FAR Reviewer PDF

ACCOUNTING: Process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by user on infos. Called the “Language of the Business” Overall Obj: provide inofs that can be used in making soundful economic decisions....

ACCOUNTING: Process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by user on infos. Called the “Language of the Business” Overall Obj: provide inofs that can be used in making soundful economic decisions. 3 IMPORTANT ACTIVITIES IN ACCOUNTING: 1. Identifying - process of analyzing events and transactions to determine whether or not they will be recognized. 2. Measuring - It involves assigning numbers, normally in monetary terms. (Valuation by Fact or Opinion) - When measurement is affected by Estimates the items measured are said to be valued by opinion. When measurement is unaffected by estimates, the items measured are said to be valued by fact. 3. Communicating - Process of transforming data into useful accounting infos, such as FS and other accounting reports, for disseminations to user. TYPES OF INFORMATION PROVIDED BY ACCOUNTING Quantitative - information expressed in numbers, quantities or unit. Qualitative - information expressed by words or descriptive form. Financial Information - information expressed in money. TYPES OF ACCOUNTING INFORMATION FOR THE USERS General Purpose - designed to meet the common needs of most statement users. Special Purpose - designed to meet the specific needs of the particular statement users. DISTINCTION BETWEEN ACCOUNTING AND FINANCIAL MANAGEMENT ACCOUNTING/FINMA Statutory requirement/Not a statutory req. Following GAAP/Management Decisions Historical Transactions/Future Planning Recording transactions in a systematic manner for a particular period/Deals w/ procurement and allocation of financial resources. Comes first before FINMA/Comes after Accounting. USERS OF FINANCIAL INFORMATION Internal Decision Makers - Management External - Investors, Employees, Lenders, Suppliers, Customers, Gov. and their agencies, Public. ACCOUNTING CONCEPTS It refers to the principles upon which the process of accounting is based. Accounting assumptions - fundamental concepts/principle and basic notions that provide the foundation of the basic accounting process. Accounting theory - logical reasoning in the form of a set of broad principles. Comprises CFAS/PFRS. Concepts: 1. Double-entry system - each accountable event is recorded in 2 parts. (debit and credit) 2. Going concern assumption - entity assumes to carry on its operations for an indefinite period of time. 3. Separate Entity - entity is viewed separately from its owners. 4. Monetary unit assumption - Assets, Liab, equity, income and exps are stated in terms of a common unit of measure, which Philippine peso. 5. Time Period - life of entity is divided into series of reporting periods. (Calendar or Fiscal year) 6. Materiality concept - info is material if its omission or misstatement could influence economic decisions. 7. Cost-benefit - cost of processing and communicating infos should not exceed the benefits to be derived from it. 8. Accrual Basis of accounting - effects of transactions and other events are recognized when they occur and not as cash is received or paid. 9. Historical cost concept - value of assets is determined based on acquisition cost. 10. Concept of Articulation - all of the concepts of a complete set of FS are interrelated. 11. Full disclosure principle - This principle is recognizes that the nature and amount of information included in the financial statements reflect a series of judgmental trade-offs. 12. Consistency concept - The financial statements are prepared based on accounting principles that are applied consistently from one period to the next. 13. Matching - costs are recognized as exps when the related revenue is recognized. 14. Entity theory - the accounting obj is geared towards proper income determination. 15. Proprietary theory - the accounting obj is geared towards proper valuation of assets. 16. Residual equity theory - theory is applicable when there are 2 classes of shares issues, i,e., ordinary and preferred. 17. Fund theory - accounting obj is neither proper income determination nor proper valuation of assets but the custody and administration of funds. Directed towards cash flows. 18. Realization - process of converting non-cash assets into cash or claims for cash. 19. Conservatism - the use of caution when making estimates under conditions of uncertainty, such the assets or income are not overstated, and liab or exps are not understated.