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• Accounting


  The process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information
• Three important activities included in the definition of accounting

  • Identifying the process of analysing events and transactions to determine whether or not they will be recognized in the books
  • Measuring involves assigning numbers, normally in monetary terms, to the economic transactions and events
  • Communicating the process of transforming economic data into useful accounting information, such as financial statements and other accounting reports, for dissemination to users
• Types of events


  • External Events-events which involve an entity and an external party
  • Internal Events-events which do not involve an external party
• Types of external events


  • Exchange (reciprocal transfer)-reciprocal giving and receiving
  • Non-reciprocal transfer one-way' transaction
  • External event other than transfer- an event that involves changes in economic resources or obligations of an entity caused by an external party or an external source but does not involve transfers or resources or obligations
• Types of internal events

  • Production- the process by which resources are transformed into finished goods
  • Casualty- an unanticipated loss from disasters or other similar events
• Measurement bases


  • Historical Cost-price based on past exchange
  • Current Cost-price based on current exchange
  • Realizable (settlement) value-net cash that could currently be obtained by selling the asset in an orderly disposal
  • Present value-price based on future exchange
  • Fair value the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
  • Fair value less costs to sell - Costs to sell are the incremental costs directly attributable to the disposal of an asset excluding finance costs and income tax expense
  • Revalued amount-is the asset's fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses
  • Inflation-adjusted costs- amounts adjusted to the measuring unit current at the reporting date
• Basic purpose of accounting

  To provide information about economic activities intended to be useful in making economic decisions
• Types of accounting information classified as to users' needs

  • General purpose accounting information - designed to meet the common needs of most statement users. This information governed by the Philippine Financial Reporting Standards (PFRS)
  • Special purpose accounting information- designed to meet the specific needs of particular statement users. This information is provided by other types of accounting, e.g.. managerial accounting, tax basis accounting, etc.
• Basic accounting concepts


  • Going concern assumption the entity is assumed to carry on its operations for an indefinite period of time
  • Separate entity- the entity is treated separately from its owners
  • Stable monetary unit-amounts in financial statements are stated in terms of a common unit of measure; changes in purchasing power are ignored
  • Time Period the life of the business is divided into series of reporting periods
  • Materiality concept information is material if its omission or misstatement could influence economic decisions
  • Cost benefit (Reasonable assurance Pervasive constraint Cost constraint) the cost of processing and communicating information should not exceed the benefits to be derived from it
  • Accrual Basis of accounting- effects of transactions are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recognized in the accounting periods to which they relate
  • Historical cost concept (cost principle) - the value of an asset is to be determined on the basis of acquisition cost
  • Concept of Articulation- all of the components of a complete set of financial statements are interrelated
  • Full Disclosure Principle financial statements provide sufficient detail to disclose matters that make a difference to users, yet sufficient condensation to make the information understandable, keeping in mind the costs of preparing and using it
  • Consistency concept-financial statements are prepared on the basis of accounting principles which are followed consistently from one period to the next
  • Matching (Associating cause and effect) - costs are recognized as expenses when the related revenue is recognized
  • Entity theory- the accounting objective is geared towards the proper income determination. It emphasizes the income statement and is exemplified by the equation "Assets + Liabilities = Capital"
  • Proprietary theory-the accounting objective is geared towards the proper valuation of assets emphasizes the importance of the balance sheet and is exemplified by the equation "Assets = Liabilities + Capital"
  • Residual equity theory this theory is applicable where there are two classes of shares issued, ordinary and preferred. The equation is "Assets + Liabilities-Preferred shareholders' Equity = Ordinary Shareholders' Equity"
  • Fund theory-the accounting objective is the custody and administration of funds
  • Realization- the process of converting non-cash assets into cash or claims to cash
  • Prudence (conservatism) the inclusion of a degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated
• Common branches of accounting

  • Financial accounting/Financial Reporting- focuses on general purpose financial statements
  • Management accounting-focuses on special financial reports geared towards the needs of an entity's management
  • Cost accounting- the systematic recording and analysis of the costs of materials, labor, and overhead incident to production
  • Auditing a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users
  • Tax accounting the preparation of tax returns and rendering of tax advice, such as determination of tax consequences of certain proposed business endeavours
  • Government accounting- the accounting for the national government and its instrumentalities, focusing attention on the custody of public funds and the purpose or purposes to which such funds are committed
• Four sectors in the practice of accountancy

  • Practice of Public accountancy
  • Practice in Commerce and Industry
  • Practice in Education/Academe
  • Practice in the Government
• Philippine Financial Reporting Standards (PFRS)


  Standards and interpretations adopted by the Financial Reporting Standards Council (FRSC) comprising Philippine Financial Reporting Standards (PFRS), Philippine Accounting Standards (PAS), and Interpretations