Cover to cover

• Accounting


  The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information
• Accounting Definition


  • Identifying - Process of analyzing events and transactions to determine recognition
  • Measuring - Involves assigning numbers, normally in monetary terms, to economic transactions and events
  • Communicating - Transforming economic data into useful accounting information, such as financial statements and other accounting reports
• Identifying


  Types of Events: External Events (Exchange, Non-reciprocal transfers), Internal Events (Production, Casualty)
• Measuring


  Typical measurements used: Historical Cost, Fair Value, Present Value, Realizable Value, Current Cost, Replacement Cost
• When measurement is affected by estimates, the items measured are valued by opinion. When measurement is unaffected by estimates, the items measured are valued by fact
• Communicating


  Three aspects: Recording, Classifying, Summarizing
• Basic Purpose of Accounting is to provide information useful in decision-making
• Economic Entity is a separately identifiable combination of persons and properties that uses or controls economic resources to achieve certain goals or objectives
• Types of Information provided by accounting

  • Quantitative, Qualitative, Financial
• Types of accounting information classified according to user’s need

  • General Purpose, Special Purpose
• Accounting Concepts


  Principles upon which the process of accounting is based
• Examples of Accounting Concepts

  • Double-entry system, Going concern assumption, Separate Entity, Stable Monetary Unit, Time period, Materiality, Cost-Benefit, Accrual Basis, Historical cost concept, Concept of Articulation, Full Disclosure principle, Consistency concept, Matching, Entity Theory, Proprietary Theory, Residual equity theory, Fund Theory, Realization, Prudence/Conservatism, Systematic and rational allocation, Immediate recognition
• Recognition of assets and expenses

  Costs not directly related to earnings or revenue are initially recognized as assets and recognized as expenses over the periods their economic benefits are consumed, using some method of accounting
• Expense recognition principles


  • Immediate recognition - costs that do not meet the definition or cease to meet the definition of an asset are expensed immediately
• Financial Accounting vs Financial Reporting

  • Statement of Financial Position
  • Statement of profit or loss and other comprehensive income
  • Statement of changes in equity
  • Statement of cash flows
  • Notes to FS
  • Additional statement of Financial Position
  • Other information
• Types of Accounting


  • Financial Accounting
  • Management Accounting
  • Cost Accounting
  • Auditing
  • Tax Accounting
  • Government Accounting
  • Fiduciary Accounting
  • Estate Accounting
  • Social Accounting
  • Institutional Accounting
  • Accounting system
  • Accounting research
• Philippine Financial Reporting Standards (PFRS) represent the generally accepted accounting principles (GAAP)
• Components of accounting standards

  • PFRSs
  • Philippine Accounting Standards (PASs)
  • Interpretations
• In the absence of PFRSs, management SHALL use its judgment in developing and applying accounting policy
• Management must follow the requirements in PFRSs dealing with similar and related issues and the Conceptual Framework when making judgments
• International Accounting Standards Board (IASB) standards


  • International Financial Reporting Standards (IFRSs)
  • International Accounting Standards (IASs)
  • Interpretations
• Conceptual Framework assists in developing consistent accounting policies when no Standard applies to a particular transaction or when a Standard allows a choice of accounting policy
• If there is a conflict between a Standard and the Conceptual Framework, the requirement of the Standard will prevail
• Objective of Financial Reporting

  • To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity
• Primary Users of Financial Reporting


  • Existing and Potential Investors
  • Lenders and other creditors
• Decisions about providing resources to the entity


  Buying, selling or holding investments, providing or settling loans and other forms of credit, or exercising voting or similar rights that could influence management’s actions relating to the use of the entity’s economic resources
• Expectations about returns depend on the assessment of the entity’s prospects
• Decision


  Return
• Expectations about returns depend on

  (i) prospects for future net cash inflows and (ii) management stewardship
• To make the above assessment

  Consider the financial position and changes in economic resources and claims
• Considerations for assessment


  • Financial position
  • Changes in economic resources and claims
• Helps Users in assessing

  • Liquidity and solvency
  • Needs for additional financing and how successful it is likely to be in obtaining that financing
  • Management’s stewardship on the use of economic resources
• Economic resources and claims purpose

  • Financial Performance (income and expenses)
  • Other events and transactions
• Financial Performance helps users assess the entity’s ability to produce return from its economic resources
• Information based on accrual accounting provides a better basis for assessing an entity’s financial performance than information based solely on cash receipts and payments made during the period
• Changes in economic resources result from

  1. Identifying the type of information that is likely to be most useful to the primary users in making decisions using an entity’s financial report

  2. Applying to information in the FS as well as to financial information provided in other ways

  3. Classified into Fundamental qualitative characteristics (Relevance and Faithful representation) and Enhancing qualitative characteristics (Comparability, Verifiability, Timeliness, Understandability)
• Qualitative Characteristics


  • Relevance
  • Faithful Representation
  • Comparability
  • Verifiability
  • Timeliness
  • Understandability
• Materiality


  • If omitting, misstating, or obscuring it could reasonably be expected to influence decisions that the primary users of a specific reporting entity’s general purpose FS make on the basis of those FS
  • Entity specific, depends on the facts and circumstances surrounding a specific entity, a matter of judgment
• Materiality Process


  1. Identify information that has the potential to be material

  2. Assess whether the information identified is, in fact, material

  3. Organize information within the draft financial statements in a way that communicates the information clearly and concisely to primary users

  4. Review the draft FS to determine whether all material information has been identified
• Faithful Representation


  • Information provides a true, correct, and complete depiction of the economic phenomena that it purports to represent
  • Substance over form, includes Completeness, Neutrality, Free from error