FAR

Ethics

are beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior. These beliefs are trusted

Creditors and lenders

are concerned with the ability of the company to repay its debts, and should the loan be granted to them in the first place.

Internal users of Financial Statements

are people within a business organization who use financial information. Examples: owners, managers and employees.

Financial reports

are prepared for users who have a reasonable knowledge of business and economic activities

financial report

includes the financial statements plus other information provided outside the financial statements that assists in the interpretation of a complete set of financial statements or improves users' ability to make efficient economic decisions.

Board of Accountancy (BoA)

is tasked to enforce the provisions of the Philippines Accountancy Act.

Account balance

is the difference between the increases and decreases in an account.

Generally Accepted Accounting Principles (GAAP)

is the set of rules, principles, standards, conventions, and underlying assumptions that are used when preparing the financial statements.

Taxes and licenses expense

represents costs incurred to register the business and acquire rights to operate, as well as taxes incurred

Historical cost

the amount paid for an asset and used as a basis for recognizing it on the balance sheet and carrying it on later balance sheets

General journal

the most basic form of journal

Historical cost

the most common measurement basis of measurement since it provides the most objective information.

Debt Ratio Formula

total liabilities/total assets

Unconsolidated Financial Statements

- It is the separate financial statements prepared by the parent entity. - It provides information about the assets, liabilities, equity, revenue and expenses of parent entity only.

Notes to Financial Statements

- It provides additional information that is significant in decision making which are not presented in the face of entity's financial statements. - It is also known as footnotes. - It is required by the full disclosure principle.

Statement of Cash Flows

- It shows information of how changes in statement of financial position and operation affect cash and cash equivalent. - It is classified into three activities such as Operating, Investing and Financing activities of the company.

Journal

- One of the books of account. - aka "Book of original entry" since all the transactions are recorded in chronological order in this book.

Account receivable

- Open accounts which represent money owed by customers and are collectible in the near future by the business. This usually arises from conducting the ordinary course of business.

Ledger or Book of final entry

- Other books of account - Purpose is to summarize the effects of all business transactions of the company on a specific account.

Notes receivable

- Represents a promise by the customer or other debtor to pay a fixed amount of money evidenced by a written promissory note, and thus offers more security over accounts receivables. A portion of this may be classified as a non-current asset if it is expected to be collected beyond 12 months from the report date.

Prepaid expense

- These are expenses not yet incurred but already paid for by the company. - These assets will eventually be converted into expenses when they are incurred.

Intangible assets

- These are identifiable, non-monetary assets which lack physical substance. Examples:j franchise license, patent, copyrights, and trademarks.

Mortgage Payable

- These are long-term debts with a pledged asset acting as a security or collateral for the debt, to protect the creditor in the event of default by the business. - could be current or non current

Full disclosure principle

- This concept is related to both the concepts of materiality and cost-benefit. - Under this concept, information communicated to users reflect a series of judgmental trade-offs.

Liquidating concern

- This is the case if the business intends to end its operations or if it has no other choice but to do so, (e.g., the business is bankrupt).

Drawings

- This is when the company distributes its assets to the owner.

Consistency concept

- Under this concept, a business shall apply accounting policies consistenily, and present information consistently, from one period to another. - This means that like transactions must be accounted for in like manner.

Prudence (or Conservatism)

- Under this concept, the accountant observes some degree of caution when exercising judgments needed in making accounting estimates under conditions of uncertainty.

Independent Auditor's Report

- a report, prepared by a certified public accountant for the public shareholder, stating an opinion on whether the financial statements present fairly, in conformity with GAAP, the company's financial condition and results of operations and cash flows - most common form of an audit opinion.

Property, plant, and equipment

- are tangible assets held by the business for use in the production process or for administrative purposes, and are expected to be used for more than one accounting period.

Liabilities

- are the claims of creditors in the assets of the entity.

Equity

- are the claims of the owners of the entity in the assets of the entity.

Bonds payable

- can be current or non current - are contracts between the issuer (the borrower) and the lender specifying the terms of repayment which may include maturity date, number of tranches to be paid, interest rates to be paid, and timing of interest payments.

Financial performance

- can be defined as the ability of a company to generate profit or incur a loss during a particular date range or accounting period. - can also be referred to as profitability. - this type of information is presented in the statement of comprehensive income (Income Statement).

Financial position

- can be defined as the status of financial well-being of a company as of a given date. - It can also be an indicator of the capacity of a company to adapt to changes in the environment in which it operates in. - This type of information is presented in the statement of financial position. (Balance Sheet)

Cost of sales

- direct costs attributable to the merchandise sold to the customer

Trial balance

- ensure that all debits are equal to all credits after journalizing and posting. - based on the concept of double entry bookkeeping where debits must always equal credits,

Accountable events

- events only record on the books of account - events that affect the assets, liabilities, equity, income, expenses of a business.

Asset

- is a present economic resource controlled by the entity as a result of past events. - Rights that have the potential to produce economic benefits take many forms, including rights that correspond and not to correspond to an obligation of another party.

economic resource

- is a right that has the potential to produce economic benefits. For potential to exist, it does not need to be certain. It is only necessary that the right already exists and that, in at least one circumstance, it would produce for the entity economic benefits beyond those available to all other parties.

Derecognition

- is the removal of all or part of a recognized asset or liability from an entity's statement of financial position. - normally occurs when that item no longer meets the definition of an asset or of a liability. For an asset, this usually occurs when the company loses control (entirely or in part) of the previously recognized asset. For a liability, this usually occurs when the company no longer has a present obligation (entirely or in part) of the previously recognized liability.

Consolidated Financial Statements

- prepared by the parent entity. - It provides information about the assets, liabilities, equity, revenue and expenses of both parent and subsidiaries as one entity.

Accounting education

- process of facilitating the acquisition of knowledge and skills regarding one or more of the other branches of accounting - teaching accounting and accounting-related subjects in an organized learning environment

Current cost

- refers to the cost of an equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement date plus the transaction costs that would be incurred at that date. - in liability, it is the consideration that would be received for an equivalent liability at the measurement date minus the transaction costs that would be incurred at that date.

Income summary

- temporary account that summarizes the revenues and expenses of the company in a given period and may result to a debit or credit balance, depending on whether the company resulted to a net loss or net gain, respectively.

Managers

- these users generally use the information for assessing how the company resources have been managed. - They use these information to plan, monitor, and make managerial decisions.

Owners and Potential Investors

- these users need to assess how well their business is performing and how risky their business currently - Their concern is mostly profitability and stability of the business.

Equity

- they are claims against the entity that do not meet the definition of a liability.

Verifiability

- this helps assure users that information faithfully represents the economic phenomena it purports to represent. - means that different knowledgeable and independent observers could reach a consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.

Management Advisory Services (MAS)

-offshoot of management accounting - Consulting services that may provide advice and assistance concerning an entity's organization, personnel, finances, operations, systems, or other activities.

Accounting Cycle Steps

1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance 10. Recording reversing entries

Liquidating concern

- The assets of in this concept are measured at net selling price rather than at historical cost.

Drawings

- a contra-equity account - Also known as withdrawals, these are the opposite of capital. - This is when the company distributes its assets to the owner.

Trial Balance

- all open accounts are summarized

Equity

- are claims on the residual interest in the assets of the entity after deducting all its liabilities.

Financial statements

- are the structured representation of an entity's financial position and results of its operations. - the end product of the accounting process

Materiality

- is an 'entity-specific aspect of relevance, meaning it depends on the facts and circumstances surrounding a specific entity.

Transplacement Error

- occur when the decimal point is erroneously placed to the left or right of the correct placement. - known as slide error Ex: recording an amount of ₱1,000 instead of ₱10,000.

Transposition Errors

- occurs when an amount is recorded incorrectly as the result of switching the position of two or more digits. Ex: recording an amount of ₱13,245 instead of ₱12,345

Fulfilment value

- refers to the present value of the cash flows, or other economic resources, that an entity expects to be obliged to transfer as it fulfils a liability.

Types of Business Activities

1. Service 2. Merchandising/Retailing 3. Manufacturing

Forms of Business Organization

1. Sole Proprietorship 2. Partnership 3. Corporation

(a) the entity has an obligation; (b) the obligation is to transfer an economic resource (c) the obligation is a present obligation that exists as a result of past events.

Criteria of Liabilities

Hybrid business

Engage in more than one type of activity.

Financial Accounting

Governed by Philippine Financial Reporting Standards (PFRSs)

Accounting education

Identify the related branch of accounting to the given accounting research topic. Becoming a certified public accountant

Financial accounting

Identify the related branch of accounting to the given accounting research topic. Impact if fair value measurement on the financial statements

both revenue and gain

Income encompasses both __________

sole proprietor

Individual owner and, most often, the manager of a business.

Neutrality

Information are selected or presented without bias. Information must not be manipulated to increase the probability that it will be received favorably or unfavorably by the users.

Predictive value

Information can be used by users as an input in making predictions or forecasts of outcomes of events.

Management Accounting

Involves the accumulation and communication of information for use by internal users.

Credit

Normal balance of equity

capital or net assets.

Sometimes, equity is also referred to as ______________

Monetary Unit Assumption

Transactions and events are expressed in monetary, or money, units.

Conceptual Framework

a system of ideas and objectives that lead to the creation of a consistent set of rules and standards.

Language of Business

Accounting is called the ______________________ because all organizations set up an accounting information system to communicate data to help people make better decisions.

1. Quarterly 2. Monthly 3. Semi-annually 4. Annually

Accounting periods

external users and internal users.

Accounting serves many users who can be divided into two groups

cash, accounts receivable, notes receivable, prepaid accounts, supplies, equipment, buildings, land

Asset accounts

Expanded Accounting Equation

Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenues - Expenses

Communicating

At the end of the accounting period, the accountant summarizes the information processed in the accounting system in order to produce meaningful reports.

permanent accounts (real accounts)

Balance sheet accounts; their balances are not transferred (or closed) to any other account at the end of the accounting period.

1. Separate entity concept 2. Historical cost concept 3. Going concern assumption 4. Matching 5. Accrual Basis 6. Prudence (or Conservatism) 7. Time Period 8. Stable monetary unit 9, Materiality concept 10. Cost-benefit 11. Full disclosure principle 12. Consistency concept

Basic Accounting Concepts

Account

Basic storage of information in accounting

sole proprietorship

Business registered with the Department of Trade and Industry (DTI)

Merchandising business

Buys and sells goods without changing their physical form.

-Financial Accounting -Management Accounting -Government Accounting -Auditing -Tax Accounting -Cost Accounting -Accounting Education -Accounting Research

Common branches of accounting

Transplacement and Transposition Error

Common types of errors

General ledger

Contains all the accounts appearing in the trial balance

artificial being

Corporation is a(n) _____________ or a juridical person, meaning in the eyes of the law, a corporation is like a person, separate from its owners

a. Consolidated Financial Statements b. Unconsolidated Financial Statements c. Combined Financial Statements

Different forms of financial statements

a. Predictive value b. Confirmatory value (or Feedback value) c. Materiality

Elements of Relevance a. b. c.

Opportunity

Envision a way to commit fraud with a low perceived risk of getting caught

+owners capital -owners withdrawal +revenues -expenses

Equity accounts

Debt ratio

Evaluates the level of debt risk.

costs and losses.

Expense encompasses both ____________

decrease

Expenses and Owner withrawals ________________ equity.

Auditing

Expression of an opinion on the correspondence between management assertions and established criteria.

• Lenders • External auditors • Shareholders • Board of directors • Regulators • Customers

External users in Accounting

Rationalization

Fails to see the criminal nature of the fraud or justifies the action

Income Statement

Financial Performance

Balance Sheet

Financial position

Financial accounting

Focuses in the information needs of external users

Management Accounting

Focuses on the information needs of internal users.

Corporation

Formed by operation of law - Registered with SEC

To provide information that is useful in managing the business.

Function of accounting to

To provide information that is useful in making investment or credit decisions

Function of accounting to external users

1. to disclose the complete effects of a transaction 2. to provide a chronological record of the transactions 3. to assist the prevention or location of errors which may have been committed.

Functions of journal

1. Reduced 2. Increased

Historical cost of assets is 1. __________ if they become impaired and historical cost of liabilities is 2. _________ if they become onerous.

Will serve for a term of three years, renewable for another term.

How long is there term for the appointed chairman and all the representatives of FRSC

1 chairperson and 14 representatives, all of whom are appointed by the Bod.

How many are there in FRSC? And who appointed them?

Not be less than 15 individuals. But a cooperative can have many members as its by-laws permits.

How many must be the founding members of a cooperative?

Management accounting

Identify the related branch of accounting to the given accounting research topic. Inventory management and its effect on earnings

Identify the related branch of accounting to the given accounting research topic.

Identify the related branch of accounting to the given accounting research topic. Internal controls and modern technology

Verifiability

Implies consensus among different measurers

there is a greater probability that a company will not be able to pay its debt in the future

In debt ratio, a higher ratio indicates that.....

Will be replaced by "JR (Journal reference)" since it's now trying to link the ledger to the journal.

In ledger, what will happen to the Posting reference?

Verifiability

Information menables different and independent users to reach a general agreement about what the information intends to depict.

Understandability

Information must be presented clearly and concisely in order for users to comprehend

Completeness

Information must be presented with sufficient detail necessary for users to understand them. Important information must not be omitted.

Timeliness

Information must be provided to users on time to be capable of influencing their decisions.

financial reporting

Involves the provision of financial information about an entity that is useful in making economic decisions by external users and assessing management's stewardship.

No

Is comparability and consistency the same?

No. Conceptual framework is not an accounting standard.

Is conceptual framework is an accounting standard.

Merchandising/Retailing

It has goods for sale which is called as INVENTORY

Combined Financial Statements

It provides information about the assets, liabilities, equity, revenue and expenses of two or more entities that have no parent-subsidiary relationship.

Statement of Changes in capital

It shows the changes in the owner's or stockholder's equity throughout the accounting period which is effected primarily of additional investments, net income (loss) and withdrawais of owners.

Non-current assets

Items that a business owns and which it expects to retain for one year or longer.

1. Identify transactions and source documents 2. Analyze transactions using the accounting equation 3. Record journal entry 4. Post entry to ledger

Journalizing and posting transactions

accounts payable, notes payable, accrued liabilities, unearned revenue

Liability accounts

Financial Pressure

Must have some pressure to commit fraud, like unpaid bills

Debit

Normal balance of expense

Credit

Normal balance of liability

Debit

Normal balance of liability

Credit

Normal balance of owner's capital

Credit

Normal balance of revenue

Debit

Normal balance of withdrawals

Materiality

Only information that would influence the decisions of a reasonable person need to be disclosed.

cost-benefit

Only information with benefits of disclosure greater than their cost need to be disclosed.

Accounts payable

Open accounts which represent money owed by the business and are payable in the near future to the vendor / supplier.

Liquidating concern

Opposite of going concern

Going Concern Assumption

Opposite of liquidating concern

Conservatism

Other term for Prudence

PR (posting reference)

Other term for Reference or Ref. which links the journal to the ledger.

Economic events

Other term for accountable events

Book of final entry

Other term for ledger

Association of cause and effect

Other term for matching concept

Footnote

Other term for notes to financial statements..

1. Philippine Accounting Standards (PAS) 2. Philippines Financial Reporting Standards (PFRS) 3. Interpretations published by the Philippine Interpretations Committee (PIC Interpretations)

PFRS includes: 1. 2. 3.

Patronage funds

Pertains to the profit that a cooperative returns to its owners.

1. assist the FRSC to develop PFRS that are based on consistent concepts; 2. assist preparers to develop consistent accounting policies when no standard applies to a particular transaction or other event, or when a standard allows a choice of accounting policy; and 3. assist all parties to understand and interpret the standards.

Purpose of conceptual framework

Inventories

Refers to assets which are either held for sale in the ordinary course of business, in the process of production for sale, or in the form of materials/ supplies to be consumed in the production process of in the rendering of services.

Government Accounting

Refers to the accounting for the government and its instrumentalities, focusing in the attention on the custody of public funds.

Accrued expenses

Represent amounts owed to other parties for expenses already incurred but are yet to be paid. Examples of accrued expenses include salaries payable, interest payable, and taxes payable.

Notes payable

Represents a promise by the business to pay a fixed amount of money to the vendor or other creditor, evidenced by a written promissory note.

Unearned revenue

Represents cash collected by the business for goods or services which are yet to be delivered to or performed for the customer.

business with gross annual sales or receipts exceeding ₱3,000,000

Required amount for a business to have their financial statements audited by an independent Certified Public Accountant

Increases

Revenues and Owner capital ____________ equity.

Cash Basis Accounting

Revenues are recorded when cash is received and expenses are recorded when cash is paid.

Accrual Basis Accounting

Revenues are recorded when products or services are delivered, and records expenses when incurred.

T

T/F Accounting is a science and a practical art.

True

T/F Accounting policies can be changed if it is required by a standard or the change would result in more relevant and more reliable information. Any change in accounting policy must be disclosed.

True

T/F Balance sheet accounts are permanent accounts

True

T/F Generally, the older the information is the less useful it is.

True

T/F Income and expenses are temporary accounts.

True

T/F Only items that meet the definition of an asset, a liability or equity are recognized in the statement of financial position.

False. It's on statement of comprehensive income.

T/F Only items that meet the definition of income or expenses are recognized in the statement of financial position.

True

T/F Only open accounts appear in the trial balance.

F - not part of the accounting scope.

T/F Sociological and psychological matters are inside the scope of accounting.

Identifying

The accountant analyzes each business transaction and identifies whether the transaction is an "accountable event" or "non-accountable event."

recording

The accountant recognizes (i.e., record) the "accountable events" he has identified. This process is called "journalizing"

carrying amount

The amount at which an asset, a liability or equity is recognized in the statement of financial position is referred to as its

Financial Accounting

The branch of accounting that is concerned with recording transactions using generally accepted accounting principles (GAAP) for a business or other economic unit and with a periodic preparation of various statements from such records.

Financial accounting

The branch of accounting that is concerned with recording transactions using generally accepted accounting principles (GAAP) for a business or other economic unit and with a periodic preparation of various statements from such records.

Going Concern Assumption

The business is presumed to continue operating instead of being closed or sold.

Separate Entity Concept

The business is viewed as a separate person, distinct from its owners. Only the transactions of the business are recorded in the books of accounts. The personal transactions of the business owners are not recorded.

material items

The concepts of materiality and accounting principles are applicable only to ________

1. The objective of general purpose financial reporting 2. Qualitative characteristics of useful information 3. Financial statements and the reporting entity 4. The elements of financial statements 5. Recognition and Derecognition 6. Measurement 7. Presentation and disclosure 8. Concepts of capital and capital maintenance

The content of the framework includes:

a. Comparability b. Verifiability c. Timeliness d. Understandability

The enhancing qualitative characteristics consist of the following: a. b. c. d.

a. Relevance b. Faithful representation

The fundamental qualitative characteristics consist of the following: a. b.

not less than 5 but not more than 15 individuals

The incorporators (i.e., founders) of a corporation shall not be less than _______ but not more than _______ individuals. However, a corporation can have as many stockholders as its authorized capitalization permits.

Interested users

The information processed in an accounting system is communicated to ________________ through accounting reports (i.e., financial reports)

Time Period Assumption

The life of a company can be divided into time periods, such as months and years.

reporting periods (or accounting periods).

The life of the business is divided into series of equal short periods called ___________

Account numbers

The numbers assigned to accounts according to the chart of accounts

Members

The owners of the cooperative are called

Financial Reporting Standards Council (FRSC).

The primary task of the council is to improve and establish accounting standards that will be generally accepted in the Philippines.

Accounting

The process of planning, recording, analyzing, and interpreting financial information.

Cost constraints (Cost-Benefit Principle)

The users must assess the benefit of providing the information needs to justify the cost of providing the using the information.

Finished Goods

These are the partly processed raw materials lying on the production floor. And they have also not reached the stage where they have been converted into the final product.

Work in Progress

These are the partly processed raw materials lying on the production floor. And they have also not reached the stage where they have been converted into the final product.

temporary accounts (nominal accounts)

They temporarily contain the revenue, expense, and dividend information that is transferred (or closed) to a stockholders' equity account (Retained Earnings) at the end of the accounting period.

Materiality concept.

This concept guides the accountant when applying accounting principles.

Confirmatory value (or Feedback value)

This concept is related to the predictive value. Information can be use it to confirm past predictions.

Fraud Triangle: Opportunity, Pressure, and Rationalization.

Three factors must exist for a person to commit fraud:

generally accepted accounting principles (GAAP).

Traditionally, accounting standards were referred to as the __________

1. Service Business 2. Merchandising Business (Trading) 3. Manufacturing Business

Type of business according to activities

1. Sole proprietorships 2. Partnerships 3. Corporations

Types of Business Organizations

Qualitative Characteristics

Under the Conceptual Framework, these are the traits that make information useful to users. Without these characteristics, information may be deemed useless.

The unfavorable one. This is necessary so that assets or income are not overstated and liabilities or expenses are not understated.

Under the concept of Prudence (Conservatism), - if the accountant needs to choose between a potentially unfavorable outcome versus a potentially favorable outcome, the accountant chooses the?

Yes

Under the stable monetary unit concept, the purchasing power of the peso is regarded as stable. Therefore, is changes in the purchasing power of the peso due to inflation are ignored?

Historical cost concept (Cost principle)

Under this concept, assets are initially recorded at their acquisition cost.

Stable monetary unit

Under this concept, assets, liabilities, equity, income and expenses are stated in terms of a common unit of measure, which is the peso in the Philippines.

Accrual Basis of accounting

Under this concept, economic events are recorded in the period in which they ocour rather than at the point in time when they affect cash. Thus, income is recorded in the period when it is earned rather than when it is collected, while expense is recognized in the period when it is incurred rather than when it is paid.

Matching (or Association of cause and effect)

Under this concept, some costs are initially recognized as assets and charged as expenses only when the related revenue is recognized.

Going concern assumption

Under this concept, the business is assumed to continue to exist for an indefinite period of time. This is necessary for accounting measurements to be meaningful.

Cost-benefit (Cost constraint)

Under this concept, the cost of processing and communicating information should not exceed the benefits to be derived from it.

Time Period (Periodicity or Accounting period concept)

Under this concept, the life of the business is divided into series of reporting periods.

Trial balance

Up to where does bookkeeping normally ends

Internal users External users

Users of financial statements

a. Direct verification b. Indirect verification

Verification can either be _____________

an entity may need to provide information about that item in the notes.

What if an item meeting the definition of an asset or liability is not recognized, then...

Finding "Ending balance" of an account by means of offsetting the debits and credits

What is the final step in posting?

International Accounting Standards Board (IASB)

What is the international counterpart of the FRSC?

if an account has a zero balance (debits is equal to credits)

When is an account considered closed?

if an account has a balance (either debit or credit)

When is an account considered open?

Measurement

When items are recognized, their values are also quantified in monetary terms. The determination of this monetary value is known as the _________.

Securities and Exchange Commission (SEC)

Where is a Corporation registered?

Securities and Exchange Commission (SEC)

Where is a Partnership form of Business registered?

Cooperative Development Authority (CDA)

Where is a cooperative being registered?

Professional Regulation Commission

Who created the Financial Reporting Standards Council (FRSC).

Accounting cycle

a collective process of identifying, analyzing, and recording the accounting events of a company

Special journal

a journal used to record frequently recurring transaction

Chart of accounts

a list of all accounts used by a business

The Philippine Financial Reporting Standards (PFRSs)

are Standards and Interpretations adopted by the Financial Reporting Standards Council (FRSC). They consist of the following: a. Philippine Financial Reporting Standards (PFRSs); b. Philippine Accounting Standards (PASs); and C. Interpretations

Accounting concepts and principles (assumptions or postulates)

are a set of logical ideas and procedures that guide the accountant in recording and communicating economic information.

External users if Financial Statements

are broader in scope and includes anyone outside the company but is in one way or another involved or simply interested in that company.

Government units

are concerned with the compliance of the company to laws and regulations

Customers

are concerned with the fairness of the pricing of the company and the longevity of the company in order to honor its product warranties.

Expenses

are decreases in assets, or increases in liabilities, which result in decreases in equity, other than those relating to distributions to holders of equity claims.

Income

are increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.

Potential investors

are interested in the company for the reason of deciding whether it would be wise to commit their resources for the company to use to generate more wealth.

Raw Materials

are the basic materials that a manufacturing company buys from its suppliers, and that is used by the former to convert them into the final products by applying a set of manufacturing processes.

Current liabilities

are those obligation that are reasonably expected to be settled within one year from the report date or the normal operating cycle of the business, whichever is longer.

Current assets

are those reasonably expected to be realized to cash within one year from the report date or the normal operating cycle of the business, whichever is longer.

Implicit concepts and principles

are those that are not specifically mentioned in the foregoing but are customarily used because of their general and longtime acceptance within the accountancy profession.

Explicit concepts and principles

are those that are specifically mentioned in the Conceptual Framework for Financial Reporting and in the Philippine Financial Reporting Standards (PFRSs).

general-purpose financial statements

are those that cater the common needs of a wide range of external users.

Financial position

assets, labilities and equity, which relate to a reporting entity's _________________

Salaries and wages expense

compensation paid to employees of the business

Capital

consists of investments made by the owner

Utilities expense

includes cost of electricity, water, telecommunication, and networking

Financial performance

income and expenses, which relate to a reporting entity's _______________

Relevance

information has the ability to affect the decision making of the users. Without this ability, information is deemed irrelevant and useless.

Faithful Representation

information that is complete, neutral, and free from error

Auditing

involves the inspection of an entity's financial statements or business processes to ascertain their correspondence with an established endeavors.

Ledger

is a collection of all accounts and their balances for an accounting system. A company's size and diversity of operations affect the number of accounts needed.

chart of accounts

is a list of all accounts and includes an identifying number for each account

Memorandum entry

is a narrative entry with the purpose of simply reminding or explaining an event that has occurred in the company, but did not affect the company's financial position.

Liabilities

is a present obligation of the entity to transfer an economic resource as a result of past events. For a liability to exist, three criteria must all be satisfied:

general ledger

is a record of all accounts used by the company.

Account

is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense.

Accounting

is an information and measurement system that identifies, records, and communicates an organization's business activities.

The general public

is concerned with how the company is affecting the society in terms of employment, environmental hazards, and advocacies.

Footing

is the final balance when adding all the debits and credits.

The Philippine Financial Reporting Standards (PFRS)

is the set of accounting standards issued by the FRSC and constitutes the generally accepted accounting principles observed in the Philippines.

Simple journal entry

journal entry which includes one debit entry and one credit entry

Trial balance

lists all ledger accounts and their balances at a point in time. If the books are in balance, the total debits will equal the total credits.

Statement of Cash Flows

lists the cash inflows and cash outflows for the period.

Indirect verification

means checking the inputs to a model, formula or other technique and recalculating the outputs using the same methodology. example: verifying the carrying amount of inventory by checking the inputs (quantities and costs) and recalculating the ending inventory using the same cost flow assumption.

Understandability

means classifying, characterizing and presenting information clearly and concisely.

Timeliness

means having information available to decision-makers in time to be capable of influencing their decisions.

Direct verification

means verifying an amount or other representation through direct observation. example: by counting cash.

Accounting Research

pertains to the careful analysis of economic events and other variables to understand their impact on decisions

Historical costs

provide monetary information about assets, liabilities and related income and expenses, using information derived from the price of the transaction or other event that gave rise to them.

Subsidiary ledger

provides a breakdown of the balances of controlling accounts

Solvency

refers to a company's capacity to meet its long-term financial commitments.

Liquidity

refers to an enterprise's ability to pay short-term obligations.

Sales revenue

refers to carings of a business from selling merchandise to its customers (in the case of a merchandising or manufacturing company)

Interest revenue

refers to earnings from the passage of time with money committed in a certain fund, e.g. bank deposits

Service revenue

refers to earnings of a business from rendering services to its clients (in the case of a service company)

Value in use

refers to the present value of the cash flows, or other economic benefits, which an entity expects to derive from the use of an asset and from its ultimate disposal.

fair value

refers to 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.

Consistency

refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.

Statement of owner's equity

reports how equity changes over the reporting period from net income (or loss) and from any owner investments and withdrawals over a period of time.

income statement (profit and loss statement)

reports revenues less expenses incurred by a business over a period of time.

Balance sheet

reports the financial position (types and amounts of assets, liabilities, and equity) at a point in time.

T-account

represents a ledger account and is used to show the effects of one or more transactions.

Doubtful accounts expense

represents amounts from open accounts receivables which are estimated to be uncollectible, and thus recognized as expense

Depreciation expense

represents the allocated portion of property, plant, and equipment charged to expense due to passage of time and / or regular wear and tear for a given accounting period.

Revenue Recognition Principle

requires that revenue be recorded when the goods or services are provided to customer and at an amount expected to be received from customers.

Generally Accepted Accounting Principles (GAAP)

serves as a guide for individuals in the accounting profession.

Types of business according to activities

service, merchandising (trading), manufacturing

tax accounting

the preparation of tax returns and rendering of tax advice, such as the determination of the tax consequences of certain proposed business endeavors.

Recognition

the process of capturing for inclusion in the statement of financial position or the statement of financial performance an item that meets the definition of one of the elements of financial statements (asset, liability, equity, income or expenses).

Accounting

the process of identifying, measuring, recording, and communicating economic information that is useful in making economic decisions.

Journalizing

the process of recording business transactions in a journal

cost accounting

the systematic recording and analysis of the costs of materials, labor and overhead incident to production of goods or rendering of services.

Philippine Financial Reporting Standards (PFRSs).

the term "standards" is used to specifically refer to the ____________

Enhancing qualitative characteristics

these characteristics support the fundamental characteristics. They enhance the usefulness of information. As such, they must be maximized. The enhancing qualitative characteristics consist of the following: a. Comparability b. Verifiability c. Timeliness d. Understandability

Fundamental qualitative characteristics

these refer to the essential characteristics that information must have before it can be included in the financial statements. They consist of the following: - Relevance - Faithful Representation

Employees

these users are interested in knowing how well a company is performing as it could have implications for their job security and income

Internal users in Accounting

• Research and development managers • Purchasing managers • Human resource managers • Marketing managers • Production managers • Distribution managers

Free from error

- Information presented in the financial statements must not be materially misstated. - Accounting information must be perfectly accurate in all respects, because some accounting information necessarily needs to be estimated..

Corporation

- 1 or more, called stockholders; can get many investors by selling stock or shares of corporate ownership. - additional corporate income tax - Limited liability. Stockholders or shareholders are not liable for acts or debts. - A separate entity with the same rights and responsibilities as a person. - Indefinite

Sole proprietorship

- 1 owner; easy to set up - no additional business income tax - Unlimited liability. Owner is personally liable for debts. - Not a separate legal entity - Business ends with owner death or choice.

Partnership

- 2 or more, called partners; easy to set up. - no additional business income tax - Unlimited liability. Owner is personally liable for debts. - Not a separate legal entity - Business ends with owner death or choice.

cooperative

- A business that is owned by the members it serves and is managed in their interest. - formed in accordance with the provision of the Philippine Corporation Code of 2008.

Interim period

- An accounting period that is shorter than 12 months. - The period can be a month, a quarter (3 months) or a semiannual period (6 months).

Partnership

- Formed by contractual agreement - Registered with SEC

Cooperative

- Formed in accordance with the corporation code of 2008 - Registered with CDA

Comparability

- Information has this characteristic if it enables users to make comparisons to identify and understand the similarities in, and the differences among, items. - Unlike the other qualitative characteristics, comparability does not relate to a single item. - This requires at least two items.

Statement of Cash Flows

- It is concerned about the inflows and outflows of cash of the entity. - It is useful tool for determining the short term capability of the company to pay its bills.

1. Fundamental Qualitative Characteristics 2. Enhancing Qualitative Characteristics

2 classifications of Qualitative characteristics under Conceptual Framework

1. Identifying 2. Measuring 3. Communicating

3 basic process of accounting

1. raw materials 2. work in process 3. finished goods

3 types of inventories in Manufacturing

1. Verifiability 2. Comparability 3. Understandability 4. Timeliness

4 qualitative characteristics that enhance the usefulness of relevant and faithfully represented information. 1. 2. 3. 4.

Calendar year period Fiscal year period

A 12 month reporting/accounting period can be either ___________

Business Entity Assumption

A business is accounted for separately from other business entities, including its owner.

• Statement of financial position • Statement of comprehensive income • Statement of changes in equity • Statement of cash flows • Notes to the financial statements

A complete statement of financial statements includes:

Fiscal Year Period

A fiscal year period also covers 12 months but starts on a date other than January 1. Ex: July 1, 2017 to June 30, 2018.

Compound Journal Entry

A journal entry that is characterized by having multiple debits and/or multiple credits

1. historical cost 2. fair value 3. current cost 4. value in use and fulfilment value.

A measurement basis is an identified feature of an item being measured. Examples of this includes: 1. 2. 3. 4.

Calendar Year Period

A period which starts on January 1 and ends on December 31 of the same year.

12 months although it can be longer or shorter.

A reporting period is usually ___________

manufacturing business

A type of business that changes basic inputs into products that are sold to individual customers.

Assets = Liabilities + Owner's Equity

Accounting Equation

1. Going-Concern Assumption 2. Monetary Unit Assumption 3. Time Period Assumption 4. Business Entity Assumption

Accounting assumptions

explicit or implicit.

Accounting concepts and principles are either

1. Cost-benefit 2. Materiality

Accounting contraints

Financial statements

Accounting information is communicated to interested users through accounting report, the most common form of which is the _____________

General purpose

Accounting information is provided by financial accounting and is prepared primarily for external users.

Special purpose

Accounting information is provided by management accounting or their branches of accounting and is spread primarily for internal users.

1. General purpose 2. Special purpose

Accounting information may be either