. One-year
period - The
______________ is
traditionally the accounting
period because usually it is
the time after that
government reports are
required. Calendar year - A
_____________ is a
twelve-month period that
ends on December 31.
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11477470 Natural business
year/fiscal year - A
___________________ is
a twelve-month period that
ends on any month when
the business is at the
lowest or experiencing
slack season. Monetary
Unit Assumption - It has
two aspects, namely
quantifiability and stability
of the peso. Quantifiability
- Means that the assets,
liabilities, equity, income
and expenses should be
stated in terms of a unit of
measure which is the peso
in the Philippines. Stability
of the peso assumption -
Means that the purchasing
power of the peso is stable
or constant and that its
instability is insignificant
and therefore may be
ignored. It is usually an
amplification of the going
concern assumption so
much so that the
adjustments are
unnecessary to reflect any
changes in purchasing
power. Accounting
function - The
______________________
_ is to account for nominal
pesos only and not for
constant pesos or changes
in purchasing power.
Qualitative Characteristics
- Are the qualities and
attributes that make
financial accounting
information useful to the
users. It also identify the
types of information that
are likely to be most useful
to the primary users in
making decisions using an
entity's financial report.
Fundamental Qualitative
Characteristics and
Enhancing Qualitative
Characteristics. - The
Conceptual Framework
classifies qualitative
characteristics into
______________________
____________ and
______________________
_______________.
Fundamental Qualitative
Characteristics - These are
characteristics that make
information useful to users.
They relate to the content
or substance of financial
information. They consist
of Relevance and Faithful
Representation. Relevant
and Faithfully represented
- Information must be both
________________ and
___________________ if
it is to be useful.
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11477470 Relevance - It is
the capacity of the
information to influence a
decision. The financial
information must be
capable of making a
difference in the decisions
made by users. It requires
that the financial
information should be
related or pertinent to the
economic decision.
Predictive value and
confirmatory value -
Financial information is
capable of making a
difference in a decision if it
has _________________
and ________________.
Predictive Value - The
financial information can
be used as an input to
processes employed by
users to predict future
outcome or when it can
help users increase the
likelihood of correctly or
accurately predicting or
forecasting outcome of
events. Confirmatory
Value - The financial
information provides
feedback about previous
evaluations or when it
enables users confirm or
correct earlier
expectations. Interrelated -
Predictive value and
confirmatory value are
_________________.
Information that has
predictive value is likely to
also have confirmatory
value. Materiality - Is a
practical rule in accounting
which dictates that strict
adherence to GAAP is not
required when the items
are not significant enough
to affect the evaluation,
decision, and fairness of
the financial statements. It
is also known as the
doctrine of convenience.
Materiality - A quantitative
threshold linked very
closely to the qualitative
characteristics of
relevance. In other words,
it is a subquality of
relevance based on the
nature or magnitude or
both of the items to which
the information relates.
Entity-specific - The
Conceptual Framework
states that materiality is an
____________________
aspect of relevance,
meaning materiality
depends on the facts and
circumstances surrounding
a specific entity. Matter of
Judgment - The
Conceptual Framework
and the Standards do not
specify uniform
quantitative threshold for
materiality. Thus,
materiality is a
___________________.
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11477470 Relative size -
Materiality of an item
depends on
____________________
rather than absolute size.
Material - An item is
___________ if knowledge
of it would affect or
influence the decision of
the informed users of the
financial statements.
Material - Information is
_____________ if its
omission or misstatement
could influence the
economic decision that the
users make on the basis of
the financial information
about an entity. Size - The
______ of the item in
relation to the total of the
group to which the item
belongs is taken into
account. Nature - The
_________ of the item
may be inherently material
because it affects economic
decision. Faithful
Representation - Means
that financial reports
represent economic
phenomena or transactions
in words and numbers
wherein the descriptions
and figures must match
what really existed or
happened. Faithful
Representation - Means
that the actual effects of
the transactions shall be
properly accounted for and
reported in the financial
statements. In other words,
the financial information
should provide true,
correct and complete
depiction of the economic
phenomena that it purports
to represent. Completeness
- Requires that relevant
information should be
presented in a way that
facilitates understanding
and avoids erroneous
implication. It also
suggests that all
information(in words and
numbers) necessary for
users to understand the
phenomenon being
depicted is provided.
Completeness - It is the
result of adequate
disclosure standard or the
principle of full disclosure.
Standard Adequate
Disclosure/Full Disclosure
Principle - Means that all
significant and relevant
information leading to the
preparation of financial
statements shall be clearly
reported. In other words,
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11477470 it is best
described by disclosure of
any financial facts
significant enough to
influence the judgment of
informed users. Notes to
financial statements -
Provide narrative
description or
disaggregation of the items
presented in the financial
statements and information
about items that do not
qualify for recognition
Neutrality - The depiction
is without bias in the
preparation or presentation
of financial information. In
other words, the depiction
is not slanted, weighted,
emphasized, de-
emphasized or otherwise
manipulated to increase the
probability that financial
information will be
received favorably or
unfavorably by users. Free
from bias - Neutrality
means that the information
contained in the financial
statements must be
_______________.
Principle of Fairness -
Neutrality is synonymous
with the all-encompassing
___________________.
Neutral - To be _________
is to be fair. Free from
error - Means that there are
no errors or omissions in
the description of the
phenomenon or
transaction. However, it
does not mean that the
information is perfectly
accurate in all respects. It
means there no errors in
the description and in the
process by which the
information is selected and
applied. If the information
is an estimate, that fact
should be described
clearly, including an
explanation of the process
used in making that
estimate. Substance over
form - If information is to
represent faithfully the
transactions and other
events it purports to
represent, it is necessary
that the transactions and
events are accounted in
accordance with their
substance and reality and
not merely their legal form.
(E.g., financial lease,
computation of earnings
per share) Conservatism -
Means that when
alternative exist, the
alternative which has the
least effect on equity
should be chosen. In
simplest words, in case of
any doubt, record any loss
and do not record any gain.
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11477470 Contingent Loss
- With conservatism,
______________________
is recognized as a
provision if the loss is
probable and the amount
can be reliably measured.
Contingent Gain - With
conservatism,
__________________ is
not recognized but
disclosed only. Prudence -
Conservatism is
synonymous with
_________________.
Prudence - Is the desire to
exercise care and caution
when dealing with the
uncertainties in the
measurement process such
that assets or income are
not overstated and
liabilities or expenses are
not understated. Enhancing
qualitative characteristics -
Relate to the presentation
or form of the financial
information. These are
intended to increase or
enhance the usefulness of
the financial information
that is relevant and
faithfully represented.
They consist of
comparability,
understandability,
verifiability, and timeliness
Comparability - The ability
to bring together for the
purpose of noting points of
likeness and difference. It
enables users to identify
and understand similarities
and dissimilarities among
items. Comparability
within an entity/Horizontal
Comparability/Intracompar
ability - The quality of
information that allows
comparisons within a
single entity through time
or from one accounting
period to the next.
Comparability between
and across
entities/Dimensional
Comparability/Intercompar
ability - The quality of
information that allows
comparisons between two
or more entities engaged in
the same industry.
Comparable - For
information to be
______________, like
things must look alike and
different things must look
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11477470 Consistency -
Implicit in the qualitative
characteristics of
comparability is the
principle of
____________________.
Comparabilty, Consistency
- although not necessarily
______________________
is the goal while
__________________ is
the means of achieving that
goal. Consistency - Refers
to the use of the same
method for the same item,
either from period to
period within an entity or
in a single period across
entities. In other words, it
is the uniform application
of accounting method from
period to period within an
entity. However, it does
not mean that no change in
accounting method can be
made. If the change would
result to a more useful and
meaningful information,
then such change shall be
made. But there shall be
full disclosure of the
change and the peso effect
thereof. Understandability
- Requires that financial
information must be
comprehensible or
intelligible if it is to be
most useful. The
information should be
presented in a form and
expressed in terminology
that a user understands.
Accordingly, the user shall
have an understanding of
the complex economic
activities, the financial
accounting process and the
terminology in the
financial statements.
Verifiability - Means that
different knowledgeable
and independent observers
could reach consensus,
complete agreement, that a
particular depiction is a
faithful representation. The
financial information is
supported by evidence so
that an accountant that
would look into the same
evidence would arrive at
the same economic
decision or conclusion. It
also helps to assure users
that information represents
the economic phenomenon
or transaction it purports to
represent. Direct
Verification - Means
verifying an amount or
other representation
through direct observation,
for example by counting
cash. Indirect Verification
- Means checking the
inputs to a model, formula
or other technique and
recalculating the inputs
using the same
methodology. (E.g.,
verifying the carrying
amount of inventory)
Timeliness - Means that
financial information must
be available or
communicated early
enough when a decision is
to be made. It enhances the
truism that without
knowledge of the past, the
basis for prediction will
usually be lacking and
without interest in the
future, knowledge of the
past is sterile. Downloaded
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11477470 Older -
Generally, the ________
the information, the less
useful. Cost - Is a
pervasive constraint on the
information that can be
provided by financial
reporting. Cost
Constraint/Cost-benefit/Re
asonable assurance -
Reporting financial
information imposes cost
and it is important that
such cost is justified by the
benefit derived from the
financial information. In
other words, it is a
consideration of the cost
incurred in generating
financial information
against the benefit to be
obtained from having the
information. The benefit
derived from the
information should exceed
the cost incurred in
obtaining the information.
Financial Statements -
Portray the financial
effects of transactions and
other events by grouping
them into broad classes
according to their
economic characteristics.
These are prepared for a
specified period of time
and provide information on
assets, liabilities and equity
that existed at the end of
the reporting period, or
during the reporting
period, and income and
expenses for the reporting
period. Elements of
financial statements - Refer
to the quantitative
information reported in the
statement of financial
position and income
statement. These are the
building blocks from
which financial statements
are constructed. The
presentation of these in the
statement of financial
position and the income
statement involves a
process of classification
and subclassification.
Comparative Information -
To help users of financial
statements in evaluating
changes and trends,
financial statements also
provide
_____________________
for at least one preceding
reporting period. Forward-
looking information -
Financial statements are
designed to provide
information about past
events. Information about
possible future transactions
and other events is
included in the financial
statements only if it relates
to the past information
presented in the financial
statements and is deemed
useful to users of financial
statements. Perspective
adopted in financial
statements - Information in
financial statements is
prepared from the
perspective of the reporting
entity, not from the
perspective of any
particular group of
financial statement user.
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11477470 Financial
Position - The elements
directly related to the
measurement of
_________________ are:
a. Assets b. Liabilities c.
Equity Financial
Performance - The
elements directly related to
the measurement of
____________________
are: a. Income b. Expenses
Equity - Is the residual
interest in the assets of the
entity after deducting all of
the liabilities. Recognition
- Means the reporting of an
asset, liability, income or
expense on the face of the
financial statements of an
entity. Asset - Is defined as
a resource controlled by
the entity as a result of past
events and from which
future economic benefits
are expected to flow to the
entity. Asset Recognition
Principle - An asset is
recognized when it is
probable that future
economic benefits will
flow to the entity and the
asset has a cost or value
that can be measured
reliably. This principle has
two conditions: a. it is
probable that future
economic benefits will
flow to the entity b. the
cost or value of the asset
can be measured reliably
Probable - Means that the
chance of the future
economic benefit arising is
more likely rather than less
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11477470 Future economic
benefit - The
______________________
_ embodied in an asset is
the potential to contribute
directly or indirectly to the
flow of cash and cash
equivalents to the entity.
Cost principle - Inherent in
asset recognition is the
___________________.
Cost Principle - Requires
that assets should be
recorded initially at
original acquisition cost.
Cash Transaction - In a
_________________, cost
is equivalent to the cash
payments.
Noncash/exchange
transaction - In a
_________________, the
cost is equal to the fair
value of the asset given or
fair value of the asset
received, whichever is
clearly evident. Liability -
Defined as a present
obligation arising from
past events the settlement
of which is expected to
result in an outflow from
the entity of resources
embodying economic
benefits. Liability
Recognition Principle - A
liability is recognized
when it is probable that an
outflow of resources
embodying economic
benefits will be required
for the settlement of a
present obligation and the
amount of the obligation
can be measured reliably.
This principle has two
conditions: a. it is probable
that an outflow of
economic benefits will be
required for the settlement
of a present obligation b.
the amount of obligation
can be measured reliably
Legal, Constructive - An
essential characteristics of
a liability is that the entity
has a present obligation
which may be
_____________ or
____________________.
Legally enforceable -
Obligations may be
______________________
______ as a consequence
of a binding contract or
statutory requirement.
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11477470 Constructive
obligations - Arise from
normal business practice,
custom and a desire to
maintain good business
relations or act in an
equitable manner. Income -
Is increase in economic
benefit during the
accounting period in the
form of inflow or increase
in asset or decrease in
liability that results in
increase in equity, other
than contribution from
equity participants.
Revenue - Arises in the
course of the ordinary
regular activities and is
referred to by a variety of
different names including
sales, fees, interest,
dividends, royalties and
rent. Regularity - The
essence of revenue is
________________. Gains
- Represented other items
that meet the definition of
income and do not arise in
the course of the ordinary
regular activities. Earned -
The basic principle is that
income is recognized when
________________.
Income Recognition
Principle - Income is
recognized when it is
probable that an increase in
future economic benefits
related to an increase in an
asset or a decrease in a
liability has arisen and that
the increase in economic
benefits can be measured
reliably. Thus, this
principle has two
conditions: a. it is probable
that future economic
benefits will flow to the
entity as a result of an
increase in an asset or a
decrease in a liability b. the
economic benefits can be
measured reliably Point of
Sale - The
_________________ is the
point of income
recognition. Installment
method - Revenue is
recognized at the point of
collection. The amount of
revenue is determined by
multiplying the gross profit
rate by the amount of
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11477470 Cost Recovery
method/Sunk Cost method
- Revenue is recognized
also at the point of
collection. However,
unlike the installment
method, all collection are
first applied to the cost of
the merchandise sold.
Percentage of completion
method - Contract revenue
and contract costs
associated with the
construction contract shall
be recognized as revenue
and expenses, respectively,
by reference to the stage of
completion of the contract
activity. Production
Method - Revenue is
recognized at the point of
production. This method is
applicable to agricultural,
forest and mineral
products. Interest Revenue
- Shall be recognized on a
time proportion basis that
takes into account the
effective yield on the asset.
Royalties - Shall be
recognized on an accrual
basis in accordance with
the substance of the
relevant agreement.
Dividends - Shall be
recognized as revenue
when the shareholder's
right to receive payment is
established, meaning when
they are declared.
Installation fees - Are
recognized as revenue over
the period of installation
by reference to the stage of
completion. Subscription
Revenue - Should be
recognized on a straight
line basis over the
subscription period.
Admission fees - Are
recognized as revenue
when the event takes place.
Tuition fees - Are
recognized as revenue over
the period in which the
tuition is provided.
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11477470 Expense - Is
decrease in economic
benefit during the
accounting period in the
form of an outflow or
decrease in asset or
increase in liability that
results in decrease in
equity, other than
distribution to equity
participants. Expenses -
Encompasses all losses as
well as those that arise in
the course of the ordinary
regular activities. Incurred
- The basic expense
recognition principle
means that expenses are
recognized when
_____________________.
Expense Recognition
Principle - Expenses are
recognized when it is
probable that a decrease in
future economic benefits
related to decrease in an
asset or an increase in
liability has occurred and
that is the decrease in
economic benefits can be
measured reliably. Thus,
this principle has two
conditions: a. it is probable
that a decrease in future
economic benefits has
occurred as a result of a
decrease in an asset or an
increase in liability b. the
decrease in economic
benefits can be measured
reliably Matching Principle
- Expense recognition
principle is the application
of the
______________________
________. Matching
Principle - Requires that
those costs and expenses
incurred in earning a
revenue shall be reported
in the same period. In
generally speaking, this
principle facilitates the
"There is no gain if there is
no pain" rule. Cause and
effect association - The
expense is recognized
when the revenue is
already recognized. This
process, commonly
referred to as the matching
of cost with revenue,
involves the simultaneous
or combined recognition of
revenue and expenses that
result directly and jointly
from the same transactions
or events. Systematic and
rational allocation - Some
costs are expensed by
simply allocating them
over the periods benefited.
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11477470 Immediate
Recognition - The cost
incurred is expensed
outright because of
uncertainty of future
economic benefits or
difficulty of reliably
associating certain costs
with future revenue. In this
method, an expense is
recognized immediately: a.
When an expenditure
produces no future
economic benefit. b. When
cost incurred does not
qualify or ceases to qualify
for recognition as an asset.
Measurement - Is the
process of determining the
monetary amounts at
which the elements of the
financial statements are to
be recognized and carried
in the statement of
financial position and
income statement.
Historical Cost/Past
Purchase Exchange Price -
Is the amount of cash or
cash equivalent paid or the
fair value of the
consideration given to
acquire an asset at the time
of acquisition. Current
Cost/Current Purchase
Exchange Price - Is the
amount of cash or cash
equivalent that would have
to be paid if the same or
equivalent asset was
acquired currently.
Realizable Value/Current
Sale Exchange Price - Is
the amount of cash or cash
equivalent that could
currently be obtained by
selling the asset in an
orderly disposal. Present
Value/Future Exchange
Price - Is the discounted
value of the future net cash
inflows that the asset is
expected to generate in the
normal course of business.
Reporting Entity - Is one
that is required, or chooses,
to prepare financial
statements, and is not
necessarily a legal entity. It
can be a single entity or a
group or combination of
two or more entities.
Parent, subsidiary -
Sometimes an entity
controls another entity.
The controlling entity is
called
_________________,
while the controlled entity
is called the
___________________.
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11477470 Consolidated
Financial Statements - If a
reporting entity comprises
both the parent and its
subsidiaries, the reporting
entity's financial
statements are referred to
as
______________________
_______________.
Unconsolidated Financial
Statements - If a reporting
entity is the parent alone,
the reporting entity's
financial statements are
referred to as
______________________
______________.
Combined Financial
Statements - If a reporting
entity comprises two or
more entities that are not
all linked by a parent-
subsidiary relationship, the
reporting entity's financial
statements are referred to
as
______________________
. Control - Means that the
entity has the exclusive
right over the benefits of
an asset and the ability to
prevent others from
accessing those benefits.
Obligation - Is a duty or
responsibility that an entity
has no practical ability to
avoid. Legal Obligation -
An obligation that results
from a contract, legislation,
or other operation of law.
Constructive Obligation -
An obligation that results
from an entity's
actions(e.g., past practice
or publishes policies) that
create a valid expectation
on others that the entity
will accept and discharge
certain responsibilities.
Executory Contract - Is a
contract that is equally
unperformed - neither
party has fulfilled any of
its obligations, or both
parties have partially
fulfilled their obligations to
an equal extent. It
establishes a combined
right and obligation to
exchange economic
resources, which are
interdependent and
inseparable. Thus, the two
constitute a single asset or
liability. Favorable,
unfavorable - The entity
has an asset if the terms of
the contract are
_________________; a
liability if the terms are
_____________________.
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11477470 Carrying
Amount - The amount at
which an asset, liability or
equity is recognized in the
statement of financial
position. Derecognition - Is
the opposite of recognition.
It is the removal of a
previously recognized
asset or liability from the
entity's statement. It occurs
when the item no longer
meet the definition of an
asset or liability, such as
when the entity loses
control of all or part of the
asset, or no longer has a
present obligation for all or
part of the liability. Unit of
account - Is the right or the
group of rights, the
obligation or the group of
obligations, or the group of
rights and obligations, to
which recognition criteria
and measurement concepts
are applied. It is selected
for an asset or liability
when determining how that
asset or liability, and the
related income or expense,
will be recognized and
measured. Fair Value - Is
the price that would be
received to sell an asset, or
paid to transfer a liability,
in an orderly transaction
between market
participants at the
measurement date. Value
in use - Is the present value
of the cash flows, or other
economic benefits, that an
entity expects to derive
from the use of an asset
and from its ultimate
disposal. Fulfillment value
- Is the present value of the
cash, or other economic
resources, that an entity
expects to be obliged to
transfer as it fulfills a
liability. Value in use and
Fulfillment value - Reflect
entity-specific assumptions
rather than assumptions by
market participants. They
are measured indirectly
using cash-flow-based
measurement techniques
similar to those used in
measuring fair value but
from an entity-specific
perspective rather than
from a market-participant
perspective. They do not
include transaction costs in
acquiring an asset or
incurring a liability but
include transaction costs
expected to be incurred on
the ultimate disposal of the
asset or fulfillment of the
liability. Current Cost of an
asset - Is the cost of an
equivalent asset at the
measurement date,
comprising the
consideration that would
be paid at the measurement
date plus the transaction
costs that would be
incurred at that date.
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11477470 Current cost of a
liability - Is the
consideration that would
be received for an
equivalent liability at the
measurement date minus
the transaction costs that
would be incurred at that
date. Entry values, exit
values - Current cost and
historical cost are
______________________
_________ (i.e., they
reflect prices in acquiring
an asset or incurring a
liability), whereas fair
value, value in use and
fulfillment value are
__________________
(i.e., they reflect prices in
selling or using an asset or
transferring or fulfilling a
liability). Characteristics of
the asset or liability and
How the asset or liability
contributes to future cash
flows - The
______________________
____________________
and
______________________
__________________
affect the relevance of the
information provide by a
measurement basis.
Measurement Uncertainty -
Arises when a measure
cannot be determined
directly by observing
prices in an active market
and must instead be
estimated. Outcome
uncertainty - Arises when
there is uncertainty about
the amount or timing of
any inflow or outflow of
economic benefits that will
result from an asset or
liability. Existence
uncertainty - Arises when
it is uncertain whether an
asset or liability exists.
Total Equity - It is not
measured directly. It is
simply equal to the
difference between the
carrying amounts of
recognized assets and
recognized liabilities.
Statistical Mean/Expected
value/Probability-weighted
average - Reflects the
average amount within the
entire range, giving more
weight to the outcomes
that are more likely. It is
not intended to predict the
ultimate cash
inflow(outflow) from an
asset(liability. Statistical
Median/Maximum amount
that is more likely than not
to occur - Is the middle
amount within the range
and reflects the probability
of an inflow or outflow to
be no more than that
amount. Downloaded by
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11477470 Statistical
Mode/Most Likely
outcome - Reflects the
single most likely ultimate
inflow(outflow) from the
asset(liability), which is
the amount that occurs the
highest number of times
within the range. Cash-
Flow-Based Measurement
Techniques - Are not
measurement bases, but
rather used in applying a
measurement basis.
Accordingly, when using
such technique, it is
necessary to identify which
measurement basis is used
and the extent to which the
technique reflects the
factors applicable to that
measurement basis.
Offsetting - Occurs when
an asset and a liability with
separate units of account
are combined and only the
net amount is presented in
the statement of financial
position. Aggregation - Is
the adding together of
assets, liabilities, equity,
income or expenses that
have shared characteristics
and are included in the
same classification.
Financial concept of
capital - Capital is
regarded as the invested
money or invested
purchasing power. Capital
- Is synonymous with
equity, net assets, or net
worth. Physical concept of
capital - Capital is
regarded as the entity's
productive capacity e.g.,
units of output per day.
Financial Capital
Maintenance - Under this
concept, profit is earned if
the net assets at the end of
the period exceeds the net
assets at the beginning of
the period, after excluding
any distributions to, and
contributions from, owners
during the period. It can be
measured in either nominal
monetary units or units of
constant purchasing power.
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11477470 Physical capital
Maintenance - Under this
concept, profit is earned
only if the entity's
productive capacity at the
end of the period exceeds
the productive capacity at
the beginning of the
period, after excluding any
distributions to, and
contributions from, owners
during the period. Capital
Maintenance - The concept
of
______________________
_ is essential in
distinguishing between a
return on capital and a
return of capital.
Regularity -
Accounting(Accounting
Standards Council) - It is a
service activity. Its
function is to provide
quantitative information,
primarily financial in
nature, about economic
entities, that is intended to
be useful in making
economic decision.
Accounting(Committee on
Accounting Terminology
of the American Institute
of Certified Public
Accountants) - Is the art of
recording, classifying and
summarizing in a
significant manner and in
terms of money,
transactions and events
which are in part at least of
a financial character and
interpreting the results
thereof.
Accounting(American
Accounting Association) -
Is the process of
identifying, measuring and
communicating economic
information to permit
informed judgment and
decision by users of the
information. Quantitative -
Accounting is about
__________________
information. Financial in
nature - The information
provided by accounting is
likely to be
________________
______ ____________.
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11477470 Decision
Making - The information
provided by accounting
should be useful in
_______________
___________. Accounting
- According to American
Accounting Association,
the very purpose of
_______________ is to
provide quantitative
information to be useful in
making an economic
decision. Identifying - It is
the analytical component
of Accounting. Measuring
- It is the technical
component of Accounting.
Communicating - It is the
formal component of
Accounting. Identifying -
This accounting process is
the recognition or
nonrecognition of business
activities as "accountable"
events. Identifying - Is the
process of analyzing events
and transactions to
determine whether or not
they will be recognized.
Recognition - Refers to the
process of including the
effects of an accountable
event in the statement of
financial position or the
statement of
comprehensive income
through a journal entry.
Accountable event - Is one
that affects the assets,
liabilities, equity, income
or expenses of an entity. It
is also known as economic
activity. Economic
Activity - Is the subject
matter of Accounting
which defines as the
measurement of economic
resources and economic
obligations. Non-
accountable events - Are
not recognized but
disclosed only in the notes,
if they have Accounting
relevance. Downloaded by
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11477470 Memorandum
Entry - A non-accountable
event that has an
accounting relevance may
be recorded through a
__________________.
Transactions/Events -
Economic activities of an
entity are referred to as
____________ which may
be classified as external
and internal. External
Events/External
Transactions - Are those
economic events involving
one entity and another
entity or external party.
Exchange
Event/Reciprocal Transfer
- An event wherein there is
a reciprocal giving and
receiving of economic
resources or discharging of
economic obligations
between an entity and an
external party. (Ex. Sale,
purchase, payment of
liabilities, receipt of notes
receivable in exchange for
accounts receivable, and
the like.) Non-reciprocal
transfer - Is a one way
transaction in that the party
giving something does not
receive anything in return
while the party receiving
does not give anything in
exchange. (Ex. Donations,
gifts or charitable
contributions, payment of
taxes, imposition of fines,
theft provision of capital
by owners, distributions to
owners, and the like.)
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 transfers of
resources or obligations.
(Ex. Changes in fair value
and prices levels,
obsolescence,
technological changes,
vandalism, and the like.
Interval events/Internal
Transactions - Are the
economic activities that
take place entirely within
the entity. Production - The
process by which resources
are transformed into
finished goods. (Ex.
Conversion of raw
materials into finished
products, production of
farm products, and the
like.) Downloaded by
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11477470 Casualty - Any
sudden or unanticipated
loss from disasters or other
events ordinarily termed as
an act of God. (Ex. Loss
from fire, flood, and other
catastrophes.) Measuring -
The accounting process of
assigning of peso amounts
or monetary terms to the
accountable economic
transactions and events.
Historical Cost - It is the
commonly used measure of
financial transactions.
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 costs. Common
financial denominator - If
Accounting is to be useful,
it must be expressed in
terms of a
______________
_____________
______________. Costs
and Values - Financial
statements are said to be
prepared using a mixture
of ________ ______
________. Opinion - When
measurement is affected by
estimates, the items
measured are said to be
valued by ___________.
(Ex. Estimates of
uncollectible amounts of
receivables, depreciation
and amortization expenses
which are affected by
estimates of useful life and
residual value, estimated
liabilities such as
provisions, retained
earnings which is affected
by various estimates of
income and expenses.)
Fact - When measurement
is unaffected by estimates,
the items measured are
said to be valued by
_________. (Ex. Ordinary
share capital valued at par
value, land stated at
acquisition cost, cash
measured at face amount.)
Communicating - Is the
process of transforming
economic data into useful
accounting information,
such as financial
statements and other
accounting reports, for
dissemination to users. It
also involves interpreting
the significance of the
processed information.
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11477470 Recording -
Refers to the process of
systematically committing
into writing the identified
and measured accountable
events in the journal
through journal entries.
Classifying - It involves
the grouping of similar
interrelated items into their
respective classes through
postings in the ledger.
Posting to the ledger -
Classifying is
accomplished by
_________ _____ _____
_________. Ledger - Is a
group of accounts which
are systematically
categorized into asset
accounts, liability
accounts, equity accounts,
revenue accounts and
expense accounts.
Summarizing - Putting
together or expressing in
condensed form the
recorded and classified
transactions and events.
This includes the
preparation of financial
statements and other
accounting reports.
Universal Language of
Business - Communicating
process is the reason why
accounting has been called
the
_____________________.
Interpreting - It involves
the computation of
financial statement ratios.
Accounting - Its basic
purpose is to provide
information that is useful
in making economic
decisions. Economic
entities - Use accounting to
record economic activities,
process data, and
disseminate information
intended to be useful in
making economic
decisions. Economic entity
- Is a separately
identifiable combination of
persons and property that
uses or controls economic
resources to achieve
certain goals or objectives.
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11477470 Not-for-profit
entity - One that carries out
some socially desirable
needs of the community or
its members and whose
activities are not directed
towards making profit.
Business entity - One that
operates primarily for
profit. Economic activities
- Are activities that affect
the economic
resources(assets) and
obligations(liabilities), and
consequently, the equity of
an economic entity.
Production - The process
of converting economic
resources into outputs of
goods and services that are
intended to have greater
utility than the required
inputs. Exchange - The
process of trading
resources or obligations for
other resources or
obligations. Consumption -
The process of using the
final output of the
production process.
Income Distribution - The
process of allocating rights
to the use of output among
individuals and groups in
society. Savings - The
process of setting aside
rights to present
consumption in exchange
for rights to future
consumption. Investment -
The process of using
current inputs to increase
the stock of resources
available for output as
opposed to immediately
consumable output.
Quantitative information -
Information provided by
accounting that are
expressed in numbers,
quantities, or units.
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11477470 Qualitative
Information - Information
provided by accounting
that are expressed in words
or descriptive form. It is
found in the notes to
financial statements as well
as on the face of the other
financial statements.
Financial Information -
Information provided by
accounting that are
expressed in money. It is
also quantitative in nature.
General Purpose
Accounting Information -
Designed to meet the
common needs of most
statement users. This
information is provided
under financial accounting.
General Purpose
Accounting Information -
Information governed by
generally accepted
accounting
principles(GAAP)
represented by the
Philippine Financial
Reporting
Standards(PFRSs). Special
purpose accounting
information - Designed to
meet the specific needs of
particular statement users.
This information is
provided by other types of
Accounting other than
financial accounting such
as managerial accounting
and tax basic accounting.
Accounting as an
information system -
Accounting measures
business activities,
processes information into
reports and communicates
the reports to decision
makers. Financial
Statements - These are key
product of Accounting
information system that
composed of documents
that report financial
information about an entity
to decision makers.
Financial Reporting - Tell
us how well an entity is
performing in terms of
profit and loss and where it
stands in financial terms.
Overall Objective of
Accounting - To provide
quantitative financial
information about a
business that is useful to
statement users particularly
owners and creditors in
making economic
decisions. Downloaded by
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11477470 Accountant -
The _______________
primary task is to supply
financial information so
that statement users could
make informed judgment
and better decision.
Decision-usefulness - It is
the essence of Accounting.
Accounting as a social
science - Accounting is a
body of knowledge which
has been systematically
gathered, classified and
organized. Accounting as
practical art - Accounting
requires the use of creative
skills and judgment.
Accounting as a language
of business - Accounting is
fundamental to the
communication of
financial information.
Creative Thinking -
Involves the use of
imagination and insight to
solve problems by finding
new relationships(ideas)
among items if
information. It is most
important in identifying
alternative solutions.
Critical Thinking -
Involves the logical
analysis of issues, using
inductive or deductive
reasoning to test new
relationships to determine
their effectiveness. It is
most important in
evaluating alternative
solutions. Accounting
Concepts - Refer to the
principles upon which the
process of Accounting is
based. Accounting
assumptions/Accounting
postulates - Are the
fundamental concepts or
principles and basic
notions that provide the
foundation of the
accounting process.
Accounting theory - Is
logical reasoning in the
form of a set of broad
principles that (i) provide a
general frame of reference
by which accounting
practice can be evaluated
and (ii) guide the
development of new
practices and procedures.
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11477470 Accounting
Theory - It is the organized
set of concepts and related
principles that explain and
guide the accountant's
action in identifying,
measuring, communicating
accounting Information. It
comprises the Conceptual
Framework and the
Philippine Financial
Reporting
Standards(PFRSs).
Double-entry system -
Each accountable event is
recorded in two parts -
debit and credit. Going
Concern Assumption - The
entity is assumed to carry
on its operations for an
indefinite period of time.
Meaning, the entity does
not expect to end its
operations in the
foreseeable future. Mixture
of Costs and Value - The
measurement basis
appropriate only when the
entity is a going concern.
Realizable Value - It is the
measurement basis
appropriate if the entity is a
liquidating concern. (Ex.
Estimated selling price less
estimated costs to sell for
assets and expected
settlement amount for
liabilities.) Separate
Entity/Accounting
Entity/Business Entity
Concept/Entity Concept -
The entity is viewed
separately from its owners.
Accordingly, the personal
transactions of the owners
among themselves or with
other entities are not
recorded in the entity's
accounting records. This
concept defines the area of
interest of the accountant.
Stable Monetary
Unit/Monetary Unit
Assumption - Assets,
liabilities, equity, income
and expenses are stated in
terms of a common unit of
measure, which is peso in
the Philippines. The
purchasing power of the
peso is regarded as stable
or constant and that is its
instability is insignificant
and therefore ignored.
Time
Period/Periodicity/Account
ing Period - The life of the
entity is divided into series
of reporting periods. An
accounting period is
usually 12 months and may
either be a calendar year or
a fiscal year. Calendar
Year - Period starts on
January 1 and ends on
December 31 of that the
same year. Downloaded by
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11477470 Fiscal Year -
Period also covers 12
months but starts on a date
other than January 1.
Materiality Concept -
Information is material if
its omission or
misstatement could
influence economic
decisions. It is a matter of
professional judgment and
is based on the size and
nature of the item being
judged. Cost-benefit/Cost
Constraint/Reasonable
Assurance - The cost of
processing and
communicating
information should not
exceed the benefits to be
derived from it. Accrual
Basis of Accounting - The
effects of transactions and
other events are recognized
when they occur(and not as
cash is received or paid)
and they are recorded in
the accounting records and
reported in the financial
statements of the periods to
which they relate. Income
is recognized when earned
rather than when cash is
collected and expenses are
recognized when incurred
rather than when cash is
paid. Historical Cost
Concept/Cost Principle -
The value of an asset is
determined on the basis of
acquisition cost. Lower of
cost and NRV
measurement - Inventories
are measured at net
realizable value rather than
at cost. Concept of
Articulation - All the
components of a complete
set of financial statements
are interrelated.
Accordingly, when users
use the financial statements
in making decisions, they
need to use each financial
statement in conjunction
with the other financial
statements. Full Disclosure
Principle - This principle
recognizes that the nature
and amount of information
included in the financial
statements reflect a series
of judgmental trade-offs.
Trade-offs - It strives for
sufficient detail to disclose
matters that make a
difference to users, yet
sufficient condensation to
make the information
understandable, keeping in
mind the costs of preparing
and using it. Downloaded
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11477470 Consistency
concept - The financial
statements are prepared on
the basis of accounting
principles that are applied
consistently from one
period to the next. Changes
in Accounting Policies -
Are made only when
required or permitted by
the PFRSs or when the
change results to more
relevant and reliable
information and are
disclosed in the notes.
Matching/Association of
Cause and Effect - Costs
that are recognized as
expenses when the related
revenue is recognized. RA
No. 10912 - The law
mandating and
strengthening the
continous professional
development program for
all regulated professions,
including the accountancy
profession. Continuing
Professional
Development/CPD -
Refers to the inculcation
and acquisition of
advanced knowledge, skill,
proficiency, and ethical
and moral values after the
initial registration of the
Certified Public
Accountant for
assimilation into
professional practice and
lifelong learning. It also
raises and enhances the
technical skill and
competence of the CPA.
120 CPD credit Units -
Under the new BOA
Resolution, all CPAs
regardless of area or sector
of practice shall be
required to comply with
__________ Entity Theory
- The accounting objective
is geared towards the
proper income
determination. Proper
matching costs against
revenues is the ultimate
end. This theory
emphasizes the income
statement and is
exemplified by the
equation "Assets =
Liabilities + Capital."
Proprietary Theory - The
accounting objective is
geared towards the proper
valuation of assets. This
theory emphasizes the
importance of the balance
sheet and is exemplified by
the equation "Assets -
Liabilities = Capital."
Residual Equity Theory -
This theory is applicable
when there are two classes
of shares issued, i.e,
ordinary and preferred.
The equation is "Assets -
Liabilities - Preferred
Shareholders' Equity =
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11477470 Shareholders'
Equity." This theory is
applied in the computation
of book value per share
and return on equity. Fund
Theory - The accounting
objective is neither proper
income determination nor
proper valuation of assets
but the custody and
administration of funds.
The objective is directed
towards cash flows,
exemplified by the formula
"Cash inflows - Cash
Outflows = Fund." This
concept is used in
government and fiduciary
accounting. Realization -
The process of converting
non-cash assets into cash
or claims for cash. It is also
the concept that deals with
revenue recognition.
Prudence/Conservatism -
Is the use of caution when
making estimates under
conditions of uncertainty,
such that assets or income
are not overstated and
liabilities or expenses are
not understated. In other
words, when exercising
this principle, the one
which has the least effect
on equity is chosen.
Cookie Jar Reserve - It is a
form of fraudulent
reporting wherein during
periods of high profits,
liabilities are overstated
through excessive
provisions of expenses or
non-recognition of income.
Matching Concept/Direct
association of Costs and
Revenues - Costs that are
directly related to the
earning of revenue are
recognized as expenses in
the same period the related
revenue is recognized.
Systematic and Rational
Allocation - Costs that are
not directly related to the
earning of revenue are
initially recognized as
assets and recognized as
expenses over the periods
their economic benefits are
consumed, using some
method of allocation such
as depreciation,
amortization and effective
interest method of
allocation. Immediate
Recognition - Costs that do
not meet the definition of
an asset, or ceases to meet
the definition of an asset,
are expensed immediately
such as casualty losses and
impairment losses.
Financial Accounting - Is
the branch of Accounting
that focuses on general
purpose financial
statements and is also
governed by the Philippine
Financial Reporting
Standards(PFRSs).
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11477470 General Purpose
Financial Statements - Are
those statements that cater
to the common needs of
external users, primarily
the potential and existing
investors, and lenders and
other creditors. External
Users - Are those who are
not involved in managing
the entity. Financial
Reporting - Endeavors to
promote principles that are
also useful in other
financial Reporting. Other
financial Reporting -
Comprises information
provided outside the
financial statements that
assists in the interpretation
of a complete set of
financial statements or
improves users' ability to
make efficient economic
decisions. Financial
Statements - Are the
structured representation of
an entity's financial
position and results of its
operations. They are the
end product of the
accounting process and the
means by which
information gathered and
processed are periodically
communicated to users.
Financial Report - Includes
the financial statements
plus other information
provided outside the
financial statements that
assists in the interpretation
of a complete set of
financial statements or
improves users' ability to
make efficient economic
decisions. Financial
Reporting - Is the
provision of financial
information about an entity
that is useful to external
users, primarily the
investors, lenders, and
other creditors, in making
investment and credit
decisions. Primary
objective of Financial
Reporting - To provide
information about an
entity's economic
resources, claims to those
resources, and changes in
those resources. Secondary
objective of Financial
Reporting - To provide
information useful in
assessing the entity's
management stewardship
or how efficiently and
effectively the entity's
management has
discharged its
responsibilities to use the
entity's economic
resources. Downloaded by
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11477470 Management
Accounting - Refers to the
accumulation and
communication of
information for use by
internal users or
management. Management
Advisory Services - An
offshoot of management
accounting which includes
services to clients on
matters of Accounting,
finance, business policies,
organization procedures,
product costs, distribution,
and many other phases of
business conduct and
operations. Cost
accounting - Is the
systematic recording and
analysis of the costs of
materials, labor, and
overhead incident to
production. Auditing - The
process of evaluating the
correspondence of certain
assertions with established
criteria and expressing an
opinion thereon. Tax
accounting - The
preparation of tax returns
and rendering of tax
advice, such as the
determination of the tax
consequences of certain
proposed business
endeavors. Government
Accounting - Refers to the
accounting for the
government and its
instrumentalities, placing
emphasis on the custody of
public funds, the purposes
for which those funds are
committed, and the
responsibility and
accountability of the
individuals entrusted with
those funds. Fiduciary
Accounting - Refers to the
handling of accounts
managed by a person
entrusted with the custody
and management of
property for the benefit of
another. Estate Accounting
- Refers to the handling of
accounts for fiduciaries
who wind up the affairs of
a deceased person. Social
Accounting/Social and
Environmental
Accounting/Social
Responsibility Reporting -
The process of
communicating the social
and environmental effects
of an entity's economic
actions to the society.
Institutional Accounting -
The accounting for non-
profit entities other than
the government.
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11477470 Accounting
Systems - The installation
of Accounting procedures
for the accumulation of
financial data and
designing of Accounting
forms to be used in data
gathering. Accounting
Research - Pertains to the
careful analysis of
economic events and other
variables to understand
their impact on decisions.
It also includes a broad
range of topics, which may
be related to one or more
of the other branches of
Accounting, the economy
as a whole, or the market
environment. Bookkeeping
- The process of recording
the accounts or
transactions of an entity. It
normally ends with the
preparation of the trial
balance. It does not require
the interpretation of the
significance of the
processed information.
Accountancy - Refers to
the profession or practice
of Accounting. Public
Practice of Accounting - It
does not involve an
employer-employee
relationship. Private
Practice of Accounting - It
involves an employer-
employee relationship,
meaning the accountant is
an employee. RA No. 9298
- The law regulating the
practice of accountancy in
the Philippines and is also
known as the Philippine
Accountancy Act of 2004.
Board of Accountancy -
The body authorized by
law to promulgate rules
and regulations affecting
the practice of the
accountancy profession in
the Philippines. It is
responsible for preparing
and grading Philippine
CPA Examination. Practice
of Public Accountancy -
Involves the rendering of
audit or accounting related
services to more than one
client on a fee basis.
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11477470 Practice in
Commerce and Industry -
Refers to the employment
in the private sector in a
position which involves
decision making requiring
professional knowledge in
the science of Accounting
and such position requires
that the holder thereof
must be a certified public
accountant. Practice in
Education/Academe -
Employment in an
educational institution
which involves teaching of
Accounting, auditing,
management Advisory
services, finance, business
law, taxation, and other
technically related
subjects. Practice in the
Government - Employment
or appointment to a
position in an accounting
professional group in the
Government or in a
government-owned and/or
controlled corporation,
including those performing
proprietary functions,
where decision making
requires professional
knowledge in the science
of Accounting, or where
civil service eligibility as a
certified public accountant
is a prerequisite.
Certificate of Accreditation
- It shall be issued to
certified public
accountants in public
practice only upon
showing in accordance
with rules and regulations
promulgated by the Board
of Accountancy and
approved by the
Professional Regulation
Commission that such
registrant has acquired
minimum of three years of
meaningful experience in
any of the areas of public
practice including taxation.
Corporation - The SEC
shall not register any
___________ organized
for the practice of Public
accountancy. Certificate of
Registration - Upon
recommendation of BOA
the PRC shall issue it to
practice public
Accountancy which shall
be valid for 3 years and
renewable every 3 years
upon payment of required
fees. Public
Accounting/Public
Accountancy - The field of
Accounting that is
composed of individual
practitioners, small
accounting firms and large
multinational organizations
that render independent
and expert financial
services to the public.
Controller - It is the
highest accounting officer
in an entity. Downloaded
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11477470 Private
Accountant - The major
objective of the
____________
____________ is to assist
management in planning
and controlling the entity's
operations. And has the
responsibility for the
determination of the
various taxes the entity is
obliged to pay. Private
Accounting - Includes
maintaining the records,
producing the financial
reports, preparing the
budgets and controlling
and allocating the
resources of the entity.
Government Accounting -
Its focus is the custody and
administration of public
funds. RA No. 10912 - The
law mandating and
strengthening the
continuing Professional
development program for
all regulated professions,
including the accountancy
profession. Continuing
Professional
Development/CPD -
Refers to the inculcation
and acquisition of
advanced knowledge, skill,
proficiency, and ethical
and moral values after the
initial registration of the
Certified Public
Accountant for
assimilation into
professional practice and
lifelong learning. It also
raises and enhances the
technical skill and
competence of the CPA.
CPD Credit Units - Refer
to the 120 credit hours
required for the renewal of
CPA License and
accreditation of a CPA to
practice the accountancy
profession every three
years. That is provides
under the new BOA
Resolution. 65 years - A
CPA shall be permanently
exempted from CPD
requirements upon
reaching the age of
___________.
Constructive - Accounting
is essentially
_____________ in nature.
Accounting ceases when
financial statements are
already prepared.
Analytical - Auditing is
___________. The work of
an auditor begins when the
work of the accountant
ends. Downloaded by
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11477470 Bookkeeping - It
is procedural and largely
concerned with
development and
maintenance of
Accounting records. It is
the how of Accounting.
Accounting - It is
conceptual and is
concerned with the why
reason or justification for
any action adopted.
Accountancy - It refers to
the profession of
accounting practice.
Financial Accounting - It is
primarily concerned with
the recording of business
transactions and the
eventual preparation of
financial statements. It
focuses on general purpose
reports known as financial
statements intended for
internal and external users.
Generally Accepted
Accounting
Principles/GAAP -
Represent the rules,
procedures, practice and
standards followed in the
preparation and
presentation of financial
statements and have
developed on the basis of
experience, reason,
custom, usage and
practical necessity. These
are like laws that must be
followed in financial
reporting. Political Process
- The process of
establishing GAAP is a
___________________
which incorporates
political actions of various
interested user groups as
well as professional
judgment, logic and
research. Overall Purpose
of Accounting Standards -
To identify proper
accounting practices for
the preparation and
presentation of financial
statements. Accounting
standards - Create a
common understanding
between preparers and
users of financial
statements particularly the
measurement of assets and
liabilities. Comparability
and Uniformity - A set of
high-quality standards is a
necessity to ensure
______________ and
_____________ in
financial statements based
on the same financial
information. Downloaded
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11477470 Accounting
Standards Council/ASC -
In the Philippines, the
development of generally
accepted accounting
principles is formalized
initially through the
creation of the
____________________.
Financial Reporting
Standards Council/FRSC -
Replaces the ASC.
Financial Reporting
Standards Council/FRSC -
The accounting standard
setting body created by the
PRC upon
recommendation of the
BOA to assist the BOA in
carrying out its powers and
functions provided under
R.A Act no. 9298.
Financial Reporting
Standards Council/FRSC -
Its main function is to
establish and improve
accounting standards that
will be generally accepted
in the Philippines.
Financial Reporting
Standards Council/FRSC -
The accounting standards
promulgated by the
__________ constitute the
highest hierarchy of
generally accepted
accounting principles in
the Philippines. Philippine
Accounting Standards/PAS
and Philippine Financial
Reporting Standards/PFRS
- The approved statements
of the FRSC are known as
__________ and
___________. Philippine
Financial Reporting
Standards/PFRSs -
Represents the generally
accepted accounting
principles(GAAP) in the
Philippines. Financial
Reporting Standards
Council/FRSC - Composed
of 15 individuals with a
Chairman who had been or
is presently a senior
accounting practitioner and
14 representative members.
3 years - The FRSC
Chairman and members
shall have a term of
__________ renewable for
another term. Philippine
Financial Reporting
Standards/PFRSs - Are
standards and
interpretations adopted by
FRSC and comprised of
PFRSs; PAS and
Interpretations.
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11477470 Philippine
Financial Reporting
Standards/PFRSs - Are
accompanied by guidance
to assist entities in
applying their
requirements. Financial
Statements - For
____________________ to
be useful, they should be
prepared using Reporting
standards that are generally
acceptable. Generally
Acceptable - It means the
standard has been
established by an
authoritative accounting
rulemaking body, e.g., the
PFRS adopted by the
FRSC; or the principle has
gained general acceptance
due to the practice over
time and has been proven
to be most useful, e.g.,
double-entry recording and
other implicit concepts.
Process of Establishing
Financial Accounting
standards - Is a democratic
process in that majority of
practicing accountants
must agree with a standard
before it becomes
implemented. Philippine
Interpretations
Committee/PIC - Formed
by the FRSC in August
2006 and has replaced the
Interpretations Committee
(IC) formed by the ASC in
May 2000. Philippine
Interpretations
Committee/PIC - Its role is
to prepare interpretations
of PRFS for approval by
the FRSC and to provide
timely guidance on
financial reporting issues
not specifically addressed
in current PFRS.
Interpretations - Are
intended to give
authoritative guidance on
issues that are likely to
receive divergent or
unacceptable treatment
because the standards do
not provide specific and
clearcut rules and
guidelines. International
Accounting Standards
Committee/IASC - Is an
independent private sector
body, with the objective of
achieving Uniformity in
the accounting principles
which are used by business
and other organizations for
financial Reporting around
the world. It was formed in
June 1973 through an
agreement made by
professional accountancy
bodies from Australia,
Canada, France, Germany,
Japan, Mexico, the
Netherlands, the United
Kingdom and Ireland, and
the United States of
America. And is
headquartered in London,
UK. Downloaded by James
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11477470 International
Accounting Standards
Committee/IASC - Its
objectives is to formulate
and publish in the public
accounting standards to be
observed in the
presentation of financial
statements and to promote
their worldwide acceptance
and observance. And To
work generally for the
improvement and
harmonization of
regulations, accounting
standards and procedures
relating to the presentation
of financial statements.
International Accounting
Standards Board/IASB -
Publishes standards in a
series of pronouncements
called IFRS. And now
replaces the IASC.
International Accounting
Standards Board/IASB - Its
standard setting process
includes in the correct
order research, discussion
paper, exposure draft and
accounting standard.
January 2005 - The
Philippines is fully
compliant with IFRS
effective ______________,
a process which was
started back in 1997 in
moving from USA GAAP
to IFRS. Financial
Reporting Standards
Council/FRSC - Issues
standards in a series of
pronouncements called the
PFRS. Hierarchy of
Reporting Standards -
When selecting policies, an
entity considers the
following in descending
order: 1)PFRSs 2)In
absence of PFRS
specifically applies to a
transaction or event,
management shall use its
Judgment. a) Requirements
of PRFS dealing with
similar and related issues
b) The Conceptual
Framework c)
Pronouncements of other
standard-setting bodies d)
Accounting Literature and
accepted industry practices
Management - The
selection of Accounting
policies is the
responsibility of the
entity's ______________.
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11477470 Accountant -
The proper application of
Accounting principles is
most dependent upon the
professional judgment of
the _____________.
Philippine Interpretations
Committee/PIC - A
committee formed by the
ASC, the predecessor of
FRSC, with the role of
reviewing the
interpretations of the
International Financial
Reporting Interpretations
Committee(IFRIC) for
approval and adoption by
the FRSC. Board of
Accountancy/BOA - The
professional regulatory
board created under RA
No. 9298 to supervise the
registration, licensure and
practice of accountancy in
the Philippines. It consists
of 6 members appointed by
the President of the
Philippines. It shall elect a
vice-chairperson from
among its members for a
term of 1 year. Securities
and Exchange
Commission/SEC - The
government agency tasked
in regulating corporations
and partnerships, capital
and investment markets,
and the investing public.
Some of its rulings affect
the accounting
requirements of entities
and the adoption and
application of Accounting
policies. Bureau of Internal
Revenue/BIR -
Administers the provisions
of the National Internal
Revenue Code. These
provisions do not always
reflect the goals of
financial reporting.
However, they do at times
influence the choice of
Accounting methods and
procedures. Bangko
Sentral ng Pilipinas/BSP -
Influences the selection
and application of
Accounting policies by
banks and other entities
performing banking
functions. Cooperative
Development
Authority/CDA -
Influences the selection
and application of
Accounting policies by
cooperatives. Regulatory
Accounting Principles -
Are accounting policies
prescribed by a regulatory
body such as BSP and
CDA.
International Accounting
Standards Board/IASB -
The standard-setting body
of the IFRS Foundation
with the main objectives of
developing and promoting
global accounting
standards and was
established in April 1,
2001. IASC Foundation -
Is a non-profit organization
based in Delaware, USA
and is a parent of the
IASB, which was based in
London. IFRS Foundation
- On July 1, 2010, the
IASC Foundation was
renamed to
______________.
International Financial
Reporting Standards/IFRSs
- These standards issued by
IASB and that composed
of IFRSs, IASs and
Interpretations.
International Financial
Reporting Interpretations
Committee/IFRIC - Is a
committee that prepares
interpretations of how
specific issues should be
accounted for under the
application of IFRS where
the standards do not
include specific
authoritative guidance and
there is a risk of divergent
and unacceptable
accounting practices.
International Financial
Reporting Interpretations
Committee/IFRIC - It
replaced the former
Standing Interpretations
Committee in 2002. IFRS
Advisory
Council(previously known
as SAC) - Is a group of
organizations and
individuals with an interest
in international financial
Reporting. Its role includes
advising in priorities
within the IASB's work
program. International
Federation of
Accountants/IFAC - Is a
non-profit, non-
governmental, non-
political organization of
accountancy bodies that
represents the worldwide
accountancy profession. Its
mission is to develop and
enhance the profession to
provide services of
consistently high quality in
the public interest.
International Organization
of Securities
Commissions/IOSCO - An
international body of
security commissions
wherein the Philippine
SEC is a member.
Users' Needs - Financial
Reporting Standards
continuously change
primarily in response to
_____________.