1. ASC- accounting is a service activity.

Its function is to provide quantitative information primarily financial in

nature that is intended to be useful in making economic decisions.

2. AICPA- accounting is the ART of recording, classifying, summarizing(RCS--communication process)

3. AAA(statement of basic accounting theory)- PROCESS of identifying, measuring, communicating(IMC)

4. Identifying as the analytical component

5. Measuring as the technical component

6. Communicating as the formal component

7. In order to be identifiable, a certain event must be quantifiable or expressed in terms of a unit of measure.
It must have an effect on Assets, Liabilties, OE.

8. External transaction is also known as exchange transaction which involves 2 entities. Example is payment of
salaries to employees.

9. Internal transaction- production and casualty loss(unanticipated losses, act of god)

10. Accounting is the language of business because of the communication process.

11. Classifying- is accomplished by posting to the ledger

12. Summarizing- preparation of FS.

13. Accountants primary task is to supply financial information to statement users so that they could make
informed judgment and better decision.

14. Rep. Act 9298- Philippine accountancy act of 2004 regulates the practice of accountancy in the Phil.

15. BOA- body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession

16. Certificate of registration shall be issued if the registrant has acquired a minimum of 3 years of meaningful
experience in any areas of public practice including taxation. It will be valid for 3 years, renewable every 3
years upon payment of required fees.

17. Management advisory services- business conduct and operations

18. Controller is the highest accounting officer

19. Accounting is essentially constructive in nature

20. Auditor examines FS to ascertain whether they are in conformity with GAAP.

21. GAAP is a social process.

22. Development of GAAP is formalized initially through the creation of ASC. The accounting standards
promulgated by the ASC constitute the GAAP.

23. SFAS is now known as PAS and PFRS

24. Accounting standards-proper accounting practice. It creates common understanding.

25. FRSC replaces ASC

26. FRSC is the accounting standard setting body created by PRC upon recommendation of BOA to assist the
BOA in carrying out its powers and functions provided under RA 9298. Main function is to esbalish and
improve accounting standards that will be generally accepted in the Phil.

27. FRSC is composed of 15 members with a chairman who had been or is presently a senior accounting
practitioner. 2 members from Public practice, commerce and industry, academe, government.

28. The counterpart of PIC is the IFRIC in UK

29. IASC- improvement, harmonization and worldwide acceptance and observance of accounting standards

30. IASB replaces IASC. It is a global phenomenon intended to bring about great transparency and a higher
degree of comparability in financial reporting; one uniform and globally accepted financial reporting standard

31. Accounting assumptions- serve as the foundation or bedrock of accounting to avoid misunderstanding.
Known as postulates.

32. Accounting/fiscal period- 12months

33. Fiscal period could either be calendar or natural. If calendar, ends on dec. 31. if natural, ends on any
month when the business is at the lowest or experiencing slack season.

34. Monetary Unit has 2 aspects, quantifiability and stability of peso(current replacement cost is ignored).
Sometimes, it is not necessarily valid that peso is stable since there may be instances wherein there is a
considerable gap between historical and current replacement cost. Entity should therefore choose whether
cost model or revaluation model they will apply to their entire class of PPE.

35. Framework for FS is promulgated by the IASB

36. Framework is the underlying theory for the development of accounting standards and revision of
previously issued accounting standards. Assists FRSC, preparers of FS, users and auditors

37. Framework excludes special-purpose report such as prospectuses and tax computation

38. FS largely portray the financial effects of past events and do not necessarily provide nonfinancial
information. It shows the result of the stewardship of management or the accountability of management for
the resources entrusted to it.

39. Management has the primary responsibility for the preparation of FS.
40. Capacity for adaption or financial flexibility- using the entitys available cash for unexpected requirements
and investment opportunities. It is may be accomplished through raising cash at a short notice through
borrowing, sale of securities, disposal of assets without disrupting normal operations

41. Accounting concepts:

a. Entity theory= A=L+C (income statement)

b. Proprietary= A-L=C (statement of FP)

c. Residual equity= A-L-preference/OS=C

d. Fund Theory= Fund= Cash inflows-cash outflows (custody and administration of funds)

42. Financial reporting= provision of financial information about an entity to external users. Not just financial
statements but also other means of communicating information. It includes non-financial information.

43. Financial reporting objectives:

a. provide information useful in investment, credit, and similar decision

b. cash flow prospects

c. resources and claims to those resources and changes in them.

44. Four principal qualitative characteristics:

a. relevance

b. reliability

c. understandability

d. comparability

45. relevance and reliability relate to content and are primary qualities.

46. understandability and comparability relate to presentation and are secondary characteristics.

47. Relevance is affected by its nature and materiality. It helps users form predictions and confirmations or
revision to their expectation.

48. Ingredients of relevance are:

a. Predictive value

b. feedback value

c. Timeliness

49. Reliability ingredients:

 a. Faithful representation-actual effects of transaction should be properly accounted for and reported

b. Substance over form-

c. Neutrality

d. Conservatism or prudence

e. Completeness- Standard of adequate disclosure(notes to FS)

50. Understandability- Users are assumed to have a reasonable knowledge of the economic activities and
accounting and a willingness to study the information with reasonable diligence

51. Accounting constraints:

a. Timeliness

b. Cost-benefit

c. Materiality

d. Balance between relevance and reliability

52. Materiality- doctrine of convenience. Quantitative threshold

An example of trade-off between relevance and reliability is when entity reports quoted equity instruments at

. Information is relevant but not reliable. On the other hand, if entity reports an instrument at cost,
information is reliable but may not be relevant.

54. Installment method- revenue is recognized at the point of collection. Revenue is determined by
multiplying the gross profit by amount of collection

55. Immediate recognition of expense- reflects conservatism or prudence. Revenue expenditure

56. Financial performance is determined using 2 approaches:

a. capital maintenance- net income occurs if capital is maintained(single entry)

b. transaction approach- traditional preparation of income statement

57. 2 concepts of capital maintenance:

a. financial capital- based on historical host

b. physical capital-current cost