ACCOUNTING

CONCEPT AND
PRINCIPLES
 BASIC PRINCIPLES IN ACCOUNTING QUALITIVE
CHARACTERISTICS OF
ACCOUNTING CONSTRAINTS ACCOUNTING INFORMATIONS

ACCOUNTING GENERALLY CONCEPTUAL BASIC BASICA PRINCIPLES

CONCEPT, ACCEPTED FRAMEWORK ASSUMPTIONS in
CONVENTION and ACCOUNTING
Principles PRINCIPLES
ACCOUNTING

ELEMENTS OF RELATIONSIP BASIC DEFINIATION,

BASIC FINANCIAL DEFINITION, CLASSIFICATION
FINANCIAL AMONG FINANCIAL ACCOUNTING
CLASSIFICAT
STATEMENTS STATEMENT AND EXAMPLE
STATEMENT ELEMENTS ION OF ACCOUNTS
page 2
 ACCOUNTING
CONCEPTS,
CONVENTIONS AND
PRINCIPLES
USERS OF FINANCIAL REPORTS
SHOLD BE ABLE TO UNDERSTAND
FINANCIAL INFORMATION IN ORDER
TO DRAW SOUND, CONSISTENT AND
PROFITABLE ECONOMIC DECISIONS.

PROPER UNDERSTANDING OF
FINANCIAL STATEMNETS IS
POSSIBLE ONLY WHEN A USERS HAS
A BASIC KNOWLEDGE OF CONCEPT,
CONVENTIONS, AND PRINCIPLES
WHICH SERVE AS GUIDELINES IN
FINANCIAL REPORTING.
 ACCOUNTING
CONCEPT
THIS IS THE IMPORTANT IDEAS
WHICH ACCOUNTANT ASSUME
IN RECORDING
TRANSACTIONS.
EXAMPLE OF ACCOUNTING
CONCEPTS ARE SEPARATE.
ENTITY, GOING CONCERN,
TIME PERIOD, ACCRUAL, AND
MONETARY UNIT . THESE
SERVE AS THE BEDROCK OF
ACCOUNTING AND THEY ARE
ALSO KNOWN AS
“POSTULATES” OR “
ACCOUNTING ASSUMPTIONS”
page 4
 ACCOUNTING
CONVENTIONS
THIS IS THE ACCOUNTING
PRACTICES THAT PRACTITIONER’S
ARE BECAUSE OF THEIR LONG
EXISTANCE AND USE. A GOOD
EXAMPLE OF AN ACCOUNTING
CONVENTION IS THE USE OF
“DEBIT” AND “CREDIT” OR THE
“DUAL CONCEPT” . ACCOUNTANTS
HAVE LONG OBSERVED THIS
PRACTICE BASED ON THE IDEA.
EVERY BUSINESS TRANSACTION,
A VALUE RECEIVED HAS A
CORRESPONDING VALUE GIVEN,

page 5

ACCOUNTING
PRINCIPLES
LOREM IPSUM DOLOR SIT AMET,
CONSECTETUR ADIPISCING ELIT. ETIAM
ALIQUET EU MI QUIS.
ARE THOSE THAT HAVE FIRST IMPORTANCE,
WHICH DEFINE BROADLY THE ACTIONS THAT
WILL BEST ACCOMPLISH THE OBJECTIVES OF
ACCOUNTING.
ACCORDINGLY, ACCOUNTING PRINCIPLES ARE
DISTINGUISHED FROM ACCOUNTING
PROCEDURES, RULES, AND METHODS BECAUSE
THE LETTER COMPARISE THE SPECIFICS ON HOW
TRANSACTIONS AND OTHER EVENTS SHOULD BE
RECORDED, CLASSIFIED, SUMMARIZED, AND
PRESENTED.
ACCOUNTING PRINCIPLES ARE CONTINUALLY
EVLVING AND DEVELOPING TO MEET CHANGING
NEEDS AND CONDITIONS. THEY ARE INFLUENCED
BY CHANGES IN ECONOMIC CONDITIONS AND
BUSINESS PRACTICES.
ACCOUNTING CONCEPTS, CONVENTION,
PRINCIPLES, RULES, ASSUMPTIONS, DOCTRINES
AND POSTULATES, THESE TERM ARE NOT
EXACTLY THE SAME IN MEANING, BUT OVER
SEVERAL YEAR, ACCOUNTANTS HAVE USED
THEM INTERCHANGEABLY.
page 6
THE AUTHORITATIVE BODY OF ACCOUNTANCY
FORMULATED STANDARD PRINCIPLES,
ASSUMPTIONS, AND PROEDURES THAT ARE
CALLED “ GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)”. THESES PRINCIPLES ARE
USED UNIFORMLY BY ACCOUNTANTS IN
MEASURING, RECORDING, AND REPORTING
FINANCIAL ACTIVITIES OF AN ENTITY. THESE
ARE DEVELOPED BASED ON EXPERCIENCE,
RESEARCH, AND CAREFUL STUDY. THEY BECOME
THE GENERALLY
GENERALLY ACCEPTED BY AGREEMENT AMONG
ACCOUNTING PRACTITIONERS. ACCEPTED
THE MAIN OBJECTIVE OF GAAP IS EXPRESSED IN
THE PHRASE OF THE STANDARD AUDITOR’S
ACCOUNTING
REPORT WHICH STATES “TO FAIRLY REPRESENT
THE FINANCIAL STATEMENTS. IN CONFORMITY PRINCIPLES
WHICH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.”

THE GAAPs USED IN THE PHILIPPINES ARE THE

PASs and PFRs. THEY ARE ADOPTED BY THE
FRSC FROM THE IASs and IFRSs of IASB.

page 7
 THE ACCOUNTING CONCEPTUAL
FRAMEWORK ESTABLISHES A COMMON
GROUND ON THE
FOLLOWING:
1. IDENTIFYING THE BOUNDERIES OF FINANCIAL
REPORTING:

2. SELECTING THE TRANSACTIONS, OTHER

EVENTS, AND CIRCUMTANCES TO BE
REPRESENTED;

3. RECOGNAZING AND MEASURING.

4. SUMMARIZING AND REPORTING TRANSACTION

AND EVENTS. ACCOUNTING
CONCEPTS AND
PRINCIPLES
page 8
 THIRD LEVEL: SECOND LEVEL: “ WHAT
FIRST LEVEL: “WHY IS
DOES FINANCIAL
“HOW IS FINANCIAL REPORTING COMPRISE
FINANCIAL REPORTING
DONE?:
REPORTING DONE?” OF?”

QUALITATIVES
RECOGNATION, MEASUREMENT,

ASSUMPTIONS
AND DISCLOSURE CONCEPT

CHARACTERISTIC
S
OF ACCOUNTING
INFORMATION OBJECTIVES OF
PRINCIPLES FINANCIAL
REPORTING
ELEMENTS OF
FINANCIAL
STATEMENTS
CONSTRAINTS

OVERVIEW OF CONECEPTUAL FRAMEWORK

page 9
ACCOUNTING ASSUMPTIONS PROVIDE
A FOUNDATION FOR THE RATIONAL
AND SYSTEMATIC FORMULATION PF
PRINCIPLE AND THE DEVELOPMENT
OF PRINCIPLES AND THE
DEVELOPMENT OF PROCEDURES AND
METHODS USED TO PERFORM
ACCOUNTING SERVICES.

FIVE BASIC ASSUMPTIONS STAND AS

FOUNDATION OF THE FINANCIAL BASIC
ACCOUNTING STRUCTURE, NAMELY
1. ECONOMIC ENTITY ASSUMPTIONS
IN
2. GOING CONCERN
3. MONETARY UNIT
4. PERIODICITY
5. ACCRUAL BASIS
ACCOUNTING
page 10
UNDER ECONOMIC ENTITY,
ACCOUNTANTS REGARD A BUSINESS ECONOMIC
ENTERPRISE AS A SEPARATE AND
DISTINCT ENTITY FROM THE PERSON ENTITY
OR PEOPLE WHO OWN AND RUN IT.
CONSEQUENTLY, A BUSINESS MUST ASSUMPTION
KEEP ITS OWN RECORD FROM THE
POINT OF VIEW OF A BUSINESS AND
NOT TO BE MERGED WITH THE
PERSONAL TRANSACTIONS OF THE
OWNERS

THE MAIN PURPOSE OF OBSERVING

THE SEPARATE ENTITY CONCEPT IS TO
PROPERLY ACCOUNT THE REAL
TRNSACTION OF THE BUSINESS IN
ORDER TO REPORT THE TRUE AND
FAIR PICTURE THE BUSINESS
FINANCIAL AFFIARS.
page 11
 THIS ACCOUNTING CONCEPT
ASSUMES THAT MONEY IS THE
COMMON DENOMINATOR IN
MEASURING ECONOMIC

TA R Y ACTIVITY

O N E
M
ACCOUNTING GENERALLY

U N I T PAYS NO ATTENTION TO
INFLATION OR DEFLATION

T ION (PRICE CHANGES) AND

UM P ASSUMES THAT THE

AS S MONETARY UNIT REMAINS

STABLE REGARDLESS OF
FLUCTUATION IN MONEY
VALUE

page 12
 THE CONCEPT ASSUMES THAT THE
BUSINESS ENTITY WILL CONTINUE
OPERATING INDEFINITELY FOR A
PERIOD OF TIME SUFFIECIENT TO
CARY OUT ITS CONTEMPLATED
OBJCTIVES, PLANS, CONTRACTS,
AND COMMITMENTS UNLESS THE
LIQUIDATION OF THE ENTITY IS
IMMINENT. THE VALUE OF
ACCOUNTING ELEMENTS IN THE
GOING FINANCIAL STATEMENTS SHOULD BE
BASED ON THE ACCOUNTING
CONCERN CONVENTIONS OF OBJECTIVITY AND
HISTORICAL COST.
ASSUMPTION
page 13
TIME PERIOD ASSUMES THAT THE LIFE OF
THE ENTERPRISE IS DEVIDED INTO SEVERAL
T I M E
PERIODS ( normally at Equal lengths of time ).
Y ( or
WHEN FINANCIAL REPORT IS PREPARED, IT
DI C I T T IO N
IS IMPORTANT TO INDICATE THE DATE WHEN
RI O U M P
IT WAS PREPARED AND THE TIME PERIOD IT PE ) A S S
R IO D
COVERS.
PE
A TIME PERIOD IS USUALLY CALLED AN
ACCOUNTING PERIOD. WHICH IS CLASSIFIED
AS EITHER.
*CALENDAR YEAR = 12 Months starting
January to December
*FISCAL YEAR = 12 Months but start from any
moth other than January.
*INTERM PERIOD = Financial report are
prepared at any date if the twelve-month
period is not yet done.

page 14
START ACCOUNTING PERIOD END

THE STATEMENT OF FINANCIAL POSITION CAN BE PREPARED AY TIME

WITHIN THE GIVEN PERIOD

FINACIAL STATEMENTS PREPARED

AT THE END OF THE PERIOD
COVERING BUSINESS TRANSACTION
FROM START TO THE END

page 15
 FINANCIAL STATEMNETS, EXCEPT
STATEMENTS OF CASH FLOWS, ARE PREPARED
ON THE ACCRUAL BASIS OF ACCOUNTING. IN
THE OTHER WORD, THE REVENUE OF AN
ENTERPRISE INCLUDE NOT ONLY THOSE CASH
RECIEPTS FROM REVENUE TRANSACTION
ACCRUAL-BASED DURING A FINANCIAL PERIOD, BUT ALSO THE
INCOME EARNED BUT NOT YET RECEIVED
ASSUMPTION (ACCRUED INCOME).

IN CONTRAST TO THE ACCRUAL BASIS IS THE

CASH BASIS. UNDER CASH-BASES
ACCOUNTING, BUSINESS ENTITY RECORDS
REVENUE OR EXPENSES WHEN ONLY CASH IS
RECEIVED OR PAID. CASH-BASIS ACCOUNTING
IS NOT ALLOWED UNDER IFRS BECAUSE IT
VIOLETES THE REVENUE AND EXPENSE
RECOGNITION PRINCIPLES.

page 16
BASIC PRICIPLE OF ACCOUNTING
THERE ARE FOUR BASIC
PRINCIPLE OF
ACCOUNTING THAT ARE
USED TO RECORD REPORT
TRANSACTION NAMELY:

1.MEASUREMENT
2. REVENUE RECOGNATION
3.EXPENS RECOGNITION
4.FULL DISCLOSURE
page 17
 MEASUREMENT PRINCIPLE

MEASUREMENT PRINCIPLES GUIDE ACCOUNTANS HOW

ASSETS AND LIABILITIES ARE VALUED. ACCOUNTING USES
TWO MEASUREMENT PRINCIPLE :

1. COST PRINCIPLES. ALSO KNOWN AS HISTORICAL COST

PRINCIPLE. AS REQUIRED BY IFRS, BUSINESS ENTITIES SHOULD
ACCOUNT FOR AND REPORT MANY ASSETS AND LIABILITIES ON THE
BASIS OF ASQUISITION PRICE.

2. FAIR VALUE PRINCIPLE. FAIR VALUE IS DEFINED AS “ THE AMOUNT OF

WHICH AN ASSET COULD BE EXHANGE, A LIABILTY COULD BE SETTLED, OR
AN EQUITY INSTRUMENT GRANTED COULD BE EXCHANGED BETWEEN
KNWOLEDGEABLE AND WILLING PARTIES IN AN ARM’S LENGTH
TRANSACTION .

page 18
 REVENUE RECOGNITON
PRINCIPLE

REVENUE IS SYNONYMOUS TO INCOME. INCOME IS

DEFINED AS “ INCREASES IN ECONOMIC BENEFITS THE
ACCOUNTING PERIOD IN THE FORM OF INFLOWS OR
ENCHANCEMNETS OF ASSETS OR DEACRESES OF
LIABILITIES THAT RESULT IN INCREASES IN EQUITY.

AS A RULE, INCOME IS RECOGNIZED WHEN EARNED OR

HAS BEEN SUBSTANTIALLY COMPLETED, GENERALLY
AT THE PIONT OF SALE. IT IS BECAUSE THE TRANSFER
OF TITLE OF OWNERSHIP IS MADE AT THE PIONT OF
SALE.

page 19
 EXCEPTION TO THE RULE TO RECOGNIZED REVENUE
AT THE POINT OF SALE ARE FOLLOWS:
1. EARLIER RECOGNATION – REVENUE CAN BE RECOGNIZED BEFORE THE TIME OF SALE THIS MAY BE IN
TWO EXEPTIONAL MANNERS AS FOLLOWS:
A. AT THE POINT OF COMPLETED PRODUCTION. WHEN PRODUCTS HAVE A READY MARKET, WITH
ESTABLISHED PRICE AND WITH NO SUBSTANTIAL EXPENSES OR EFFORT FOR THEIR SALE REVENUE CAN BE
REPORTED AT THE TIME OF COMPLETED PRODUCTION.
B. AT A CERTAIN PERCENTAGE OF COMPLETION. THIS SPECIAL REVENUE RECOGNATION IS APPLICABLE
WHEN PRODUCTION OR PERFORMANCCE OF SERVICE TO COMPLETE AN ADVANCED CONTRACT EXTEND FOR
MORE THAN ONE YEAR
2. LATER RECOGNATION. REVENUE RECOGNITION AFTER THE POINT OF SALE IS APPLICABLE WHEN THE
COLLLECTION FOR THE PAYMENTS OF SERVICE RENDERED OR GOODS DELIVERED ARE DOUBTFUL EVEN IF THE
GOODS ARE ALREADY DELIVERED OR THE SERVICE HAVE BEEN RENDERED.
THERE ARE THREE METHODS GENERALLY EMPLOYED RECOGNAZING EVENUE AFTER THE TIME OF SALE:
A. CASH OR PROFIT RECOVERY METHOD. THIS METHOD RECOGNIZES FIRST THE PROFIT UPON COLLECTION.
LATER COLLECTION SHALL BE APPLIED TO THE COST OF THE PRODUCT SOLD.

B. COST RECOVERY METHOD. IN THIS METHOD, THE RECOGNITION OF REVENUE IS MADE ONLY WHEN THE
RELATED COST OR EXPENSES OF SALE ARE FULLY RECOVERED. IN THE OTHER WORD REVENUE IS THE EXFESS
PORTION OF COLLECTION OVER COST INCURRED.

page 20
C. INSTALLMENT METHOD OR HYBRID METHOD. THIS IS USUALLY APPLIED ON A CASH BASIS AND
INSTALLMENT SALES. IN INSTALLMENT SALES, REVENUE IS TO BE RECOGNIZED BY MULTIPLYING THE TOTAL
COLLECTION BY THE GROSS PROFIT RATE.

EXPENSE RECOGNITION PRINCIPLE

EXPENSES ARE DEFINED AS OUTFLOWS OR OTHER “USING” OF ASSETS OR INCURING OF LIABILITIES (OR A
COMBINATION OF BOTH) DURING A PERIOD AS A RESULT OF DELIVERING OR PRODUCING GOODS
AND/SERVICES. EXPENSES IS RECOGNIZED WHEN INCOME IS EARNED.

THE EXPENSE RECOGNITION PRINCIPLE IS APPLIED IN ONE OF THREE WAYS. AS FOLLOWS:

1. ASSOCIATING CAUSE and EFFECT. THIS IS ALSO CALLED DIRECT MATCHING PRINCIPLE BECAUSE THERE IS A
CLEAR AND DIRECT RELATIONSHIP THAT EXISTS BETWEEN THE EXPENSE AND THE REVENUE
2. SYSTEMATIC and RATIONAL ALLOCATION. SOME ASSETS ARE USEFUL AND CAN PROVIDE BENEFITS TO THE
BUSINESS OVER SEVERAL YEARS.
3. IMMEDIATE RECOGNITION. THESE EXPENSES HAVE NO DISCERNIBLE FUTURE BENEFIT AND SO THEY ARE
EXPENSED IMMEDIATELY AS INCURRED.

page 21
FULL-DISCLOSURE PRINCIPLE
FULL-DISCLOSURE PRINCIPLE. IT REQUIRES THAT FINANCIAL STATEMENTS SHOULD
REPORT ALL RELEVANT INFORMATION BEARING ON THE ECONOMIC AFFAIRS OF A
BUSINESS ENTERPRISE, INCLUDING SUBSEQUENT EVENTS.

MANY ITEMS, SUCH AS MINUTES OF THE MEETING AND CONTRAST, FAIL TO MEET THE
CRITERIA OF RECOGNITION BUT MUST STILL KNOW FOR RELEVANCE AND COMPLETE
REPORTING. IN ADDITION, THE REPORT SHOULD REVEAL A TRANSACTION’S ECONOMIC
SUBSTANCE RATHER THAN MERELY ITS FORM.

FINANCIAL INFORMATION SHOULD ALSO BE ACCOMPANIED WITH NOTES TO THE

FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES AND OTHER INFORMATION.
THEY MAY INCLUDE DISCLOSURE ABOUT THE RISKD AND UNCERTAINTIES AFFECTING
THE ENTERPRISE AND ANY RESOURCES AND OBLIGATIONSS NOR RECOGNIE IN THE SFP.

INFORMATION ABOUT GEOGRAPHICAL AND INDUSTRY SEGMENTS AND THE EFFECT ON

THE ENTERPRISE OF CHANGING PRICES MY ALSO BE PROBIDED IN THE FORM OF
SUMPPLEMENARY INFORMATION.

page 22
 SUPPLEMENTAL INFORMTION IS DISCLOSED
IN A VARIETY OF WAYS, INCLUDING:
A. PARENTHETICAL COMMENTS OR MODIFYINGW COMMENTS
PLACED ON THE FACE OFF THE FINANCIAL STATEMENT.
B. DISCLOSURE NOTES CONVEYING ADDITIONAL INSIGHT
ABOUT COMPANY OPERTIONS, ACCOUNTING PRINCIPLES,
CONTRACTUAL AGREEMENTS, AND PENDING LITIGATION.
C. SUPPLEMENTAL FINANCIAL STEMENTS THAT REPORT MORED
DETAILED INFORMATION THAN IS SHOWN IN THE PRIMARY
FINANCIAL STATEMENTS.

page 23
 ACCOUNTING CONSTRAINTS
ACCOUNTING PRACTICE IS GENERALLY LIMITED BY THE FOLLOWING
CONSTRAINTS, COST CONSTRAINT AND MATERIALITY CONSTRAINT.
COST CONSTRAINT
COST CONTAINT SUGGEST THAT THE BENEFITS OF ACCOUNTING FOR AND
REPORTING INFORMATION SHOULD OUTWEIGHT THE COSTS. REPORTING
ENTITY MUST CONSIDER THE COST OF INFORMATION. IT SHOULD
CONDUCT A STUDY OF THE COST-BENEFIT ANALYSISS BEFORE MAKING
FINAL THEIR INFORMATIONAL REQUIREMENTS.
MATERIALLITY CONSTAINT
THE MATERIALITY CONSTRAINT CONCERN AN ITEMS IMPACT ON
AN ENTITY’S OVER ALL FINACIAL OPERATIONS. IT INVOLVES A
RELATIVELY SIGNIFICANT AMOUNT AND IMPORTANCE THAT
WOULD CHANGE A DECISION IF IT HAS BEEN OMITTED OR
PRESENTED.

page 24
 LIMITATION OF ACCOUNTING
CONCEPTS
ALTHOUGH THESE ACCOUNTING CONCEPTS AND
PRINCIPLE ARE VERY USEFUL IN DEVELOPING THE
ACCOUNTING STRUCTURE OF AN ORGANIZATION, THEY
ALSO ARE SUBJECT TO THE FOLLOWING LIMITATIONS:

1. THERE IS NO COMPLETE SET OF CONCEPTS AVAILABLE.

2. UNLIKE THE DOUBLE-ENTRY SYSTEM, THESE CONCEPT ARE NOT
UNIVERSALLY ACCEPTED IN THE USE OF THEIR TERMS AS PRINCIPLE,
CONVENTIONS, POSTULATES, ASSUMPTIONS.
3. EVEN IN THE APPLICATION OF THESE CONCEPTS, THERE
IS NO ABSOLUTEE UNIFORMITY.

page 25
 QUALITATIVE CHARACTERISTECCS OF
ACCOUNTING INFORMATION
ACCOUNTING ADOPTS SOME BASIC INGREDIENTS NECESSARY TO MAKE
ACCOUNTING REPORTS USEFUL. THE QUALITATIVE CHARACTERISTEC OF
ACCOUNTING INFORMATION, GUIDE THE REPORTING ENTITY IN THE FOLLOWING:

1. DECISION-USEFULNESS. TO CHOOSE WHICH AMONG THE ACEPTBALE

ACCOUNTING METHODS COULD PROVIDE THE MOST USEFUL INFORMATION
FOR DECISION-MAKING PURPOSE.

2. RELEVANT-
DESCLOSURE. TO DETERMINE THE AMOUNT AND
TYPES OF ACCOUNTING INFORMATION TO DISCLOSE.

3. REPORTING FORMAT. TO USE TH APPROPRIATE PRESENTATION

AND CONTENTS OF REPORTING CONSISTENT TO THE FINANCIAL
REPORTING OBJECTIVES.

page 26
 FUNDAMENTAL QUALITIES OF ACCOUNTING

RELEVANT, ACCOUNTING INFORMATION MUST BE CAPABLE OF

INFLUENCING OR MAKING A DIFFERENCE IN AN ECONOMIC DECISION.
PREDICTICE VALUE, ACCOUNTING INFORMATION
SHOULD BE HELPFUL TO DECISION MAKERS WHEN IT HAS
INPUTS TO INCREASE THEIR ABILITY TO FORECAST THE
OUTCOMES OF FUTURE EVENTS.
CONFIRMATIVE VALUE, ACCOUNTING INFORMATION
SHOULD BE HELPFUL TO DECISION MAKERS WHO ARE VALIDATING,
MAKING UODATES, ADJUSTMENTS, OR CORRECTIONS TO PAST
PREDICTIONS
page 27
FIATHFUL REPRESENTATION, The main
objective of faithful is to achieve public trust
and confidence in the financial statement.

COMPLETENESS. THE FINANCIAL REPORTS MUST

CONTAIN ALL NESESSARY INFORMATION THAT WOULD
INFLUENCE AN ECONOMIC DECISION

NEUTRALITY. INFORMATION IS NUTRAL WHEN

IT IS FAIR OR FREE FROM BAIS TOWARD A
DESIRED RESULT OR BEHAVIOR.

page 28
FREE FROM ERROR. FINANCIAL INFROMATION MUST BE FREE FROM
MATERIAL ERROR TO FAITHFULLY EMBODY THE REPRESENTATION CONTAINED
THEREIN.

BASIC ACCOUNTING

ENCHANCING QUALITIES OF ACCOUNTING

COMPLEMENTARY TO THE FUNDAMENTAL QUALITATIVE
CHARACTERISTIC ARE THE ENCHANCING QUALITATIVE
CHARACTERISTIC OF FINANCIAL REPORTING.

page 29
UNDERSTANDBILITY. TO BE USEFUL, ACCOUNTING
INFORMATION MUST BE COMPREHENSIBLE. ACCOUNTING PROVIDE
UNDERSTABLE FINANCIAL UNDERSTABLE FINANCIAL ACCOUNTING
INFORMATION BY PRESEBTING DATA.
VERIFIABILITY. IT OCCURS WHEN INDEPENDENT MEASURES, USING
THE SAME ACCOUNTING METHODS, COULD ARRIVE WITH THE SAME
RESULTS.

FOR INSTANCE, TO VERIFY THE INVENTORY, ACCOUNTANTS MY CONDUCT THE

FOLLOWING:

1. DIRECTVERIFICAON. THIS IS DONE WHEN INDEPENDENT AUDITORS CONDUCT

ACTUL PHYSICAL INSPECTION AND COUNT OF INVENTORY AND CONFIRM THE
CORRECTNESS OF INVENTORY AMOUNT AS PRESENTED IN THE FINANCIAL REPORTS.

page 30
2. INDERECT VERICATION. THIS IS DONE BY SIMPLY CHEEKING THE INPUTS
(QUANTITY AND COST) AND RECALCULATING THE OUTPUTS (ENDING INVENTORY)
USING THE SAME ACCOUNTING METHODOLOGY

TIMELINESS. ACCOUNTING INFRMATION MUST BE AVAILABLE ON

TIME WHEN NEEDED IF IT IS TO INFLUENCE DECISION.
COMPARABILITY. ENABLE USERS TO IDENTIFY SIMILARITIES AND
DIFFERENCES BETWEEN TWO OR MORE SETS OF ECONOMIC
CIRCUMTANCES.

page 31
 BASIC FINANCIAL STATEMENTS
FINANCIAL STATEMENT. THIS IS THE FORMAL REPORT PREPARED BY ACCOUNTANTS. THESEE STATEMENT SHOW
THE FINANCIAL EFFECTS OF TRNSACTION AND OTHER EVENTS.

BASE ONN THE PAS NO. 1 THE BASIS FINANCIAL STATEMENT ARE THE FOLLOWING:

1. STATEMENT OF FINANCIAL POSITION. (SSFP) ALSO KNOWN AS THE BALANCE

SHEET SHOWS THE FINANCIAL CONDITION OF THE BUSINESS ENTITY AT ANY GIVEN
TIME.
2. STATEMENT OF COMPREHENSIVE INCOME. IS ALSO KNOWN AS THE
INCOME STATEMENT. THIS ACCOUNTING REPORT SHOWS THE OPERITNG,
PERFORMANCE OF THE BUSINESS ENTITY FOR GIVEN PERIOD.
3.STATEMENT OF CHANGE IN EQUITY. SHOWS THE MOVEMENT IN
THE VARIOUS ELEMNST OF THE OWNERS EQUITY OR CAPITAL FOR CERTAIN PERIOD.
A). OWNER’S INVESTMENT TO THE BUSINESS
B). PROFIT OR LOSS FOR THE PERIOD
C) OWNERS PERSONAL WITHDRAWALS
D) PRIOR PERIOD ADJUSTMENT
page 32
4. CASH FLOW STATEMENT. THIS FINANCIAL REPORT EXPLAIN THE CHANGES OF
CASH AND CASH EQUIVALENTS DURING AN ACCOUNTING PERIOD.
A CASH EQUIVALENT IS A SHORT-TERM, HIGHLY LIQUID INVESTMENT THAT IS EASILY
CONVERTIBLE TO CASH.

THE COMPONENTS OF A CASH FLOW STATEMENT ARE CLASSIFIED INTO THE

FOLLOWING ACTIVITIES:

a). OPERATING. THE INFLOWS AND OUTLOWS OF CASH FROM THE NORMAL OPERATING
ACTIVITIES OF THE BUSINESS.

b). INVESTING. THE INFLOWS AND OUTLOWS OF CASH FROM THE SALE OR PURCHASE OF
ASSETS OTHER THAN INVENTORY.

c). FINANCING. THE INFLOWS AND OUTLOWS OF CASH FROM THE OWNERS AND CRIDETORS
OF THE ENTERPRISE.

THE COMPONENTS OF THE CAHS FLOW STATEMENT MERELY EXPLAIN THE SOURCES AND
USES OF CAHS.

page 33
5. NOTES TO THE FINANCIAL STATEMENTS- THE PARENTHETICAL DISCLOSURE AND NOTES TO RHE
FINANCIAL STATEMENTS ARE CONSIDERED PART OF THE BASIC FINANCIAL STATEMENTS TO ACHIEVE PROPER
UNDERSTANDING OF THE FINANCIAL REPORTS.

ELEMENTS OF FINANCIAL STAEMENT (FS)

THE IASB FRAMEWORK PROVIDES FIVE INTERRELATED ELEMENTS THAT ARE USE TO
MEASURING THE FINANCIAL POSITION AND THE OPERATING PERFORMANCE OF BUSINESS
ENTERPRISE.

THE FOLLOWING ELEMENTS DIRECTLY USED TO THE MEASUREMENT OF FINACIAL POSITION ARE THE FOLLOW:
1. ASSETS- THESE ARE RESOURCES OWNED OR CONTROLLED BY AN RESULTING FROM THE PAST
EVENTS AND FROM THEM, FUTURE ECONOMIC BENEFITS ARE EXPECTED
2. LIABILITIES- THESE ARE EXISTING OBLIGATIONS OF THE ENTITY ARISING FROM PAST EVENTS

page 34
page 35
 THE ELEMENTS THAT ARE USED TO MEASURE OPERATING
PERFORMNCE CONSIST OF THE FOLLOWING:
4. REVENUE: THESE ARE INCREASE IN ASSETS OR
DECREASES IN LIABILITIES ARISING FROM BUISNESS
OPERTATION DURING AN ACCOUNTING PERIOD THAT
RESULT TO INCREASE OWNERS EQUITY.
5. EXPENSES. THESE ARE DECREASE IN ASSETS OR INCREASE IN
LIABILITIES ARISING FROM BUSINESS OPERATION DURING AN
ACCOUNTING PERIOD THAT RESULT TO TH DECREAS IN OWNERS
EQUITY.

RECOGNATION OF THE ELEMENTS OF (FS). THE WORD

“RECOGNATION” IN ACCOUNTING REFERS TO THE PROCESS OF
RECORDING AN ITEM IN THE BOOKS OF ACCOUNTS OR REPORTING
THE ELEMNTS OF FINANCIAL ASTATEMENTS.
page 36
AS A RULE, AN ITEM SHOUD BE RECOGNIZED WHEN THE
FOLLOWING TWO CRITERIA ARE MET:

1. PROBABILITY OF FUTURE BENEFIT: IT IS PROBABLE THAT ANY

FUTURE ECONOMIC BENEFIIT ASSOCIATED WITH THE ITEM WILL
FLOW TO OR FROM THE ENTITY.

2.RELIABILITY OF MEASUREMENT: THE ITEM HAS A COST

OR VALUE THAT CAN BE MEASURED WITH RELIABILITY.

page 37
 COMPARISON OF FINANCIAL STATEMENTS (FS)
Statement of Comprehensive Income SCI (Income
Statement)- shows the result of business operations
for a given period. It usually starts with the heading
consisting of the following:
*Name of the business (who?)
*Name of the Statement (what?)
*Date of the Statement (when)-Only be prepared after
the business as engaged in its business activities.-
Revenues, expenses, and the net inome or net loss
are the components of the comprehensive income
statement-Note that net income is transferred to the
statement of the owner's equity. page 38
Statement of Owner's Equity or Capita
Statement-reveals movement of the capital
account for a certain period. It also starts with
the heading consisting of the following:
*Name of the business (who?)
*Name of the Statement (what?)
*Date of the statement (when?)-The net income
from the comprehensive income is added to the
beginning capital account and the owner's
personal withdrawals from the business are
deducted.-Note that ending balance of capital
is transferred to the SFP
page 39
Statement of Financial Position SFP (Balance
Sheet) show the financial condition of the business at
any given time. It also start with the heading comprised of
the following: Copy
past mo ung may name of Statement-observe that the
date of the business starts with the words “as of" this
means that SFO can br prepared anytime even if the
operation of the business has not started yet

page 40
STATEMENT OF CASH FLOWS
-depicts the sources and uses of cash for a certain period
-cash flows should be equal to the cash as reflected in the
Statement of Financial Position

page 41
page 42
Team

Alexander
Mirjam Victoria Martensson
Nilsson Lindqvist Redenson
COO COB CFO

Angelica Mira Flora

Astrom Karlsson Berggren
Head of Operations Head of Technical Creative Director

page 43
THANK
YOU
Allan Mattsson

+1 555-0100
allan@contoso.com
www.contoso.com