Вы находитесь на странице: 1из 16

CHAPTER 1: THE ACCOUNTANCY b.

Measuring as the technical


PROFESSION component
DEFINITION of Accounting: c. Communicating as the formal
(ACCOUNTING STANDARDS component
COUNCIL)
IDENTIFYING
 Accounting is a service
activity  It is the recognition or non-
recognition of business
 Its function is to provide activities as accountable
quantitative information, events.
primarily financial in nature,
about economic entities, that
is intended to be useful in ■
making economic decisions
Accountable event or Quantifiable
(AMERICAN INSTITUTE OF event
CERTIFIED PUBLIC ACCOUNTANTS) –
it is an event that has an effect/s
 Accounting is the art of on assets, liabilities and equity.
recording, classifying and ■
summarizing in a significant
manner and in terms of Take note that
money, transactions and not
events which are in part at all business activities are
least of a financial character accountable
and interpreting the results
thereof ■

Subject matter of accounting:


(AMERICAN ACCOUNTING Economic Activity/ies
ASSOCIATION)
CLASSIFICATION OF ECONOMIC
 Accounting is the process of ACTIVITIES
identifying, measuring and
communicating economic 
information to permit
informed judgment and EXTERNAL TRANSACTIONS
decision by users of the –
information also known as
exchange transactions.
Components of Accounting
(based on its definition) -
a. Identifying as the analytical these are events that involves one
component entity and another entity
 processes information into reports
and communicates the reports to
INTERNAL TRANSACTIONS decision makers
– ■
it involves the entity only.
MEASURING Its key product is a
■ set of financial statements

It is the process of Scribd


assigning peso amounts to Trusted by over 1 million members
accountable economic transactions Try Scribd FREE for 30 days to
and events. access over 125 million titles
without ads or interruptions!

Start Free Trial
Measurement bases are the Cancel Anytime.
historical cost, current cost,
realizable value and present value
OVERALL OBJECTIVE OF
COMMUNICATING ACCOUNTING
 “The overall objective
of accounting is to provide
It is the process of quantitative financial information
preparing and distributing about a business that is useful to
accounting reports statement users particularly
to potential users of accounting owners and creditors in
information making economic decisions.”

The Accountancy Profession
This process is the reason why ■
accounting is called the “Universal
Language of Business.” Republic Act No. 9298


Known as the
This process contains the “Philippine
recording, classifying and Accountancy
summarizing Act of 2004”
aspects of accounting.
ACCOUNTING AS AN INFORMATION ■
SYSTEM
■ BOARD OF ACCOUNTANCY

Information System of Accounting
measures business activities,
a body authorized by law to Under the new BOA resolution, all
promulgate rules and regulations CPA (regardless of area or sector of
affecting the practice of the practice) shall be required to
accountancy profession in the comply with
Philippines. 120 CPD units
- for a period of
it is also responsible for preparing 3 years.
and grading the Philippine CPA
Examination ■

Here is the initial implementation
PRC shall issue the Certificate of of the 120 CPD credit units:
Registration to practice public ■
accountancy which shall be valid
for The
3 years excess credit units
and renewable shall not be carried over for the
every 3 years upon payment of next three (3) year period, except of
required fees. masteral and doctoral degree CPD
units.
3 MAIN AREAS OF ACCOUNTANCY: ■
1.
It has become
Public Accounting 2. mandatory
for all Certified Public Accountants
Private Accounting 3. and it is also required for the
renewal of CPA license and
Government Accounting accreditation of CPA to practice the
CONTINUING PROFESSIONAL accountancy profession.
DEVELOPMENT (CPD) EXEMPTION FROM CPD:


Republic Act No. 10912
■ If a CPA has reached the age of
65 years old.
CPD refers to the inculcation and (this only applies to the renewal of
acquisition of advanced knowledge, the CPA license)
skill, proficiency, and ethical and GENERAL ACCEPTED ACCOUNTING
moral values after the initial PRINCIPLES (GAAP)
registration of CPAs for the ■
assimilation into professional
practice and lifelong learning. It represents the rules, procedures,
■ practice and standards followed in
the preparation and presentation of
financial statements.


It is like laws that must be followed
in financial reporting. The standard promulgated by FRSC
PURPOSE OF ACCOUNTING constitute the
STANDARDS: highest hierarchy
of the GAAP in the Philippines.
■ ■

To identify proper accounting FRSC approved standards are the


practices for the preparation and Philippine Accounting Standards
presentation of financial (PAS)
statements. and
YEAR Philippine Financial Reporting
Standards (PFRS).
CPD CREDIT UNITS
2017 80 credit units 2018 100 PHILIPPINE INTERPRETATION
credit units 2019 120 credit units COMMITTEE (PIC)

■ It was formed by the FRSC in


August 2006.
These standards create a
common understanding ■
between preparers and users of
financial statements particularly Its role is the preparation of
the measurement of assets and interpretations of PFRS for the
liabilities. approval by the FRSC and to
FINANCIAL REPORTING provide timely guidance on
STANDARDS COUNCIL (FRSC) financial reporting issues not
■ specifically addressed in current
PFRS.
It is the accounting standard INTERNATIONAL ACCOUNTING
setting body created by the PRC STANDARDS COMMITTEE (IASC)
upon recommendation of the BOA ■
to assist them in carrying out of its
powers and functions provided It was formed in
under R.A. No. 9298. June 1973.


Its main function is
to establish and improve It is an independent private sector
accounting standards that will be body, with the objective of
generally accepted in the achieving uniformity in the
Philippines. accounting principles which are
used by business and other It has adopted the body of
organizations for financial reporting standards issued by the IASC.
around the world. ■
OBJECTIVES OF IASC:
1. The standard-setting process of the
IASB includes (in the correct order)
To research, discussion paper,
formulate and publish exposure draft and accounting
in the public interest accounting standard.
standards to be observed in the PHILIPPINE FINANCIAL
presentation of financial REPORTING STANDARDS (PFRS)
statements and to promote their ■
worldwide acceptance and
observance. 2. It is a series of pronouncements
issued by the Financial Reporting
To work generally for the Standards Council.
improvement and harmonization ■
of regulations, accounting
standards and procedures relating It collectively include all of the
to the presentation of financial following: 1.
statements.
INTERNATIONAL ACCOUNTING PFRS which corresponds to
STANDARDS BOARD (IASB) International Financial Reporting
■ Standards.

It replaces the International 2.


Accounting Standards Committee
(IASC) PAS which corresponds to
■ International Accounting
Standards. 3.
It publishes the
International Financial Reporting Philippine Interpretations which
Standards (IFRS), correspond to the Interpretations of
a standard in a series of the IFRIC and Standing
pronouncements. Interpretations Committee, and
■ Interpretations developed by the
PIC.
the pronouncements of the IASC CHAPTER 2: THE CONCEPTUAL
continues to be designated as FRAMEWORK
“International Accounting Definition:
Standards” or ◦
IAS.
■ It is a complete, comprehensive
and single document which is
promulgated by the International the information contained in the
Accounting Standards Board (IASB) financial statements.
◦ ◦

It is a summary of the terms and To assist auditors in


concepts that underlie the forming
preparation and presentation of an opinion as to whether financial
financial statements for external statements conform with Philippine
users. GAAP.
◦ ◦

It is intended to guide standard- To provide information to those


setters, preparers and users of interested in the work of the FRSC
financial information in the in the formulation of PFRS.
preparation and presentation of USERS OF FINANCIAL
statements. INFORMATION
PURPOSES OF CONCEPTUAL PRIMARY USERS
FRAMEWORK:
◦ 

To assist the FRSC in these are the parties to whom the


developing general purpose financial reports
accounting standards and are
reviewing existing standards. primarily directed.


To assist preparers of financial
statements in It includes the existing and
applying potential investors, lenders and
accounting standards and in other creditors.
dealing with issues not yet covered OTHER USERS
by GAAP.
◦ 

To assist the FRSC in the these are the users of financial


review and adoption information other than the existing
of International Financial Reporting and potential investors, lenders and
Standards. other creditors.
◦ 

To assist users of financial it includes the employees,


statements in customers, governments and their
interpreting agencies, and the public.
SCOPE OF CONCEPTUAL
FRAMEWORK
a. To provide information about entity
resources, claims and changes in
Objective of financial reporting b. resources and claims.
USEFULNESS OF FINANCIAL
Qualitative characteristics of PERFORMANCE
useful financial information c. ◦

Definition, recognition and It helps users to understand the


measurement of the elements from return
which financial statements are that the entity has produced on the
constructed d. economic resources.

Concepts of capital and capital
maintenance The
OBJECTIVE OF FINANCIAL return of the entity
REPORTING provides an indication of how well
◦ management has discharged its
responsibilities to make efficient
“It is to provide financial and effective use of the
information entity’s economic resources.
about the reporting entity that is
useful to existing and potential ◦
investors, lenders and other
creditors in making decisions about The
providing resources to past financial performance
the entity.” information
is helpful in predicting the
◦ future returns
on the economic resources of the
It is the entity.
“why” ◦
, purpose or goal of accounting
Also, the information about
SPECIFIC OBJECTIVES OF financial performance during a
FINANCIAL REPORTING period is useful in
1. assessing the entity’s
ability to generate future cash
To provide information useful in inflows from operations.
making decisions about providing
resources to the entity. 2. ACCRUAL ACCOUNTING

To provide information useful in
assessing the cash flow prospects It depicts the effects of
of the entity 3. transactions and other events and
circumstances on an
entity’s economic resources and To a large extent, general purpose
claims financial reports are based on
in the periods in which those estimate and judgment rather than
effects occur even if the resulting exact depiction.
cash receipts and payments occur UNDERLYING ASSUMPTIONS
in a different period. ◦

These are the fundamental
It is to recognize the effects of premises, which is the basis of the
transactions and other events accounting process.
when they occur and not as cash is ◦
received or paid.
◦ It is also known as
postulates.
“Income is recognized when earned
regardless of when cash is ◦
received and expense is recognized
when incurred regardless These serves as the foundation or
of when cash is paid.” bedrock of accounting.

LIMITATIONS OF FINANCIAL
REPORTING Only ONE assumption is stated in
a. the Conceptual Framework for
Financial Reporting, which is
General purpose financial reports going concern.
do NOT and cannot provide all of
the information that existing and ◦
potential investors, lenders and
other creditors need. b. Other BASIC ASSUMPTIONS:
accounting entity, time period and
General purpose financial reports monetary unit.
are not designed to show the value
of an entity but the reports
provide information to help the OTHER BASIC ASSUMPTIONS
primary users estimate the value of ACCOUNTING ENTITY
the entity.

c.

It is the specific business


General purpose financial reports
organization (proprietorship,
are intended to provide
partnership or corporation)
common information

to users and cannot accommodate
every request for information. d.
“The entity is separate from the
owners,
managers, employees who
constitute fundamental qualitative
the entity.” characteristics 2.

TIME PERIOD enhancing qualitative


characteristics
◦ APPLICATION OF THESE
CHARACTERISTICS:
“it a.
requires that the indefinite life of
an entity is subdivided into Identify an economic phenomenon
accounting periods which are that has the potential to be useful.
usually of equal length for the b.
purpose of preparing financial
reports on financial position, Identify the type of information
performance and cash flows.” about the phenomenon that would
be most relevant and can be
MONETARY UNIT faithfully represented. c.

◦ Determine whether the information


is available.
Two Aspects: 1. A.

Quantifiability Aspect RELEVANCE


– 
the assets, liabilities, equity,
income and expenses be measured It is the capacity of the information
in Philippine peso. 2. to influence a decision.

Stability of the Peso
– For a financial information to be
the purchasing power of peso is relevant, it must be capable of
constant or stable. making a difference in the
CHAPTER 3: CONCEPTUAL decisions made by users.
FRAMEWORK (QUALITATIVE 
CHARACTERISTICS)
QUALITATIVE CHARACTERISTICS To be relevant, it requires that the
 financial information should be
related or pertinent to the
Definition: economic decision, but if it does
these are the qualities or attributes not bear an economic decision, the
that make financial accounting information is deemed useless.
information useful to the users. It is INGREDIENTS OF RELEVANCE:
classified into two 1.
: 1.
Predictive value
– an item is material if knowledge of
can be used as an input to it would affect or influence the
processes employed by users to decision of the informed users of
predict future outcome. 2. the financial statements.

Confirmatory value
B. Information is
material
MATERIALITY if its omission or misstatement
 could influence the economic
decision that the users make on
It is a practical rule which dictates the basis of the financial
that strict observance of the GAAP information about an entity
is not necessary when the items FACTORS OF MATERIALITY
are NOT significant enough to 1.
affect the evaluation, decision and
fairness of the financial RELATIVE SIZE
statements.
 –
it is in relation to the total of the
This concept is also known as the group to which the item belongs is
Doctrine of Convenience taken into account. 2.

NATURE OF AN ITEM
Scribd
Trusted by over 1 million members –
Try Scribd FREE for 30 days to it may be inherently material
access over 125 million titles because by its very nature it
without ads or interruptions! affects economic decision.
C.
Start Free Trial
Cancel Anytime. FAITHFUL REPRESENTATION

 It means that financial reports


represent economic phenomena or
It is a “subquality” of relevance transactions in words and numbers.
based 
on the nature or magnitude or both
of the items to which the The descriptions and figures must
information relates. match what really happened or
WHEN IS AN ITEM MATERIAL? existed.


The actual effects of a transaction to represent, it is necessary that
or event must be accounted the transactions and events are
properly and reported in the accounted in accordance with their
financial statements. substance and reality and not
INGREDIENTS OF FAITHFUL merely their legal form.
REPRESENTATION: 1. 

COMPLETENESS 2. It is not considered a separate


component of faithful
NEUTRALITY representation because it would be
 redundant.

A neutral depiction is without bias
in the preparation or presentation Faithful representation
of financial information. –
it represents the substance of an
 economic phenomenon or
transaction rather than merely
To be neutral, the information in the representing the legal form.
financial statements must be free E.
from bias.
 CONSERVATISM

“to be neutral is to be fair.”
It means that when alternatives
3. exist, the one chosen should be the
one which has the least effect on
FREE FROM ERROR equity.
 

It means that there are no errors or “In case of doubt, record any loss
omissions in the description of the and do not record any gain.”
phenomenon or transaction.
 Contingent Loss

The concept of free from error does it is recognized as a
not necessarily mean perfectly “provision” if the loss is
accurate in all respects. probable
D. and the amount can be
reliably measured.
SUBSTANCE OVER FORM
 Contingent Gain

If the transactions events faithfully it is not recognized but disclosed.
represents information it purports Expressions of Conservatism
 it is comparability across entities.
2.

Anticipate no profit and provide for UNDERSTANDABILITY
probable and measurable loss.”

 It means that the information


should be presented in a form that
“Don’t count your chicks until the is understandable to the user.
eggs hatch.” 

F. The presentation of the information


must be
PRUDENCE clear and concise.
 

It is the desire to exercise care and This characteristic is very


caution when dealing with the essential because a relevant and
uncertainties faithfully represented information
in the measurement process. may prove useless if it is not
ENHANCING QUALITATIVE understood by users. 3.
CHARACTERISTICS
1. VERIFIABILITY

COMPARABILITY 

 It implies consensus.

It is one of the enhancing
qualitative characteristics that A financial information is verifiable
enables users identify and if it is supported by evidence.
understand the similarities and TYPES OF VERIFICATION:
dissimilarities among items. 1.

Direct Verification
HORIZONTAL COMPARABILITY –
– verifying an amount through direct
it is comparability within an entity. observation 2.

Indirect Verification
INTERCOMPARABILITY OR –
DIMENSIONAL COMPARABILITY it is checking inputs to a model,
– formula or other technique and
recalculating the inputs using the The cost or value of the asset can
same methodology. 4. be measured
reliably.
TIMELINESS COST PRINCIPLE

CHAPTER 4: –
CONCEPTUAL FRAMEWORK it requires that the assets be
(ELEMENTS OF FINANCIAL measured initially at original cost
STATEMENTS) or acquisition cost.
COMPARABILITY
Elements of financial statements
Measurement of CONSISTENCY
financial position: - Uniform application of accounting
method between and across
 entities in the same industry. -
Uniform application of accounting
Asset method from period to period
 within an entity. - It is the goal. - It
helps to achieve the goal.
Liability

2.
Equity
Measurement of LIABILITY RECOGNITION
financial performance: PRINCIPLE Two conditions to
consider:
 1.

Income It Is
 probable
that an outflow of economic
Expense benefits will be required for the
RECOGNITION OF ELEMENTS settlement of a present obligation
1. 2.

ASSET RECOGNITION PRINCIPLE The amount of obligation can be


Two conditions to consider: measured
1. reliably.

It is 3.
probable
that future economic benefits will INCOME RECOGNITION PRINCIPLE
flow to the entity. 2. •

Basic principle:
income shall be recognized when OR
earned.
Two conditions to consider: SUNK
1.
COST
It is
probable METHOD
that future economic benefits will
flow to the entity as a result of an –
increase in an asset or a decrease revenue is recognized at
in a liability. 2. point of collection.
3.
The economic benefits can be
measured PERCENTAGE
reliably.
OF
POINT OF SALE:
• COMPLETION

Legal title to the goods passes to METHOD


the buyer at point of sale


contract revenue and contract
It is usually the costs be recognized as revenue and
point of delivery expenses based on the stage of
(actual or constructive) completion of the contract. 4.
EXCEPTIONS TO THE POINT OF
PRODUCTION
SALE:
1.
METHOD
INSTALLMENT

revenue is recognized at the
METHOD
point of production.

4.
revenue is recognized at
point of collection.
EXPENSE RECOGNITION
2.
PRINCIPLE

COST

Basic principle:
RECOVERY
expenses are recognized when
METHOD incurred.
TWO conditions to consider: SYSTEMATIC AND RATIONAL
1. ALLOCATION

It is
probable Costs are expensed by simply
that a decrease in future economic allocating them over the periods
benefits has occurred as a result of benefited.
a decrease in an asset or an 
increase in a liability. 2.
“when economic benefits are
The decrease in economic benefits expected
can be measured to arise over several accounting
reliably. periods and the association with
income can only be broadly or
MATCHING PRINCIPLE indirectly determined, expenses are
• recognized on the basis of
systematic and
It is applied in expense recognition allocation procedures.”
principle.
• 

It requires that costs and expenses Examples: depreciation of ppe,


incurred relating to a revenue shall amortization of intangible assets,
be reported in the same period.
Three applications of matching
principle: 1. allocation of prepaid rent,
insurance and other prepayments
CAUSE AND EFFECT ASSOCIATION 3.

IMMEDIATE RECOGNITION
Expense is recognized when the Expense is recognized immediately
revenue is already recognized when: 1.

An expenditure produces no future
It is commonly referred to as economic benefit 2.
matching of cost with revenue.
Cost incurred does not qualify or
 ceases to qualify for recognition as
an asset
Example: cost of merchandise •
inventory, doubtful accounts,
warranty expense and sales Examples: salaries of officers,
commissions administrative expenses,
2. advertising and selling expenses
MEASUREMENT OF ELEMENTS
1.
REALIZABLE VALUE
HISTORICAL COST
(current sale exchange price)
(past purchase exchange price) 4.
2.
PRESENT VALUE
CURRENT COST
(
(current purchase exchange price) future exchange price)
3.