Onerview of Accounting a ' Overview of Accounting Learning Objectives 1. Define accounting and state its basic 2. Explain the basic concepts purpose. applied in accounting, 3. State the branches of accounting and the sectors in the practice of accountancy Explain the importance of @ uniform set of financial reporting standards, _ Definition of Accounting Accounting is “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.” - (Americen Association of Accountants) Three important activities included in the definition of = accounting 1. Identifying 2. Measuring _ 3. Communicating Identifying _Iidentifying is the process of analyzing events and transactions to ‘determine whether or not they will be recognized. PE E E f EE » Recognition refers to the process of including the effects of an accountable event in the statement of financial Position or the ‘statement of comprehensive income through i Only (accountable events are recognized (je., journalized). r event is one that affects the assets, liabilities, equity, Income or expenses of an entity. It is also known as economic tivity, which is the subject matter of accounting. Only economicare emphasized and recognized in ice levels, gical and psychological matters are not 2c tn baie eae paychologi 3 recogningg ty Bxamples: changes in f <° alien, and the © Non-accountable events are not recognized bet ol Fecogrized bit dy ‘obsolescence, tech ‘only in the notes, if they have accounting relevang n ‘only in the notes is not an application of the recognition . os involve an exterrial a Trurmat events — are ever tat 40S ‘party. - rnon-accountable event that has an accounting reey, recorded through a memorandum entry ‘Types of events or transactions ~ qypes of Internal events 1. Extemal events are events that involve an entity See cision = the proces. by-whichs seems, OU external party anda» PeMOnmed into finished goods. Examples: conversion = fansiovedals into finished products, production of farm ‘Types of External events products, and the like. 4 Exchange (reciprocal transfer) ~ an event wherein = recproa giving and racing of concn rovan imi ~ an unanticipated lors aoe Ne and other Seppe or ccs oa pean eile frm r= Oh, = an external party. crop Examples: sale, purchase, payment of labs receipt of notes receivable in exchange for acx receivable, and the like. ogical changes: % A008 my the party giving something does not receive anythin return while the party receiving does not give anything exchange. : Examples: donations, gifts. or contributions, payment of taxes, imposition of fines th provision of capital by owners , distributions to owne® and the like, 1 5489 Aconning Sanda Coaieaton ASC) External event other than transfer ~ an event that inst changes in the economic resources or obligations entity caused by an external party or external sou") does not involve transfers of resources or obligation i affected i ; opinic Je4 a ee b. Depreciation and amortization expenses, whic a 2a by estimates of useful life and residual value. Ml, §_ Estimated abilities, suchas provisions Basie purpose of accounting ioe ae | Retained eamings, which is affected by vario he i puro of counting i Pov tifa in making economic de oder ‘measured are said to be valued by ftct. Examples: a Bb. Land stated at acquisition cost ¢. Cash measured at face amount ‘Communicating Communicating is the process of transforming, economic data ing) © achieve certain goal useful accounting information, such as financial statements ayy) ether De a Notfer profit entity ~ one mS eSinaty income and expenses Ka When measurement is unaffected by estimates, the the ten ‘Ordinary share capital valued at par value E ‘other accounting reports, for dissemination t0 users. It alg) involves information. ‘computation of financial statement ratios, such as the Bangko Sentral ng Pilipinas (BSP), ‘The comimunicating process of accounting involves three aspect: Ee interpreting the significance of the Proce! I ‘Recording ~ refers to the process of systematically commiting into writing the identified and measured accountable events in the journal through journal entries. = (Classifying — involves the grouping of similar and interrelated Be items into their respective classes through postings in the leiger ‘Summarizing ~ putting together or expressing in condensed, form the recorded and classified transactions and events. Ths) includes the preparation of financial statements and othe accounting reports. Interpreting the processed information involves oe ‘Some regulatory bodie| require cerait cial statemen 5 financial ratios to be disclosed in the notes to finan c economic decisions and the fn fhe sources Ofer sources may Pulcatons, internet resour, — i = ‘Economic entities use accounting to record economic activites, process data, and dissemina “pe useful in making economic decisions. b ‘Various sources of information are ial statements are only one of include current events, industry ‘professional advices, expert te information intended to "An economic entity is a separately identifiable combination E Far pesos an propery that uses or controls economic resourss Is or objectives. An economic entity may that carries out some socially desirable needs of the community or its members and whose activities are not directed towards making profit; or ‘Business ently —one that operates primarily for prof eonomic activities are activities that affect the economic resources (assets) and obligations (liabilities), and consequently, equity of n economic entity. Economic activities inchde: Production - the process of converting economic resources into outputs of goods and services that are intended to. have greater utility than the required inputs. Exchange - the process of trading resources or obligations for other resources or obligations. Consumption ~ the process of using the final output of the production process. ‘Tncome distribution - the process of allocating rights to the use _of output among individuals and groups in society: Swings ~ the process of setting aside rights to present consumption in exchange for rights to future consumption. Investment ~ the process of using current inputs to increase the stock of resources. available for output as. opposed 0 immediately consumable output7 Somme ae en financial statements. = oe formation expressed jp information expressed i ie an th ete be ol information ose wall @S on the face oe ae Fe ceenl papoesoetolta itonaten seer ee oe eae principles (GAAP) represented by the Philippine Pane Reporting Standards (PERS) aa seeds of particular statement users. This informa) ther types of accounting other than fl ounting ox basis acourg specifi provided by Fecounting, egy managerial acc ‘Sources of information in financial statements is is not obtained exci? Information in the financial statement from the entity's accounting. records. ‘external sources. For example, fair resolutions of uncertainties, future Contractual commitments are only 2 few & presented in the financial statements that ae external sources. ‘Some are obtained tease payments the inform derived a Asa practical art, 2 ‘Accounting ‘Accounting Special purpose accounting information - designed tomes), value measure +) 4 Selecting a solution from among the alternatix ives. creative sills cevunting requires te use of «Tet and judgment. identifies and ‘(ormation into financial =P* epors to decision makers ‘alanguage of business ‘qanguage of business” ‘counting a5 TMacounting is often referred 10 2° & Meee it ia fundamental to the communication of ‘nancial information creative and Critical thinking in accounting re pcice of accountancy requires the exercise of creative and ‘tical thinking Creative thinking involves the use of imagination and insight sole poems by Sing ne relationships (ideas) among items of information. It is most important in identifying erative solutions, : Critical thinking involves the logical analysis of issues, using Inductive or deductive reasoning to test new relationships t0 determine ther effectiveness. Ibis most important in evalatin ‘alteratice solutions, = Creative skills and judg ae Sana a pac Fecrerising a eobless dentifying alternative solutions Evaluating the alternatives Implementing the solution science and art ‘Accounting as = Asa social science, accounting i ‘ ‘been systematically gathered, ‘dassified and organized |+ Accounting fundamental concepts or princes Pt Provide the foundation of the acetin ® tog 3 wunting prog ~ * Accounting theory ~ is logical reasoning ines ng in the form lates) _ broad principles that s that (1) provide a ofa mati 8 general frame gf. 4 by which accounting practice canbe cons the development of new practi Pon ces and prow and guide the accountants action in engin, P| communicating accounting information, Ace sce) comprises the Conceptual Framework and ieee) Financial Reporting Standards (PERS) Pain 4 Fe oe le : Framework and the Philpine Financ RepringSunias rel ee Ee crouvtig, cmap. ae Invlich meas ime se ert DSTA NE, gnounts In FOS are not expressly stated in the Framework or PERS: tt yi & common denominator. foe a generally accepted because of their long-time we in 4 2 ones should be rans ee [75 time Peri (Proiciy Accounting Period ese of Fre vided no ses of eporing, Pore Examples of accounting concepts tt i not and ay ch = 1. Double-entry system ~ each accountable crete okt SSSR Tn gc yor peso = tewo parts — debit and credit | Gn January 1 and ends on December 31 of ‘that same year. A col een ped oa cver 2 nih Dt stares om 2 dete some» ore alte rind ‘assumption - the entity for an indefinite period pect end its operation cof time. Meaning | 2. Going concern 3 in the fr its operations entity does not © -Materiality concept ~ information is material if its omission or ‘misstatement could influence economic decisions. Materiality isa matter of profesional judgment and is based on the size and. nature ofthe item being judged. Costbenefit (Cost constraint Reasonable assurance) ~ the cost of processing and communicating information should not exceed the benefits to be derived from it.10. to which they relate, rather than when cash is collect “cognized when incurred rather than when ony > : : ‘Shs paid Historical cost concept (Cos determined on the basis of acquisition coe, This concept is not al "i : Iways maintain require the departure from this concent inventories are measured at net re than at cost when applying the measurement. # Principle) ~ the value of concept such mY alizable value (Ny lower of cost and Concept of Articulation ~ all of the components ofa cx set of financial statements are inverrelated. The prepara @ worksheet (and the eventual completion of the i statements) recognizes that the financial. siatemens making decisions, they need to use each financial sttemen conjunction with the other financial statements. For example, when evaluating an entty’s ability ‘generate future cash flows, all the financial statements shi be used and not only the statement of cash flows. = Receivables and payables in the statement of fis position provide information on expected cash ree? ‘cash disbursements in future periods. = Income and expenses in the siafement of prot oI" other comprehensive income provide information entity's ability to generate cash flows from its opera jn the statement isos shares nd iste the availabilty com issued a Information ation on ‘af changes inequity provides inform of equity financing, = Information on hist equivalents in the statement of ature sources and uses of funds. S = The notes to financial statements provides information 9° the quality of earnings, eg. whether income or expenses die malized or unrealized or whether they are recurring ‘non-recurring, cash and cash ical changes in ioovent of cash flows helps users asse55 i st if that the sit dislsne principle ~ is principle recognizes Sr a fran incaed i the Srancl eae Beata series of judgmental tradeofts. The tade- offs strive for: " a. sulfcient detail to disclose matters that make a difference tousers, yet fb sufficient condensation to make the information understandable, keeping in mind the costs of preparing and using it 12. Consistency concept ~ the financial statements are prepared ‘on the basis of accounting principles that are applied ‘omsistently, from one period to the next. Changes in "accounting policies are made only when required or permitted _2y he PRs or when the change results to more relevant and information. Changes in accounting policies are disclosed in the notes. ‘Matching (Association of cause and effet) ~ costs are recognized _%5 expenses when the related revenue is recognized. \ Entity theory — the accounting objective is geared towards rover income determination. Proper matching of costs against evens isthe ultimate end. This theory emphasioes the2 Jae of prudence does not allow the income statement and is exemplified by the equation “Asse, Lnbites+ Cpe.” | However, the exer deliberate understatement of sets or overstatement of ve cs because the 15 Proptary theory — the accountng, objective ean fe lablilr n onler fo crete Ndden, oe er me uation of eis Tis teary emphasing faa statements would note SAN represented. the importance ofthe balance shet and is exemplified by th| "An example of a hidden reserve is the “cookie jar equation “Assets Liabilities = Capi.” the peserve. tis «form of fraudulent reporting, wherein during pets of high profits, liabilities are overstated through [_Brceesive provisions of expenses or non-recognition of income. when the entity's financial is applicable when ther : pier) jp subsequent periods, Se ‘ordinary and prefer / _ormance is poor, the “cookie jar reserve” is reversed 10 equation is Lisa Pare in rier to report high profits. Management engages Eity = Onary Shares’ Eu” TB WO P| ach rau bens of various reasons, which may inde in the computation of book value per share P on) Smoothing eatings in order to secure bonuses over time, equity. defer profits to the periods when they are evaluated for =e | promotion or for election as members of the board of 17, Fand theory - the accounting objective Is neither propel directors; of to show profits when other entities belonging to income determination nor Pro the same industry show declining financial performance. = yper valuation of assets but the custody and administration of funds. The object : cash inflows! papense recognition principles 16. Residual equity theory = this theory ‘are two classes of shares issued, ey goverment acounting and fiduciary accounting, | costs tat are directly relate to the caring of revenue are | teoognized as expenses in the same period the related revenue 18, Realization ~ the process of converting non-cash assets into} ash or claims for eash. Its also the concept that deals with| For example, the cost of inventory. is_ initially revenue recognition. | recognized as asset and recognized as expense (Le, cost of For example realization occurs when goods are sold (oss) when the inventory is sold. Other examples inciade cash or in exchange for accounts receivable or note) —fieigh-out and sales commissions; these are expensed in the weeivable, The goods are non-cash assets and they are! period the related sales are reegnized. converted into cash or, inthe ease ofthe receivables, claims for as 21, Systematic and rational allocation ~costs that are not directly related to the eaming of revenue are initially recognized as 10, Prudence (Consereatism) ~ is the use of caution when making) assets and recognized as expenses over the periods their caimales urdir conditions of uncertainty, such that assets 0"), economic benefits are consumed, using some method of income are not overstated and liabilities or expenses are ret allocation, understated. In other words, when exercising prudence, 'he For example, the cost of equipment is initially ‘one which has the lens eft on equity is chosen. Freeognized as asset and subsequently recognized as tive is directed towards cash flows, exemplified by the formula sana eash outows equals fund.” This concept 18 used ial aq. Matching. concept (Direct asaciaton of costs ant reeves) ~depreciation expense over the periods the equipment Ctra cmap: eco tnoiontn pesing Syne and effective interest method of allocation. "a 22, Immediate recognition ~ costs that do not meet the eae metas omnes (paced es itateerietiay gs expensed immediately. Examples include casualty on sang impairment losses. Common branches of accounting 1. Financial accounting — is the branch-of accounting that focy. se ‘on general purpose financial statements > General purpose financial statements are those statemen that eater tothe conmon neais of external ers, primar the potential and existing investors, and Tenders and oth creditors. External users are those who are not involved Fi ‘managing the entity. ! > Financial accounting s govern Reporting Standards (PERSS). ed by the Philippine Financia Financial accounting vs. Financial reporting ‘The term “financial accounting” is often used interchangeably with the term “financial reporting.” Although, both financial accounting and financial reporting focus on general purpose “financial statements, the later endeavors to promote principles that are also useful in “other financial reporting.” “Other financial reporting” comprises 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. Financial statements vs. Financial report Financial statements are the structured representation of 2” centity’s financial position and results of its operations ‘They are the end product of the accounting process anc the means by which information gathered and processed are periodically communicated to users. [partes of Aczoontng __——— cludes ded outside the the financial statements fe financial statements > A financial report 506 plete set of athe information prov that aassts in the interpretation of #7 eens improves use ablty 1 male ecient economic decisions riot Ge Fanciabeatonents ‘Financials ort Statement offinancial 7, Satement of financial position positon } Sitementofproftorios 7 Statement of profit oF loss “god other comprehensive and other comprehensive income 4, Statement of changes it equity equity 4, Statement of cash lows Statement of cash flows 5. Notes Notes 6 Additonal statement of ‘Additonal statement of financial position 2. Other information nancial reporting ste provision of financial information cata ety tai sf fo enteral oes primarily the investors, lenders, and other creditors, in ‘making investment “and credit decisions. ry objective of financial reporting To. Information about an entity's economic resources dine fo those resources, and changes in those resources “secondary objective of financial reporting To provide information useful in asoessing the entity's 4 stewardship (le, how efficiently and effectively the —elty's management has discharged its responsibilities (9 W56 she entity's economic resources).2% Management accounting ~ refers 9 the accumy a communication of information for use by inten Management. An offshoot of management see), canting the accountng foe PO" Sco", Iie ect 2 i ithe than the BO¥ procedures 4 the intallation of scouting, Promeates management aitvisory services which includes ser finance, busines vancial data and gathering Seen ‘organization procedures, product costs, distributi inting syst ‘many other phases of business conduct and opera tor ating forms tobe used in dats pertains to the caref 4 anal 3. Cost accounting ~'is the systematic reconing ant an the costs of materials labor, and overiead is i , =i = < i ie Et. ‘and other variables to unders es Pet ie rch includes a bros Gitar dation Accounting resem 2 be a sy be tlt to one oF 4 Auditing —s the process of evaluating the corresponden., ange of topics which may be related 0 088 TE ce ead epresing tier branches of accounting srarket environment pinion thereon, 5. Tax accounting ~ the preparation of tax returns and renderin, the determination of the Bookkeeping and Accounting Ze Booting refers Yo the proces of recoding the ascounis itonsations of an entity. Bookkeeping normally ends with th accounting, bookkeeping Faparaton ofthe tal balance. Unlike Bre itok require the lnerpretaion of he significance of the sl information. of tax advice, such as consequences of certain proposed business endeavors. accounting. for 1 6 Government accounting — refers to the government and its instrumentalities, placing emphasis ont ‘Accountancy ‘Accountancy refers to the profession or practice of accounting. ‘custody of public funds, the purposes for which those func are committed, and the responsibility and accountability of th ~ individuals entrusted with those funds. ‘The practice of accounting can be broadly classified into. two ~ (1) Public practice and 2) Private practice. Public practice does not 7. Fiduciary accounting — refers to the handling: of accoun’: jgyplve an employeremployee relationship while private practice managed by a person entrusted with the custody an’ involves an employer-employee relationship, meaning the ‘management of property for the benefit of another. Seaiyanh isan employee. Is. Estate accounting — refers to the handling of accounts i Four sectors in the practice of accountancy Under R.A. 9298 also known as the “Philippine Accountancy Act ‘of 2004,” the practice of accounting is sub-classified into the fiduciaries who wind up the affairs of a deceased person following: J, Practice of Public Accountancy — involves the rendering of Social accounting (social and environmental accounting or so audit or accounting related services to more than one client on responsibility reporting) — the process of communicating, social and environmental effects of an entity's economi fee basis, actions to the society.18 2. Practice in Commerce and Industry — refer, the private sector eS es in a position which inven? ing requiring professional knowledge wet et” ge in the scion” accounting and such position requii position requires that the hoig must be a certified public accountant, 3. Practice in Education/Academe — Hocatonal insta which involves wae" in ee edison) a eS of coun Be deta ectricaly rand nar ern, Pe rg mat von re ee a position goverment Gnduding those perform Performing proprictary fametions, where decision making requires cf ceestiing, or ter arisen eligibility as a crtfied public accountant isa prerequisite, “Accounting standards The Philippine Financia the generally accepted accounting Philippines. “The PERSs are Standards and Interpretations adopted by ty Financial Reporting Standards Council (FRSC). They compris a. Philippine Financial Reporting Standards (PFRSS) b. Philippine Accounting Standards (PASS); and c._Interpretations PERSs are accompanied applying their requirements. A guidance st! 1 Reporting Standards (PFRSs) represes principles (GAAP) in te entities by guidance to assist tes whether it se PARSa, A gubdence tat i a EMRE! part of ropa prt of inns isan ing standards tneneed forreporting standards | oud be prepared Hatements to be for financial standards ‘using reporting that isthe case, eve Hit wos and omit any Habit oF expense ieee itements would not De. comp. Br eng ehahtnet and coro dione Fergal antes youl be grossly SSeS Fos es soul foe a uriform set of reporting sanSarss teten preparing and presenting nancial sateen ete geen ccepab" meats that tbo TeeRP icdard has been caablshed by an_ authoritative aprountng rule-making body, eg. the PFRSe adopted by the op RSG oF 2 the pine hes gained. general acceptance due fo pact ver ime ond has been proven to be most useful eg, double- erry esi and oer impist concep = ‘The process of establishing financial accounting standards isademocratic process in that a majority of practicing accountants ‘must agree with a standard before it becomes implemented. iat Reporting Standards When selecting its accounting policies, an entity considers following in descending order: ~ “ 4. Philippine Financial Reporting Standards (PFRSs) 2 In the absence of a PERS that specifically applies to 2 | transaction or event, management shall use its judgment in developing and applying an accounting policy that results in _ information that is relevant and reliable,In making the judement, 1 management shail refer to, and consider te applic, Gk the flowing sores descending onder: or pe nagirements in PFRSS dealing with sini related isis) 1b, The Conceptual Framework ‘2. management may also cosicer the folowing: = ts of other standard-seting bodies 1b Accounting literature and accepted Industry practi, ose 5 ‘cao inte PSone es ite mgs Wet, Qe tnopsntermay om0 “atthough the selection of appropriate accounting poic fe the responsbilty of the entity's management, the prop. ~ ppl of accounting principles is most dependent upon professionel adgment of the accountant e ‘Accounting standard setting bodies and other relevan, ‘organizations 1. Financial Reporting Standards Council (FRSC) ~s the offic accounting standard setting body in the Philippines creat under the Philippine Accountancy Actof 2004 (R.A, No. 9298 “The FRSC is composed of fifteen (15) individuals ~ chairperson who had been of presently a senior accountin, practitioner in any of the scope of accounting, practice an: _fourten (24) representative members: Chairperson f Fourteen representative members from: Board of Accountancy (BOA) ‘Cominission on Audit (COA) Securities and Exchange Commission (SEC) Bengko Sentral ng Pilipinas (BSP) Bureau of intemal Revere (BIR) ‘A major organization composed of preparers and users of financial statements a “acereited National Professions MSEcPAS (iy PICPA) 2 “publi Practice 2 ‘Commerce and Industry Z ration gee Organization ‘Government otal ay) ere 5 ‘ommittee (PIO) — Committee = faterpretations. of the fons Committee (FRI) is the professional regulatory rd of Accountancy (BOA) = ° No. 9298 to supervise the 4, Securities and Exchange Commission (SEC) ~ is the agency tasked in regulating corporations and P ips, capital and investment markets, and the investing public. Some SEC rulings affect the accounting “requirements of entities and the adoption and application of __sesountng polices. 5. Bureau of Internal Revenue (BIR) ~ administers the 5 provisions of the National Internal Revenue Code. These provisions do oe por ee the gels of nancial reporting. However, : at times influence the choice of account Pepsi tne ting methodseen, and ppaton of aun Poles by hse =e a pa ‘any, YaBE™ — ee eer: 4 due process pu proces nrough an internation’ gnaividuals prose developed oe arious in Sormally me ccontants and Str yard: Dae Proce Seow “Accounting policies prescribed by @ regulatory be isp, CDA) are sometimes referred 0 05 reyulatry we principe. aed seinen tl ot gariis one eve Hi eerste application of 8 sirens and PS ate gations from 2 lowing steP= jasues associa! a Lows Sa meepbal Framework nmratnl counting Standards testes nice Beectts nset caso pes rs ro 2 Gpeaives of developing and promoting global accu Pay th national standar eee ‘standards. “y inclu d the Advisory ‘Council FR soca so, a ue THeIASD AEE Standards Committee (14 voup to give advice tO je publiccomment: Inieriader Accounting Peeing tac rocrcnton te sicpoat eae ‘based in Delaware, USA and is the parent of the IASB, which sblishi asain Condon On July 1 2010 the TASC Tour) elpapuating an exposure drat FOr Srchusions and famed 10. International Financal” Reporting Stns) g_ Biking with an exposure drat a bans os ae 7 tee alenive vw of 209 ee tr ai omer ee ee a a pe tt ete ne eat & ae : Fal rnc rs Ste a 2 nie itm ning te mee aa replaced its predecessor, the International Accounting Stand Committee (IASC), in April 1, 2001. The IASs are standards by the IASC which were adopted by the IASB. The PFRSs ‘PASS are basedl on these standards, SSosie do (the asssing opinion of any TASD cetnsin ey ho yatta to ft nent 9Other relevant intomational organizations 1. International Financial Reporting porting Interpret ERIC) ~ is. committe that prepares nee specific issues should be accounted for unc ™ 105 Com, Of TERS where: mePPlicy a. The standards do not include 5 ‘guidance; and BE Sor b. There is a risk of divergent and unacco od PIAbLe acco. Fe TERI gece ney of ct Sef be aos cles prepare ens! TFRIC replaced the former Standing Inter pe 2 Committe (SIC which had been cesta hy a the SIC Interpretations have been adopted by the uggs! 2. TERS Advisory Council (previously known as the 5: Advisory Council SAC’) ~ is a group of organization, individuals with an interest in intemational finan reporting. The Advisory Council's role includes advising .- Drioities within. the IASB’ work program. The IAG® | required to consult with the Advisory Council. in advance any board decisions on major projects that it wishes to add i - its agenda. ‘Members of the Advisory Council are appointed by the IFRS Foundation which also appoints members to ty TASB. These members are drawn from different geographic locations and have a wide variety of backgrounds, including ‘users, preparers, academics, auditors, analysts, regulators, ‘professional accounting bodies. 3. Intemational Federation of Accountants (IFAC) ~ is a vw: Profit, non-governmental, non-political organization Accountancy bodies that represents the worldwicl accountancy profession. Its mission is to develop and enhan«: vie i cccning 4 consistently high quality the IFAC is open t0 2 fovide services of the profession to pr inthe consensus within tater. Member he I in ees ng IH thr counts izatic ities Commissions Ormiston of Seiten Commielon rational body of secusty 9 er of O5CO 4. International Osco) —is an ‘The Philippine SEC is a men Move to IFRSS Move the fal adoption of the TFRSs in 2005, the acsowni Dg ‘pandards used in the Philippines were previously = = aarti, the Statements of Financial Accounting, Stands jgsued by the Federal Accounting ‘Standards Board (FASB), jonal standard set te wo RSS we praly bgt set ye increasing acceptance of IFRSS world-wide and increasin seen oon of business rey increasing the nec for sieommon financial reporting standards that minimize, if not “Sminate, inconsistencies of financial reporting among nations. — NA good example of inconsistent national financial is that of German car manufacturer Daimler-Benz AG for to its merger with Chrysler). Daimler-Benz. obtained a tein oft sares inte US in 199, ad in so doing needed fo report under both US. GAAP and German GAAP. While one ‘might expect that the profit reported would be similar (as it was the same set of economic transactions being presented), this was not the case. The company reported a huge loss of $1 billion under US GAAP, while at the same time reporting a profit ‘of $370 million under its own domestic German GAAP. This difference was simply the result of different accounting, practices being used by different countries. Such significant differences undermine the usefulness of financial statements.” (eure The Insii f ig i era eng Sa = oeThe future of IERSs A significant milestone to Set Of global standang, y terete Zeached in ye 82 oF FASB and the TASB enters toa cee mi Norandim of ye hs mot Uden ds achieving ine called the “Norwalk ment.” this Agreement, tne p b the Ray their commitment to the S agreeing to use thes he a. make their existit 2nd the 1 convergence. of U, a efforts to: as Since the and FASB have statement issued in January 2017, my expressed support for the develop aovepfed accounting standards, and suggested tne yal Support further efforts by the FASB and IASB to ons accounting standards to enhance the quality and conn e, Re otas i utgoing (Us) sc ent oF high qa ae Gree ei nal rig stds on | ening dd in Pin ee sone revised or superseded. Changes to "potng sini | are primarily made in response to users’ =a =i vn nr om financial information change, and so mus tsi fl infor Gunnaonsty cient “standards in order to continually provide useful inforn|f al reporting standards Legal, business i als intel a gal, politi iness and social environments al pot ae Ptandards Regulatory bodies bbs ‘eaultions and changes in economic evironmeat a ee eee. treatment provided under the choice standards.4. Financial accounting isthe branch of accounting thet on general Purpose reports of incl poston and opera results known as the financial statements. 6 ‘The financial statements are the only source of informatia ‘when making economic decisions. 7. All information presented in the financial statements ‘sourced from the accounting records of the entity. 8. Entity A’s accounting period starts on July 1 and ends on} 30 ofthe following year. Entity A uses a fiscal year period. 9. Once promulgated, accounting standards are never changed, 40. The entity's management is responsible for the selection, ‘appropriate accounting policies, not the accountant, PROBLEM 2: MULTIPLE CHOICE statements through a journal entry. b. An entity removes the effects of an event from t financial statements through a journal entry. ‘an entity discloses only an event in the notes, rather than inching the effects ofthe event in the moneny race the financial statements, Am entity records an even through a memorandum entry ich of the following events is not considered an exchan eiprocal transfer? a. = ‘purchase of inventory on account | ending money to another entity payment ofa loan payable payment of faxes sale of an asset -10ss from a calamity donation 4. production of finished goods tbe useful, accounting information should be presented ‘monetary amounts, historical costs. ‘a common denominator. 4. fair values, ording a building at the total construction costs. suring inventories at net realizable value. atthe cash price equivalent, A values its fixed assets at their historical costs and des not restate them for changes in the purchasing power of _ the Philippine pesos due to inflation. Entity A is applying ‘whieh ofthe following accounting concepts? a. prudence «.stable monetary uit “b, accrual basis 4.time periodo Accor E ‘i us OBLEM 3: MULTIPLE CHOICE wg ERMC, Entity a hast tne find Habilitigg i oft flowing considered nema ven, in tne yr, Hs pas fon om wines ect Lis rey 9 mae i re which of the following acco ae © be applying poetrastaisire eed aa eters rior te more recent age tes fs onan E yandalcm conte by Ha enttys cnpoyeny ‘Sibense, in the same period the sale revenue is recognize, ity A's financial statements in making ts “hold or care This is an application of which of the following accountng é % # member of Entty A’s board of directors, uses ‘concepts? @. stable monetary unit : matching tal reports to make decisions regarding the financial ‘b. materiality proprietary ‘operational affairs of Entity A 10. On Day 1, a customer buys goods from Entity A and promis, to pay the sale price on Day 30. an = ‘an application revenue on Day I rather than on Day 30. This is of which of the following accounting concepts? a. prudence at -b. accrual basis materialLm ivand mt 4.0 tana Under the Businese entity! Seperate en accounting ently Concert, he bungent™ Ey/ 4. The proper application of accounting. principles is mos, separately from its owners, - dependent upon the 2 management auditor. b. accountant. . chief executive officer Under the Tite Pod Peat) Accuntng tame the le of he sis do a Pe reporting Periods: Ee Un the Cantbnctt cnc he cot of peng communicating information should eae derived from it. ‘iced the benefits 5. Which ofthe following statements is corrét? 2. Accounting provides quantitative information only. Accounting is considered an art because i equites the une of creative skills and judgment © The only acceptable measurement basis in accountng historical cost. 5 4. Qualitative information can be found only the financial statements, notte rh bam tm nen See naa te at py The PFRSS ére issued by the Financial Repoctin Standards Council in the notes to John Doe, CPA, is a professor in a university where he mainly home economics, - Accrual Basis of accounting, revenues an| __ recognized when earned and expenses are i ~ when incurred, not when cash is received and disbursed, b. Under the Going concem concept, the business entity assumed to carry on its operations for an indefinite of time. .Going concern « Intercalation rime period 4. Articulation sy A aie «stapler Iatead of recognizing the cot of Enter a an ssc o be subsequently deprecated, Bator mediately charges it as expense, This st application othe lowing concepts? € Contbenetie abande Depreciation Cost of goods sole at type of users’ needs is catered by general statements? ee - Mr. X gives Ms. Y chocolate and flower on tain 22 eee Ms. Y provides capital to Entity A. L. provides capital to Entity B, another business ent A is assessing the ability of Entity A to generate futy cash equivalents, In making the assessment, Mr S ily the statement of cash flows but also the Practice Statements and Implementation : complete set of financial statements, This~~ Fi a eiiltianneane Ter era. 10, Which of the following statements Is incorrect regarding the PERSs? ‘a. The PFRSs are pased on the IFRS8. pb, The financial yeporting standards used in the are the same as those used globally, a c., The PFRSs haye higher authority than the P. Sis Interpretations. the d.. The PERSs are accompanied by guidance. The aes guidance is, sometimes mandatory and optional. cy é