OVERVIEW 1.

historical cost,
Accounting – the process of identifying, 2. fair value,
measuring, and communicating economic 3. present value,
information to permit informed judgment and 4. realizable value,
decisions by users of information. 5. current cost, and
●​ Identifying – analyzing events and 6. sometimes inflation-adjusted costs.
transactions to determine. Only The most commonly used is historical
accountable events are recognized. cost. This is usually combined with the
●​ Measuring – involves assigning other measurement bases. Accordingly,
numbers, normally in monetary financial statements are said to be prepared
terms, to the economic transactions using a mixture of costs and values.
and events.
●​ Communicating – transforming VALUATION BY FACT OR OPINION
economic data into useful ●​ When measurement is affected by
accounting information, such as estimates, the items measured are
financial statements and other said to be valued by opinion.
accounting reports, for dissemination ●​ When measurement is unaffected
to users. by estimates, the items measured
are said to be valued by fact.
TYPES OF EVENTS
●​ External & Internal Events BASIC PURPOSE OF ACCOUNTING
●​ to provide information about
External Events economic activities intended to be
a.​ Exchange (reciprocal transfer) – useful in making economic
reciprocal giving and receiving decisions.
b.​ Non-reciprocal transfer – “one
way” transaction Types of accounting information
c.​ External event other than transfer classified as to users’ needs
– an event that involves changes in
the economic resources or GENERAL PURPOSE
obligations of an entity caused by an ●​ meet the common needs of most
external party or external source but statement users. This information is
does not involve transfers of governed by the Philippine Financial
resources or obligations. Reporting Standards (PFRSs).

Internal Events SPECIAL PURPOSE

a.​ Production – the process by which ●​ meet the specific needs of
resources are transformed into particular statement users. This
finished goods. information is provided by other
b.​ Casualty – an unanticipated loss types of accounting, e.g., managerial
from disasters or other similar accounting, tax basis accounting, etc
events.
BASIC ACCOUNTING CONCEPTS
MEASUREMENTS Double-entry system
 ●​ Each accountable event is recorded
in two parts – debit and credit. Concept of Articulation
●​ all of the components of a complete
Going concern set of financial statements are
●​ the entity is assumed to carry on its interrelated.
operations for an indefinite period of
time. Full disclosure principle
●​ financial statements provide
Separate entity sufficient detail to disclose matters
●​ the entity is treated separately from that make a difference to users, yet
its owners. sufficient condensation to make the
information understandable, keeping
Stable monetary unit in mind the costs of preparing and
●​ amounts in the financial statements using it.
are stated in terms of a common unit
of measure; changes in purchasing Consistency concept
power are ignored. ●​ financial statements are prepared on
the basis of accounting policies
Time Period which are applied consistently from
●​ The life of the business is divided one period to the next.
into a series of reporting periods.
Matching
Materiality concept ●​ costs are recognized as expenses
●​ information is material if its omission when the related revenue is
or misstatement could influence recognized.
economic decisions. Residual equity theory
●​ this theory is applicable where there
Cost-benefit are two classes of shares issued,
●​ the cost of processing and ordinary and preferred. The equation
communicating information should is “Assets – Liabilities – Preferred
not exceed the benefits to be Shareholders’ Equity = Ordinary
derived from it. Shareholders’ Equity.”

Accrual Basis of accounting Fund theory

●​ effects of transactions are ●​ the accounting objective is the
recognized when they occur (and custody and administration of funds.
not as cash is received or paid) and
they are recognized in the Realization
accounting periods to which they ●​ the process of converting non-cash
relate. assets into cash or claims for cash.

Historical cost concept Prudence (Conservatism)

●​ the value of an asset is determined ●​ the inclusion of a degree of caution
on the basis of acquisition cost. in the exercise of the judgments
 needed in making the estimates the individuals entrusted with those
required under conditions of funds.
uncertainty , such that assets or
income are not overstated and FOUR SECTORS IN THE PRACTICE OF
liabilities or expenses are not ACCOUNTANCY
understated. Practice of Public Accountancy
●​ involves the rendering of audit or
COMMON BRANCHES OF ACCOUNTING accounting related services to more
Financial accounting than one client on a fee basis.
●​ focuses on general purpose financial
statements. Practice in Commerce and Industry
●​ refers to employment in the private
Management accounting sector in a position which involves
●​ focuses on special purpose financial decision making requiring
reports for use by an entity’s professional knowledge in the
management. science of accounting and such
position requires that the holder
Cost accounting thereof must be a CPA.
●​ the systematic recording and
analysis of the costs of materials, Practice in Education/Academe
labor, and overhead incident to ●​ employment in an educational
production. institution which involves teaching of
accounting, auditing, management
Auditing advisory services, finance, business
●​ the process of evaluating the law, taxation, and other technically
correspondence of certain related subjects.
assertions with established criteria
and expressing an opinion thereon. Practice in the Government
●​ employment or appointment to a
Tax accounting position in an accounting
●​ the preparation of tax returns and professional group in the
rendering of tax advice, such as the government or in a
determination of tax consequences government–owned and/or
of certain proposed business controlled corporation where
endeavors. decision making requires
professional knowledge in the
Government accounting science of accounting, or where civil
●​ refers to the accounting for the service eligibility as a CPA is a
government and its instrumentalities, prerequisite.
placing emphasis on the custody of
public funds, the purposes for which ACCOUNTING STANDARDS IN THE
those funds are committed, and the PHILIPPINES
responsibility and accountability of ●​ Philippine Financial Reporting
Standards (PFRSs) are Standards
 and Interpretations adopted by the b.​ assist preparers to develop
Financial Reporting Standards consistent accounting policies when
Council (FRSC). They comprise: no Standard applies to a particular
a.​ Philippine Financial transaction or other event, or when a
Reporting Standards Standard allows a choice of
(PFRSs); accounting policy; and
b.​ Philippine Accounting c.​ assist all parties to understand and
Standards (PASs); and interpret the Standards.
c.​ Interpretations
The Conceptual Framework provides the
The need for reporting standard foundation for the development of the
●​ Entities should follow a uniform set Standards that:
of generally acceptable reporting a.​ promote transparency by enhancing
standards when preparing and the international comparability and
presenting financial statements; quality of financial information.
otherwise, financial statements b.​ strengthen accountability by
would be misleading. reducing the information gap
●​ The term “generally acceptable” between providers of capital and the
means that either: entity’s management.
a.​ the standard has been c.​ contribute to economic efficiency by
established by an helping investors to identify
authoritative accounting opportunities and risks around the
rule-making body; or world, thus improving capital
b.​ The principle has gained allocation.
general acceptance due to
practice over time and has The use of a single, trusted accounting
been proven to be most language lowers the cost of capital and
useful. reduces international reporting costs.
●​ The process of establishing financial
accounting standards is a HIERARCHY OF REPORTING STANDARD
democratic process in that a majority 1. PFRS Accounting Standards
of practicing accountants must agree 2. Judgment
with a standard before it becomes ●​ When making the judgment:
implemented. ➢ Management shall consider the
following:
CONCEPTUAL FRAMEWORK a.​ Requirements in other PFRSs
dealing with similar transactions.
PURPOSE OF THE CONCEPTUAL b.​ Conceptual Framework
FRAMEWORK
a.​ assist the International Accounting ➢ Management may consider the
Standards Board (Board) to develop following:
Standards that are based on a.​ pronouncements issued by other
consistent concepts; standard-setting bodies
 b.​ Other accounting literature and
industry practices

SCOPE OF THE CONCEPTUAL

FRAMEWORK
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 relating to
providing resources to the entity.
○​ Primary Users
■​ Existing and potential
investors
■​ Lenders and creditors

Specific Objectives of Financial Reporting

1.​ To provide information useful in
making decisions about providing
resources to the entity
2.​ To provide information useful in
assessing the cash flow prospects of
the entity
3.​ To provide information about entity
resources, claims and changes in
resources and claims.

Qualitative characteristics of useful

financial information
The qualitative characteristics of useful
financial information identify the types of
information that are likely to be most useful
to the existing and potential investors,
lenders
and other creditors for making decisions
about the reporting entity on the basis of
information in its financial report (financial
information