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Financial Accounting chapter 1 Accountable/quantifiable - Has an effect on Classifying - the sorting or grouping of similar

A = L + OE and interrelated economic transactions into


Accounting standards council their respective classes.
Subject matter of accounting Economic
Accounting is a service activity. Its activity or the measurement of economic Ledger group of accounts.
function to provide quantitative information, resources and economic obligations
primarily financial in nature, about economic Summarizing the preparation of FINANCIAL
entities, that is intended to be useful in making Transactions - economic activities of an STATEMENTS.
economic decisions. entity.
Financial statements the documents that
AICPA External Transactions Economic events report financial information about an entity to
involving one entity and another. decision makers.
Accounting is the art of recording,
classifying, and summarizing in a significant Internal Transactions Economic events OBJECTIVE of accounting
manner and in terms of money, transactions involving the entity only.
and events which are in part at least of a To provide quantitative financial
financial character and interpreting the results Production the process by which resources information about a business that is useful to
thereof. are transformed into products. statement users particularly owners and
creditors, in making economic decisions.
American Accounting Association Casualty is any sudden or unanticipated
events termed as Acts of God. Accountants objective
Accounting is the process of identifying,
measuring and communicating economic B. MEASURING To supply financial information so that
decisions to permit informed judgment and the statement users could make informed
Is the assigning of peso amounts to judgment and better decisions.
decision by users of the information. the accountable economic transactions and
3 important points events. REPUBLIC ACT 9298 or PHILIPPINE
ACCOUNTANCY ACT OF 2004 is the law
1. It is about QUANTITATIVE INFORMATION C. COMMUNICATING regulating the practice of accountancy in the
2. The information is likely to be FINANCIAL Philippines.
Is the process of preparing and
IN NATURE
3. The information should be USEFUL IN distributing accounting reports to potential BOARD OF ACCOUNTANCY is the body
DECISION MAKING. users of accounting information. authorized by law to promulgate rules and
Recording/Journalizing - the process of regulations affecting the practice of the
A. IDENTIFICATION systematically maintaining a record of all accountancy profession in the Philippines.
economic business transactions after they Single practitioners and partnerships for the
Is the recognition or nonrecognition have been identified and measured.
of business activities as ACCOUNTABLE events. practice of public accountancy shall be
registered CPA in the Philippines
CERTIFICATE OF ACCREDITATION shall be budgeting, forecasting, design or modification EXEMPTIONS:
issued to CPAs in public practice only upon of retirement plans and even entity mergers
showing in accordance with rules and and takeovers. 1. 65 years old
regulations promulgated by the BOARD OF TEMPORARY EXEMPTIONS:
ACCOUNTANCY and approved by the 2. PRIVATE ACCOUNTING
PROFESSIONAL REGULATION COMISSION OBJECTIVE: to assist management in 1. The CPA is practicing the profession
that such registrant has acquired a MINIMUM planning and controlling the entitys operation. or furthering studies abroad.
OF 3 YEARS of meaningful experience in any 2. The exemption is for the duration of
of the areas of public practice. Includes maintaining the records, stay abroad.
producing the financial reports, preparing the 3. The CPA has been out of the country
budgets and controlling and allocating the for at least 2 years immediately prior
resources of the entity. to the date of renewal of license and
1. PUBLIC ACCOUNTING
accreditation.
Composed of individual practitioners, Controller - Highest accounting officer.
small accounting firms and large multinational 3. GOVERNMENT ACCOUNTING
organizations that render independent and ACCOUNTING VS AUDITING
expert financial services to the public.
FOCUS: the study and administration of ACCOUNTIN AUDITING
A. External Auditing / Auditing public funds. G
- Primary service. Encompasses the process of Broad Embraces One of the
analyzing, classifying, summarizing and sense auditing. areas of
Examination of financial statements by
communicating ball transaction involving Accounting
independent CPAs for the purpose of
the receipt and disposition of specialization.
expressing an opinion as to the fairness with
government funds and property and Limite CONSTRUCT ANALYTICAL
which the financial statements are prepared
interpreting the results thereof. d IVE Ceases Work starts
B. Taxation Service Sense when when the work
financial of the
Includes the preparation of annual 4. CONTINUING PROFESSIONAL statements accountant
income tax returns and determination of tax DEVELOPMENT (CPD) are prepared. ends.
consequences of certain proposed business
Refers to the inculcation, assimilation
endeavors.
and acquisition of knowledge, skill, proficiency, AUDITOR examines the financial
C. Management Advisory Services and ethical and moral values after the initial statements to ascertain whether they
registration of the CPA. are in conformity with the GAAP.
Include advice on installation of
computer system, quality control, installation CPD credit units shall be 60 credit units ACCOUNTING VS BOOKKEEPING
and modification of accounting system, for three years.
ACCOUNTING BOOKKEPING
CONCEPTUAL PROCEDURAL The accumulation and preparation of BOA 1
Concerned with Concerned with financial reports for INTERNAL USERS ONLY. SEC 1
reason or development and BSP 1
justification or any maintenance of Emphasizes developing accounting BIR 1
information for use WITHIN AN ENTITY. COA 1
action adapted. accounting record.
FINEX 1
HOW
PUBLIC PRACTICE 2
COMMERCE AND 2
GENERALLY ACCEPTED ACCOUNTING INDUSTRY
ACCOUNTING VS ACCOUNTANCY
PRINCIPLES ACADEME 2
ACCOUNTANCY ACCOUNTING GOVERNMENT 2
Represent the rules, procedures, practice
Refers to the Used in reference only
and standards followed in the preparation and *3 years term renewable for another term
profession of to a particular field of
presentation of financial statements. *any member of the ASC shall not be
accounting practice. accountancy
disqualified from being appointed to the FRSC
PURPOSE OF ACCOUNTING STANDARDS
PHILIPPINE INTERPRETATIONS COMMITTEE
To identify proper accounting practices
for the preparation and presentation of Formed by the FRSC (AUG 2006) and
financial statements. replaced the Interpretations committee
(formed by the ASC in MAY 2000)
FINANCIAL REPORTING STANDARDS Role: to prepare interpretations of PFRS
FINANCIAL ACCOUNTING VS MANAGERIAL COUNCIL for approval by the FRSC and in the context of
ACCOUNTING the conceptual framework, to provide timely
The accounting standard setting body guidance on financial reporting issues not
FINANCIAL ACCOUNTING created by the PROFESSIONAL REGULATION specifically addressed in the PFRS.
COMMISSION upon recommendation of the
Primarily concerned with the recording of BOA to assist the BOA in carrying out its
business transactions and the eventual powers and functions provided under RA act
preparation of financial statements. 9298. INTERNATIONAL ACCOUNTING
Intended for EXTERNAL AND STANDARDS COMMITTEE (June 1973)
MAIN FUNCTION establish and improve
INTERNAL USERS. ACCOUNTING STANDARS THAT WILL be An independent private sector body,
generally accepted in the Philippines. with the objective o achieving uniformity in the
Emphasizes reporting to CREDITORS
accounting principles which are used by
AND INVESTORS. PAS and FRSC approved statements of the business and other organizations for financial
FRSC. reporting around the world.
MANAGERIAL ACCOUNTING
(INTERNATIONAL ACCOUNTING
1 CHAIRMAN had been or is presently a STANDARDS)
senior accounting practitioner.
OBJECTIVES: The conceptual framework for financial be stated in terms of a unit of measure which is
reporting only mentions one assumption, the PESO IN THE PHILIPPINES.
1. To formulate and publish in the public GOING CONCERN.
interest accounting standards to be STABILITY OF THE PESO ASSUMPTION
observed in the presentation of financial 4 BASIC ASSUMPTIONS the purchasing power of the pesos stable or
statements and to promote their constant and that its instability is insignificant
worldwide acceptance and observance. 1.GOING CONCERN and therefore may be ignored.
2. To work generally for the improvement
and harmonization of regulations, Means that in the absence of evidence in STABLE PESO POSTULATE an amplification
accounting standards, and procedures the contrary, the accounting entity is viewed as of the going concern assumption so much so
relating to the presentation of financial continuing in operation indefinitely. that adjustments are unnecessary to reflect
statements. any changes in purchasing power.
2. ACCOUNTING ENTITY
INTERNATIONAL ACCOUNTING ACCOUNTING FUNCTION
STANDARDS BOARD The entity is separate from the owners, To account for nominal pesos only and
managers and employees who constitute the no for constant peso or changes in purchasing
Replaced the IASC. entity. power.
Intended to bring about greater To have fair presentation of financial
TRANSPARENCY and a higher degree of statements. PAS 16
COMPARABILITY in financial reporting. an entity shall choose either the cost
3. TIME PERIOD model or revaluation model as an accounting
(INTERNATIONAL FINANCIAL policy to an entire class of ppe.
REPORTING STANDARDS) Requires that the indefinite life of an
entity is subdivided into time periods or Conceptual framework for financial
PHILIPPINE FINANCIAL REPORTING accounting periods which are usually of equal reporting is promulgated by the IASB
STANDARDS length for the purpose of preparing financial
1. IFRS=PFRS reports on financial position, performance and CONCEPTUAL FRAMEWORK is the
2. IAS = PAS cash flows. summary of the terms and concepts that
3. IC = PI underlie the preparation and presentations of
Calendar year - 12 month period that ends on financial statements for external users.
December 31
Natural business year 12 month period Purposes of conceptual framework
that ends on any month when the business is 1. To assist the FRSC in developing accounting
at the lowest or experiencing slack season. standards that will represent the Philippines
FINANCIAL ACCOUNTING CHAPTER 2 GAAP
4. MONETARY UNIT
ACCOUNTING ASSUMPTIONS/ POSTULATES 2. To assist preparers of financial statements in
are the basic notions or fundamental premises 2 aspects quantifiability and stability of applying accounting standards and in dealing
on which the accounting process is based. peso. with issues not yet covered by GAAP
QUANTIFIABILITY ASPECT The assets,
liabilities, equity, income, and expenses should 3. To assist the FRSC in review and adoption of
IFRS
4. To assist auditors in forming an opinion as to CUSTOMERS - need information about ACCRUAL ACCOUNTING
whether financial statements conform with the continuance of an entity especially Transactions and other events are
Philippine GAAP when they have a long term involvement recognized when they occur and not as cash is
5. To provide information to those interested in with or are dependent on the entity. received or paid.
the work of the FRSC in the formulation of PFRS GOVERNMENT AND THEIR AGENCIES *income recognized when earned
need information to regulate the activities *expense recognized when incurred
USERS OF FINANCIASL INFORMATION of the entity, determine taxation policies
and as a basis for national income and
1. PRIMARY USERS similar statistics. Financial Accounting chapter 3
The parties to whom general purpose PUBLIC providing information about
financial reports are primarily directed. the trend and the range of its activities. QUALITATIVE CHARACTERISTICS are the
qualities or attributes that make financial
Include the existing and potential FINANCIAL REPORTING accounting information useful to the users.
investors, lenders and other creditors.
The provision of financial information Fundamental qualitative characteristics
INVESTORS need information to help about an entity to external users that is useful
them determine whether they should buy, to them in making economic decisions and for 1. Relevance
hold, or sell. assessing the effectiveness of the entitys The capacity of the information to
SHAREHOLDERS need information to management. influence a decision.
assess the ability of the entity to pay
dividends. Objective of financial reporting Financial information has PREDICTIVE
LENDERS and CREDITORS need VALUE if it can be used as an input to
information to determine whether their To provide financial information about processes employed by users to predict future
loan, interest thereon and other amounts the reporting entity that is useful to existing outcome.
owing to them will be paid when due. and potential investors, lenders and other
creditors in making decisions about providing Financial information has
resources to the entity. CONFIRMATORY VALUE if it provides
2. OTHER USERS feedback about previous evaluations.
Are users of financial information other Financial position information about the
than the existing and potential investors, entitys economic resources and the claims MATERIALITY or doctrine of
lenders and other creditors. against the reporting entity. convenience is a practical Rule in accounting
which dictates that strict Adherence to GAAP is
Include the employees, customers, LIQUIDITY - the availability of cash in the near not required when the items are not significant
government and their agencies, and the future to cover currently maturing obligations. enough to affect evaluation, decision and
public. fairness of the financial statements.
SOLVENCY the availability of cash over a
EMPLOYEE needs information about long term to meet financial commitments when 2. Faithful representation
the stability and profitability of the entity to they fall due. Financial reports represent economic
assess the ability of the entity to provide phenomena or transactions in words or
remuneration, retirement benefits and Financial performance results of numbers
employment opportunities. operations
INGREDIENTS OF FAITHFUL substance and reality and not merely their COMPARABILITY BETWEEN AND
REPRESENTATION legal form. ACROSS ENTITIES or DIMENSIONAL
COMPARABILITY or INTERCOMPARABILITY
A. COMPLETENESS CONSERVATISM
Requires that relevant information In case of doubt, record any loss and do The quality of information that allows
should be presented in a way that facilitates not record any gain. comparisons between two are more entities
understanding and avoids erroneous engaged in the same industry.
implications. CONTINGENT LOSS recognized as a
provision if the loss is probable and the amount CONSISTENCY
STANDARD OF ADEQUATE can be reliably measured. The accounting methods and practices
DISCLOSURE CONTINGENT GAIN not recognized should be applied on a uniform basis from
Disclosure of any financial facts but disclosed only. period to period.
significant enough to influence the
judgment of informed users. PRUDENCE b. UNDERSTANDABILITY
The desire to exercise care and caution Financial information must be
with dealing with the uncertainties in the comprehensible or intelligible if it is to
NOTES TO FINANCIAL STATEMENTS measurement process such that assets or be most useful.
Provide narrative description or income are not overstated and liabilities or
disaggregation of the items presented in expenses are not understated.
the financial statements and information c. VERIFIABILITY
about items that do not qualify for ENHANCING QUALITATIVE Different knowledgeable and
recognition. CHARACTERISTICS independent observers could reach
consensus, although not necessarily
B. NEUTRALITY or PRINCIPLE OF Relate to the presentation and from of
complete agreement, that a particular
FAIRNESS financial statements. Intended to increase the
The information contained in the usefulness of the financial information that is depiction is a faithful representation.
financial statements must be free from bias. relevant and faithfully represented. DIRECT VERIFICATION verifying an
amount or other representation through
C. FREE FROM ERROR a. COMPARABILITY direct observation.
There are no errors or omissions in the The ability to bring together for the
description of the phenomenon or purpose of noting points of likeness and INDIRECT VERIFICATION checking
transaction, and the process used to difference. the inputs to a model, formula or other
produce the reported information has been technique and recalculating the inputs
COMPARABILITY WITHIN AN ENTITY using the same methodology.
selected and applied with no errors in the or HORIZONTAL COMPARABILITY or
process. INTRACOMPARABILITY
SUBSTANCE OVER FORM d. TIMELINESS
The quality of information that allows Financial information must be available
If information is to represent faithfully comparisons within a single entity through time
the transactions and other events it purports to or communicated early enough when a
or from one accounting period to the next. decision is to be made.
represent, it is necessary that transactions and
events are accounted in accordance with their
COST CONSTRAINT from which future economic benefits are 1. It is probable that an outflow of economic
Cost a pervasive constraint on the expected to flow to the entity. benefits will be required for the settlement of a
information that can be provided by financial present obligation.
reporting. 2 conditions that must be present for the 2. The amount of obligation can be measured
recognition of an asset reliably.

FINANCIAL ACCOUNTING CHAPTER 4 1. It is probable that future economic benefits Obligations may be LEGALLY
will flow to the entity. ENFORCEABLE as a consequence of a
Refers to the quantitative information 2. The cost or value of the asset can be binding contract or statutory requirement.
reported in the statement of financial position measured reliably.
and income statement. CONSTRUCTIVE OBLIGATIONS arise from
FUTURE ECONOMIC BENEFIT normal business practice, custom and a
The ELEMENTS directly related to the The potential to contribute directly desire to maintain good business relations
measurement of FINANCIAL POSITION in the or indirectly to the flow of cash and or act in an equitable manner.
statement of financial position are : noncash equivalents to the entity.
Ways to settle present obligations
a. ASSET COST PRINCIPLE A. payment of cash
b. LIABILITY Asset should be recorded initially at B. transfer of noncash assets
c. EQUITY original acquisition cost. C. provision of services
D. replacement of the obligation with another
The ELEMENTS directly related to the In a CASH TRANSACTION, cost is equivalent obligation
measurement of FINANCIAL PERFORMANCE to cash payment. E. conversion of the obligation into equity
in the income statement are :
In NONCASH or an EXHANGE TRANSACTION, INCOME increase in economic benefit during
a. INCOME the cost is equal to the fair value of the asset the accounting period in the form of inflow or
b. EXPENSE given or fair value of the asset received, which increase in asset or decrease in liability that
is clearly evident. results in increase in equity, other than
contribution from equity participants.
EQUITY is the residual interest in the assets of In the absence of fair value, the cost is equal to
the entity after deducting all of the liabilities. the carrying amount of the asset given. REVENUE arises in the course of ordinary
B. LIABILITY RECOGNITION PRINCIPLE regular activities and is referred to by a variety
RECOGNITION OF ELEMENTS of different names including sales, fees,
LIABILITY a present obligation arising interest, dividends, royalties and rent.
RECOGNITION means the reporting of an from past events the settlement of which is
asset, liability, Income or expense n the face of expected to result in an outflow from the GAINS represent other items that meet the
the financial statements of an entity. entity of resources embodying economic definition of income and do not arise in the
benefits. course of the ordinary regular activities.
A. ASSET RECOGNITION PRINCIPLE
2 conditions that must be present for
ASSET a resource controlled by the the recognition of a liability C. INCOME RECOGNITION PRINCIPLE
entity as a result of past events and
Income shall be recognized when earned.
B. it is probable that economic benefits
2 conditions that must be present for associated with the transaction will flow to the INTEREST REVENUE
the recognition of income entity. Recognized on a time proportion basis
C. the stage of completion of the transaction at that takes into account the effective yield of
1. It is probable that future economic benefits the end of reporting period can be measured the asset
will flow to the entity as a result of an increase reliably.
in an asset or a decrease I a liability. D. the costs incurred for the transaction and
2. The economic benefits can be measured the costs to complete can be measured ROYALTIES
reliably. reliably. Recognized in an accrual basis in
accordance with the substance of the relevant
POINT OF SALE EXCEPTIONS TO THE POINT OF SALE agreement.
Point of income recognition, point of
delivery 1. INSTALLMENT METHOD DIVIDENDS
Revenue is recognized at the point of Recognized when the shareholders right
REVENUE FROM SALE OF GOODS collection. to receive payment is established, when
AMT OF REVENUE = GROSS PROFIT RTE x dividends are declared.
The following conditions should be present for AMOUNT OF COLLECTION
the revenue from sale of goods INSTALLATION FEES
2. COST RECOVERY METHOD or SUNK Recognized over the period of
A. The entity has transferred to the buyer the COST METHOD installation by reference to the stage of
significant risks and rewards of ownership of Revenue is recognized at the point of completion.
the goods. collection.
B. the entity retains neither continuing SUBSCRIPTION REVENUE
managerial involvement nor effective control 3. CASH METHOD Recognized on a straight line basis over
over the goods sold. Revenue is recognized when received the subscription period.
C. the amount of revenue can be measured regardless of when earned.
reliably. ADMISSION FEES
D. it is probable that economic benefits 4. PERCENTAGE OF COMPLETION METHOD Recognized when the event takes place.
associated with the transaction will flow to the When the outcome of a construction
entity. contract can be estimated reliably, TUITION FEES
E. the costs incurred or to be incurred in contract revenue and contract costs Recognized over the period in which
respect of the transaction can be measured associated with the construction contract tuition is provided.
reliably. shall be recognized as revenue and
expenses, respectively, by reference to EXPENSE
REVENUE FROM RENDERING OF SERVICES the stage of completion of the contract Decrease in economic benefit during the
activity. accounting period in the form of an outflow or
The following conditions should be present for decrease in asset or increase in liability that
the revenue from rendering of services 5. PRODUCTION METHOD result in decrease in equity, other than
Revenue is recognized at the point of distribution to equity participants.
A. the amount of revenue can be measured production
reliably.
OTHER INCOME RECOGNITION
Expenses that arise in the course of C. REALIZABLE VALUE or CURRENT
ordinary regular activities include cost of 1. CAUSE AND EFFECT ASSOCIATION SALE EXCHANGE PRICE
sales, wages and depreciation. Expense is recognized when revenue is The amount of cash or cash equivalent that
recognized. could currently be obtained by selling the
LOSSESS do not arise in the course of ordinary asset in an orderly disposal.
regular activities and include losses resulting 2. SYSTEMATIC AND RATIONAL
from disasters ALLOCATION E. PRESENT VALUE or FUTURE
Some costs are expensed by simply EXCHANGE PRICE
D. EXPENSE RECOGNITION PRINCIPLE allocating them over the periods benefited. The discounted value of the future net cash
Expenses are recognized when incurred. inflows that the asset is expected to
3. IMMEDIATE RECOGNITION generate in the normal course of business.
Conceptual framework: expenses are incurred The cost incurred is expensed outright
when it is probable that a decrease in future because uncertainty of future economic FIANANCIAL ACCOUNTING CHAPTER 5
economic benefits related to decrease in an benefits or difficulty of reliably associating
asset or an increase in liability has occurred certain costs with future revenue. FINANCIAL STATEMENTS are the means
and that the decrease in economic benefits can by which information accumulated and
be measured reliably. An expense is recognized immediately processed in financial accounting is
when: communicated to the users.
MEASUREMENT OF ELEMENTS
1. When an expenditure procedure
MEASUREMENT is the process of determining produces no future economic benefit. OBJECTIVE OF FINANCIAL STATEMENTS
the monetary amounts at which the elements To provide information about the
of the financial statements are to be 2. When cost incurred does not qualify or financial position, financial performance,
recognized and carried in the statement of ceases to qualify for recognition as an and cash flows of an entity that is useful to
financial position and income statement. asset. a wide range of users in making economic
decisions.
2 conditions that must be present for MEASUREMENT BASES
the recognition of income
A. HISTORICAL COST or PAST COMPONENTS OF FINANCIAL
1. It is probable that a decrease in future PURCHASE EXCHANGE PRICE STATEMENTS
economic benefits has occurred as a result of a The amount of cash or cash equivalent paid
decrease in an asset or an increase in a or the fair value of the consideration given 1. Statement of financial position
liability. to acquire an asset at the time of Formal statement showing the three
2. The decrease in economic benefits can be acquisition. elements comprising financial position,
measured reliably. namely assets, liabilities
B. CURRENT COST or CURRENT and equity.
MATCHING PRINCIPLE PURCHASE EXCHANGE PRICE
Those costs and expenses incurred in The amount of cash or cash equivalent that ASSET
earning a revenue shall be reported in the would have to be paid if the same or Resource controlled by the entity as a
same period. equivalent asset was acquired currently. result of past events and from which future
economic benefits are expected to flow the
33 APPLICATIONS entity.
PAS 1 paragraph 66 states that an a. The liability is the present obligation of a
Essential characteristics of an asset entity shall classify all other assets not particular entity.
classified as current as noncurrent. b. The liability arises from past transaction or
1. The asset is controlled by the entity event.
2. The asset is the result of a past transaction NONCURRENT ASSETS include C. the settlement of the liability requires an
or event. outflow of resources embodying economic
3. The asset provides future economic benefits A. PROPERTY, PLANT AND EQUIPMENT benefits.
4. The cost of the asset can be measured PAS 16 paragraph 6, tangible assets
reliably. which are held by an entity for use in CURRENT LIABILITIES
production or supply of goods and services, for PAS 1 paragraph 69 provides that an
Classifications of asset rental to others, or for administrative purposes, entity should classify a liability as current
and are expected to be used during more than when:
CURRENT ASSETS one period.
PAS 1 paragraph 66 provides that an A. The entity expects the liability to settle
entity should classify asset as current asset B. LONG-TERM INVESTMENTS within the entitys normal operating cycle.
when: IASC defines investment as an asset B. the entity holds the liability primarily for the
held by an entity for the accretion of wealth purpose of trading.
a. The asset is cash or cash equivalent unless through capital distribution, such as interest, C. the liability is due to be settled within 12
the asset is restricted from being exchanged or royalties, dividends and rentals, for capital months after the reporting period.
used to settle a liability for at least 12 months appreciation or for other benefits to the D. the entity does not have an unconditional
after the reporting period. investing entity such as those obtained through right to defer settlement of the liability for at
b. The entity holds the asset primarily for the trading relationships. least 12 months after the reporting period.
purpose of trading.
c. The entity expects to realize the asset within C. INTANGIBLE ASSETS PAS 1 paragraph 54, the line items under
twelve months after the reporting period. An identifiable nonmonetary asset current liability are:
D. the entity expects to realize the asset or without physical substance.
intends to use or consume it within the entitys a. Trade and other receivables
operating cycle. D. DEFERRED TAX ASSETS B. current provisions
c. Short term borrowing
PAS 1 paragraph 54, the line items under E. OTHER NONCURRENT ASSETS D. current portion of long term debt
current assets are: Assets that do not fit in the definition of E. current tax liability
noncurrent assets.
A. cash and cash equivalents NONCURRENT LIABILITIES
B. financial assets at fair value such as LIABILITY PAS 1 paragraph 69 states that an entity
trading securities and other investments Present obligation of an entity arising shall classify all liabilities not classified as
in quoted equity instruments. from past events, the settlement of which is current are classified as noncurrent.
C. trade and other receivables expected to result in an outflow from the entity
D. inventories of resources embodying economic benefits. A. noncurrent portion of a long term debt
E. prepaid invent B. finance lease liability
Essential characteristics of a liability C. deferred tax liability
NONCURRENT ASSETS D. long term obligations to company
officers
E. long term deferred revenue. FORMS OF FINANCIAL POSITION The change in equity during a period
resulting from transactions and other events,
EQUITY A. REPORT FORM other than changes resulting from transactions
Residual interest in the assets of the This form sets form the three major sections in with owners in their capacity as owners.
entity after deducting all of its liabilities. a downward sequence of assets, liabilities and
equity. Includes:
PAS 1 paragraph 7 A. components of profit or loss
The holders of instruments classified as B. ACCOUNT FORM
equity are OWNERS. The assets are shown on the left side and the Profit or loss
liabilities and equity on the right side of the The total income less expenses,
SHAREHOLDERS EQUITY balance sheet. excluding the components of other
Is the residual interest of owners in the comprehensive income.
net assets of a corporation measured by the PAS 1, paragraph 54, balance sheet line
excess of assets over liabilities. items B. components of other comprehensive
income
PHILIPPINE TERM IAS TERM 1. Cash and cash equivalents
Capital Stock Share Capital 2. Financial assets OTHER COMMPREHENSIVE INCOME
Subscribed Capital Subscribed Share 3. Trade and other receivables Comprises items of income and
Stock Capital 4. Inventories expenses including reclassification adjustments
Preferred Stock Preference Share 5. Property, plant and equipment that are not recognized in profit or loss as
Capital 6. Investment in associates accounted for by required or permitted by PFRS.
Common Stock Ordinary Share Capital the equity method
Additional Paid In Share Premium 7. Intangible assets Components:
Capital 8. Investment property
Retained Earnings Accumulated Profits 9. Biological asset A. OCI that will be reclassified subsequently to
(deficit) (Losses) 10. Total assets classified as held for sale and profit or loss when specific conditions are met.
Retained Earnings Appropriated Reserve assets included in disposal group classified as
Appropriated held for sale 1. Unrealized gain or loss on equity
Revaluation Surplus Revaluation Reserve 11. Trade and other payables investment measured at fair value
Treasury Stock Treasury Share 12. Current tax liabilities through other comprehensive income.
13. Deferred tax asset and deferred tax liability 2. unrealized gain or loss on debt
14. Provisions investment measured at fair value
NOTES TO FINANCIAL STATEMENTS
15. Financial liabilities through other comprehensive income.
16. Liabilities included in disposal group 3. Gain or loss from translation of the
Provide narrative description or
classified as held for sale financial statements of a foreign
disaggregation of items presented in the
17. Noncontrolling assets operation.
financial statements and information about
18. Share capital and reserves
items that do not qualify for recognition.
B. OCI that will not be reclassified subsequently
2. Statement of comprehensive income to profit or loss
Purpose: to provide the necessary disclosures
required by PFRS.
COMPREHENSIVE INCOME 4. revaluation surplus during the year.
5. Unrealized gain or loss from derivative 3. Income statement
contracts designated as cash flow A. Revenue
hedge. A formal statement showing the financial B. Gain and loss from the derecognition of
6. remeasurements of defined benefit performance of an entity for a given period of financial asset measured at amortized cost as
plan, including actuarial gain or loss. time. required by PFRS 9
7. Change in fair value attributable to C. Finance Cost
credit risk of a financial liability SOURCES OF INCOME D. Share in income or loss of associate and
designated at fair value through profit or joint ventures accounted for using equity
loss. Sales of merchandise to customers method
Rendering of services E. Income tax expense
Presentation of other comprehensive income Use of entity resources F. A single amount comprising discontinued
Disposal of resources other than products operations
PAS 1 paragraph 82A, provides that the G. Profit or loss for the Period
statement of comprehensive income shall COMPONENTS OF EXPENSE H. Total Other Comprehensive income
present line items for amounts of other I. Comprehensive incoe for the period being the
comprehensive income during the period A. Cogs or cos total of profit or loss and other comprehensive
classified by nature. B. Distribution costs or selling expenses income.
C. Administrative expenses
The line items for amounts of OCI shall be D. Other expenses The following items shall b disclosed on the
grouped as follows. E. Income tax expense face of the income statement and statement of
comprehensive income:
PRESENTATION OF COMPREHENSIVE DISTRIBUTION COSTS constitute costs which
INCOME are directly related to selling, advertising and A. profit or loss for the period
delivery of goods to customers. attributable to noncontrolling interest and
1. TWO STATEMENTS owners of the parent
ADMINISTRATIVE EXPENSES constitute cost
A. An income statement showing the of administering the business. These ordinarily B. total comprehensive income for the
components of profit or loss. include all operating expenses not related to period attributable to noncontrolling interest
B. A statement of comprehensive selling and cost of goods sold. and owners of the parent.
income beginning with profit or loss
as shown in the income statement OTHER EXPENSES are those expenses which FORMS OF INCOME STATEMENT
plus or minus the components of are not directly related to the selling and
other comprehensive income administrative function. PAS 1 paragraph 99. An entity shall present
an analysis of expenses recognized in profit or
2. SINGLE STATEMENT OF PAS 1 paragraph 87 loss using in classification based on either the
COMPREHENSIVE INCOME An entity shall not present any items of function of expenses or their nature within the
income and expense as extraordinary items, entity, whichever provides information that is
This is the combined statement showing either on the face of the income statement or more reliable and more relevant.
the components of profit or loss and the statement of comprehensive income or in
components of other comprehensive the notes. 2 ways to present an income statement
PAS 1 paragraph 82, Income statement and
income in a single statement.
statement of comprehensive income line items.
1. FUNCTIONAL PRESENTATION/COST required to select the presentation that is E. appropriation of retained earnings
OF SALES METHOD reliable and more relevant.
This form classifies expenses according 4. Statement of changes in equity
to their function as part of cost of sales , STATEMENT OF RETAINED EARNINGS Shows the movements in the elements
distribution costs, administrative or components of the shareholders equity
activities and other activities. Shows the changes affecting directly the
retained earnings of an entity and relates the 5. Statement of cash flows
2. NATURAL PRESENTATION/NATURE income statement to the statement of financial Summarizes the operating, investing and
OF EXPENSE METHOD position. financing activities of an entity.
Expenses are aggregated according to
their nature and not allocated among Should be disclosed in the statement of 6. Notes, comprising a summary of
the various functions within the entity. retained earnings: significant accounting policies and
other explanatory notes
PAS 1 paragraph 105 A. Profit or loss for the period
Because each presentation has merit for B. prior period errors
different types of entities, management is C. dividends declared and paid to shareholders
D. effect of change in accounting policy