.

• Sociological and psychological matters are not recognized
• Types of External events

  • Reciprocal transactions, Non-reciprocal transactions, Events other than transfers
• External events involving reciprocal transactions

  Involve a reciprocal giving and receiving of economic resources or discharging of economic obligations between an entity and an external party
• Types of events or transactions
• Names are emphasized and recognized in accounting
• Reciprocal transactions

  • Sale, purchase, payment of liabilities, receipt of loans receivable in exchange for accounts receivable
• Non-accountable events are not recognized or disclosed
• Practical events


  The process by which inputs are transformed into finished goods
• Non-reciprocal transactions


  One-way transactions where one party gives something without receiving anything in return, while the receiving party does not give anything in exchange
• Types of Internal events

  • Practical events, Catastrophic events
• Events other than transfers

  Involve changes in economic resources or obligations of an entity caused by an external party or source but do not involve transfers of resources or obligations
• Events other than transfers

  • Changes in fair values, technological changes, vandalism, and the like
• Measuring


  Involves assigning a number, usually in monetary terms, to economic transactions and events
• Financial statements are a mixture of fact and opinion
• Non-reciprocal transactions


  • Donations, gifts, charitable contributions, payment of taxes, imposition of fines, theft, provision of capital by owners, distributions to owners
• Economists use accounting and economic data to disseminate information for making economic decisions
• Basic purpose of accounting is to provide information for making economic decisions
• Various sources of information are used when making economic decisions
• Communicating

  The process of transforming economic data into useful information, interpreting the significance of the processed information
• Valuation by fact or opinion


  Use of estimates in providing relevant information, with items measured being valued by opinion or fact
• Catastrophic events


  Unanticipated events like fires, floods, and other disasters
• Communicating process of accounting

  • Recording, Classifying, Summarizing
• Types of accounting information classified as to users' needs

  • General purpose accounting information designed to meet the needs of most statement users
  • Special purpose accounting information designed to meet the needs of particular statement users
• An economic entity may be either a Not-for-profit one that works to meet some socially desirable needs of the community or its members and whose activities are not directed towards making profit, or a Business entity that operates primarily for profit
• Economics use accounting and economic act, process data, and disseminate information intended to be useful in making economic decisions
• Types of economic activities

  • Production
  • Exchange
  • Consumption
  • Income distribution
  • Saving
  • Investment
• Economic activities


  Activities that affect the economic resources (assets) and obligations (liabilities), and consequently, the equity of an economic entity
• Accounting as a social science involves systematically gathering, classifying, and organizing knowledge, while as a practical art, it requires the use of skill and judgment
• Sources of information in financial statements

  • External sources such as fair value measurements, resolutions of uncertainties, future lease payments, contractual commitments
• Types of information provided by accounting

  • Quantitative information expressed in quantities or units
  • Qualitative information expressed in a descriptive manner
• Accounting as an information system identifies and measures economic activities, processes information into financial reports, and communicates these reports to decision-makers
• Problem solving in accounting

  1. Recognizing a problem

  2. Identifying alternative solutions

  3. Evaluating the alternatives

  4. Selecting a solution from among the alternatives

  5. Implementing the solution
• Accounting concepts refer to the principles upon which the process of accounting is based
• The practice of accountancy requires the exercise of creative and critical thinking
• Accounting is often referred to as the "language of business" because it is fundamental to the communication of financial information
• Accounting theory comprises

  • Conceptual Framework
  • Philippine Financial Reporting Standards (PFRS)
• Accounting concepts

  • Principles upon which the process of accounting is based
  • Fundamental concepts or principles and basic functions that provide the foundation of the accounting process
• Most accounting concepts are derived from

  • Conceptual Framework
  • Philippine Financial Reporting Standards (PFRS)
• Accounting theory


  Logical reasoning in the form of a set of principles that provide a general frame of reference by which accounting practice can be evaluated and guide the development of new practices and products
• Some accounting concepts are implicit, meaning they are generally accepted for long-time use in the profession