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OVERVIEW
Accounting – process of identifying, measuring and communicating economic information
to permit informed judgment and decisions by users of information
TYPES OF EVENTS
1. External Events
A. Exchange / Reciprocal Transfer – event wherein there is a reciprocal
giving and receiving of economic resources and/or economic obligations
B. Non-reciprocal Transfer – event in which an entity transfers (or receives)
economic resources to (from) another entity without directly receiving
(or giving) value in exchange
C. External Event other than transfer – involves changes in the economic
resources or obligations of an entity caused by an external party but does
not involve transfers of resources or obligations
2. Internal Events
A. Production – resources are transformed into finished goods
B. Casualty – unanticipated loss from disasters or other similar events
Fair Value – price that would be received to sell an asset or paid to transfer a liability at
the measurement date
Fair Value less Costs to Sell - *costs to sell – incremental costs directly attributable to the
disposal of an assets (excluding finance costs and income tax expense)
Economic Entity – separately identifiable combination of persons and property that uses
or controls economic resources to achieve certain goals or objectives
a. Not-for-Profit Entity – carries out some socially desirable needs of the community
or its members whose activities are not directed towards making profit
b. Business Entity – operates primarily for profit
Economic Activities – activities that affect the economic resources and obligations and
consequently, the equity of an economic entity
a. Production – converting economic resources into outputs
b. Exchange – process of trading resources or obligations
c. Consumption – using the final output
d. Income Distribution – allocating rights to the use of outputs
e. Savings – set aside rights to present consumption in exchange for rights to future
consumption
f. Investment – using current inputs to increase the stock of resources available for
output
Creative Thinking – use of imagination and insight to solve problems by finding new
relationships/ideas among items of information
Critical Thinking – logical analysis of issues, using inductive or deductive reasoning to test
new relationships/ideas to determine their effectiveness
Accounting Theory – logical reasoning in the form of a set of broad principles that (i)
provide a general frame of reference by which accounting practice can be evaluated and (ii)
guide the development of new practices and procedures
- organized set of concepts and related principles that explain and
guide the accountant’s action in identifying, measuring, communicating accounting
information
- comprises conceptual framework and PFRS
Going Concern Assumption – entity is assumed to carry on its operations for an indefinite
period of time unless the entity either (1) intends to liquidate the entity or to cease trading
or (2) has no realistic alternative but to do so
*MEASUREMENT BASIS: Going Concern = mixture of costs and values; Liquidating Concern
= Realizable Value
Stable Monetary Unit – assets, liabilities, equity, income and expenses are stated in terms
of a common unit of measure which is the Peso
Accrual Basis of Accounting – effects of transactions and other events are recognized
when they occur
- income is recognized when earned and expenses are
recognized when incurred regardless of when cash is received or paid
Full Disclosure Principle – nature and amount of information included in the financial
reports reflect a series of judgmental trade-offs
Residual Equity Theory – applicable where there are 2 classes of shares issued, ordinary
and preferred
- applied in the computation of book value per share and return
on equity
- equation is “Assets-Liab-Preferred Shareholders’
Equity=Ordinary Shareholders’ Equity”
Fund Theory – objective is neither proper income valuation nor proper valuation of assets
but the custody and administration of funds
- exemplified by the formula “cash inflows-cash outflows=fund”
* Before the adoption of IFRS, the accounting standards used in PH were called SFAS
* Public Practice does not involve an employer-employee relationship wile private practice
involves an employer-employee relationship
* Guidance that is an integral part of the PFRS is mandatory while guidance that is not an
integral part of the PFRS does not contain requirements for financial statements
* The management may also consider: (a) most recent pronouncements of other standard-
setting bodies that use a similar conceptual framework to develop accounting standards
and (b) other accounting literature and accepted industry practices
* Chairperson and 6 members appointed by the President of the PH and the board shall
elect a vice-chairperson from among its members for a term of 1 year
Board of Accountancy (BOA) – professional regulatory board created under R.A. No. 9298
to supervise the registration licensure and practice of accountancy in the PH
International Accounting Standards Board (IASB) – established in 2001 as part of IASC
Foundation with the responsibility of approving IFRSs and related documents
IASC Foundation – non-profit organization based in Delaware, USA and is the parent of the
IASB, which is based in London
IFRSs – standards issued by the IASB after it replace its predecessor, the IASC, in April
2001
IASs – standards issued by the IASC which were adopted by the IASB
- founded in June 1973