CONCEPTUAL FRAMEWORK AND Economic Activity – the subject matter of

ACCOUNTING STANDARS (CFAS) accounting.

CHAPTER 1 – The Accountancy Profession Transactions – Economic activities of an entity.

Accounting (ASC)
CLASSIFICATIONS OF TRANSACTIONS
- It is a service entity.
 External Transaction
- Function is to provide information,
- Economic events involving one
primarily financial in nature, about
entity and another entity.
economic entities, that is intended to
be useful in making economic
 Internal Transaction
decision.
- Involves the entity only.
Accounting (Committee on Accounting
 Production – resources are
Terminology of the American Institute of
transformed into products.
CPAs)
- The art of recording, classifying and  Casualty Loss –
unanticipated loss from
summarizing in a significant manner
and in terms of money, transactions natural casualties.
and events Measuring – assigning of peso amounts to the
accountable economic events. It must be
Accounting (AAA)
expressed in terms of a common financial
- The process of identifying,
denominator.
measuring and communicating
economic information to permit
informed judgement and decision by MEASUREMENT BASES:
users of the information.  Historical Cost – Original acquisition
cost and the most common measure of
Important Points financial transactions.
 Accounting is about quantitative  Current value – includes fair value,
information. value in use, fulfillment value and
 Information is likely to be current cost.
financial in nature.
Communicating – process of preparing and
 Information should be useful in
distributing accounting reports to potential users
decision making.
of accounting information.
- The reason why accounting has
COMPONENTS OF ACCOUNTING
been called the “universal language
a. Identifying – analytical
of business.”
b. Measuring – Technical
c. Communicating – Formal
ASPECTS OF ACCOUNTING
Identifying – the recognition and non-
a. Recording
recognition of business of business activities as
b. Classifying
accountable events.
c. Summarizing
“Not all business activities are accountable.”
Recording or journalizing – the process of
systematically maintaining a record of all
Not accountable – cannot be quantified or
economic business transactions.
expressed in terms of a unit measure.
Classifying – the sorting or grouping of similar
Accountable or Quantifiable – has an effect on
and interrelated transactions into their classes.
assets, liabilities and equity.
 - Accomplished by posting to the
ledger.
Ledger – group pf accounts which are
systematically categorized into asset
accounts, liability accounts, equity
accounts, revenues accounts and
expense accounts.
Summarizing – presentation of financial
statements.
COMPONENTS OF FINANCIAL
STATEMENTS
 Statement of Financial
Position
 Statement of Financial
Performance
 Statement of
Comprehensive income
 Statement of changes in
equity
 Statement to Cash Flow
OBJECTIVE OF ACCOUNTING
 To provide quantitative financial
information about a business.
“The essence of accounting is decision-
usefulness.”
Republic Act No. 9298 – Philippine
Accountancy Act of 2004
-Is the law regulating
the practice of accountancy in the
Philippines.
Board of Accountancy – the body authorized
by law to promulgate rules and regulations
affecting the practice of the accountancy
profession in the Philippines.
PUBLIC ACCOUNTING – composed of
individual practitioners, small accounting firms
and large multinational organizations that render
independent and expert financial services to the
public.
 Auditing – the primary service
offered by most public
accounting practitioners.
-it is the examination of
financial statements by
independent CPAs for
the purpose of
expressing an opinion
as to the fairness with
which the financial
statements are prepared.
 Taxation – includes the
presentation of annual income
tax returns and determination of
tax consequences of certain
proposed business endeavors.
 Management advisory
Services – has no precise
coverage but is used to
generally refer to services to
clients
PRIVATE ACCOUNTING – CPAs are
employed in business entities in various capacity
as accounting staff, chief accountant, internal
auditor and controller.
Controller – highest accounting officer
in an entity.
GOVERNMENT ACCOUNTING – process
of analyzing, classifying, summarizing and
communication all transaction involving the
receipt and disposition of government funds and
property and interpreting the results thereof.
CONTINUING PROFESSIONAL
DEVELOPMENT
- Refers to the inculcation and
acquisition of advanced knowledge,
skill, proficiency, and ethical and
moral values after initial registration
of the CPA.
Republic Act No. 10912 – the law mandating
and strengthening the continuing professional
development program for all regulated
profession.
CPD credit units – refer to the CPD credit
hours required for the renewal of CPA license
and accreditation of a CPA to practice the
accountancy profession every three years.
120 CPD Credit Units – required for
the accreditation of a CPA to practice the
accountancy profession.
15 CPD Credit Units – required for the
renewal of CPA license.
ACCOUNTING VS AUDITING
Accounting – embraces auditing. It is
essentially constructive in nature
Auditing – one of the areas of
accounting, analytical. The work of an auditor
begins when the work of an accountant ends.
ACCOUNTING VS BOOKKEEPING
Accounting – conceptual and concerned
with the why, reason or justification for any
action adopted.
Bookkeeping – procedural and largely
concerns with development and maintenance of
accounting records.
ACCOUNTING VS ACCOUNTANCY
Accountancy - refers to the profession
of accounting practice.
Accounting – used in the reference only
to a particular field of accountancy.
FINANCIAL ACCOUNTING
- Is primarily concerned with the
recording of business transactions
and the eventual preparation of
financial statements.
- Focuses on general purchase reports
- Area of accounting that emphasizes
reporting to creditors and investors.
MANGERIAL ACCOUNTING
- The accumulation and preparation
of financial reports intended for
internal users only.
- The area of accounting that
emphasizes developing accounting
information for use within an entity.
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
-Represent the rules, procedures,
practice and standards followed in
the preparation and presentation of
financial statements.
PURPOSE OF ACCOUNTING
STANDARDS
- To identify proper accounting
practices for the presentation and
preparation of financial statements.
- Creates a common understanding
between preparers and users of
financial information.
- Necessity to ensure comparability
and uniformity.
FINANCIAL REPORTING STANDARDS
COUNCIL
- Replaces the Accounting Standards
Council (ASC)
- The accounting standard setting
body created by the Professional
Regulation Commission upon
recommendation of BOA to assist
the BOA in carrying out its powers
and functions provided under R.A.
Act No.9298.
- Main function is to establish and
improve accounting standards that
will be generally accepted in the
Philippines.
Philippine Financial Reporting standards
(PFRS) – approved statements of FRSC
COMPOSITION of FRSC
- Composed of 15 members with a
Chairman who had been or is
presently a senior accounting
practitioner and 14 representatives.
PHILIPPINES INTERPRETATIONS
COMMITTEE
- Was formed by the FRSC in August
2006 and has replaced the
Interpretations Committee or IC
formed by the Accounting Standards
Council in May 2000.
- The role is to prepare interpretations
of PFRS for approval by the FRSC
INTERNATIONAL FINANCIAL
REPORTING INTERPRETATIONS
- Counterpart of the PIC in the United
Kingdom which has already
replaced the Standing
Interpretations Committee(SIC)
INTERNATIONAL ACCOUNTING
STANDARDS COMMITTEE
- An independent private sector body,
with the objective of achieving
uniformity in the accounting
principles which are used by
business and other organizations for
financial reporting around the
world.
INTERNATIONAL ACCOUNTING
STANDARDS BOARD
- Now replaces the International
Accounting Standards Committee
(IASC)
- Publishes standards in a series of
pronouncement called IFRS
PHILIPPINE FINANCIAL REPORTING
STANDARDS
- Series of pronouncements issued by
FRSC
CHAPTER 2: OBJECTIVE OF FINANCIAL
REPORTING
CONCEPTUAL FRAMEWORK for
Financial Reporting
- Is a complete, comprehensive and
single document promulgated by the
IASB
CONCEPTUAL FRAMEWORK
- Is a summary of terms and concepts
that underlie the preparation and
presentation of financial statements
for external users.
- Describes the concepts for general
purpose of financial reporting
- Intended to guide standard setters,
preparers and users of financial
information in the preparation and
presentation of financial statements.
PURPOSE OF REVISED CONCEPTUAL
FRAMEWORK
 To assist IASB to develop IFRS
Standards based on consistent concepts.
 To assist preparers of financial
statements to develop consistent
accounting policy
 To assist preparers of financial
statements to develop accounting policy
when a standard allows a choice of an
accounting policy.
 To assist all parties to understand and
interpret the IFRS Standards.
USERS OF FINANCIAL INFORMATION
a. Primary users
b. Other users
Primary users – include existing and potential
investors, lenders and other creditors.
- The parties to whom general
purpose of financial reports are
primarily directed.
Existing and potential investors – concerned
with the risk inherent in and return provided by
their investments.
Lenders and other creditors – enables them to
determine whether their loans, interest thereon
and other amounts owing to the will be paid
when due.
Other users – includes the employees,
customers, governments and their agencies, and
the public.
- Reports are not directed to them
primarily.
Employees – interested in information about the
stability and profitability of the entity.
Customers – interested about the continuance of
an entity.
Government and their agencies – interested in
the allocation of resources and thereof the
activities of the entity.
Public – assist them by providing information
about the trend and the range of its activities.
OBJECTIVE OF FINANCIAL
REPORTING
- To provide financial information
about the reporting entity that is
useful to existing and potential
investors, lenders and other
creditors in making decisions about
providing resources to the entity.
- The why, purpose or goal of
accounting.
Financial Reporting – the provision of
financial information about an entity to external
users that is useful to them in making an
economic decisions.
Annual financial statements – the principal
way of providing financial information to
external users.
Liquidity – is the availability of cash in the near
future to cover currently maturing obligations.
Solvency – the availability of cash over a long
term to meet financial commitments when they
fall due.
Financial performance – the level of income
earned by the entity through the efficient and
effective use of its resources.
ACCRUAL ACCOUNTING
- Depicts the effects of transactions
and other events and circumstances
on an entity’s economic resources
and claims in the periods
- Events are recognized when they
occur and not when cash is received
or paid.
MANAGEMENT STEWARDSHIP
- Information about how efficiently
and effectively management has
discharged its responsibilities to use
the entity’s economic resources
helps users to assess management
stewardship of those resources.
CHAPTER 3: QUALITATIVE
CHARACTERISTICS
Qualitative characteristics – are the qualities
or attributes that make the financial accounting
information useful to the users.
 Fundamental Qualitative Characteristics
 Enhancing Qualitative Characteristics
Fundamental Qualitative Characteristics
- The content or substance of
financial information.
 Relevance – the capacity of the
information to influence decision.
Ingredients of Relevance
1. Predictive Value – can be used as
an input to process employed by
users to predict future outcome.
2. Confirmatory Value – it provides
feedback about previous
evaluations.
 Materiality – omitting, misstating or
obscuring it could reasonably be
expected to influence the economic
decision that primary users of general
purpose financial statements make the
basis of those statements which provide
financial information about a specific
reporting entity.
1. Could reasonably be expected to
influence
- Information capable of influencing
economic decision of the primary
users shall be included in the
financial statements.
2. Obscuring information
- If presenting or communicating it
would have a similar effect as
omitting or misstating the
information.
3. Primary users
- These groups are the users to whom
financial statements are primarily
directed.
 Faithful representation – descriptions
and figures must match what really
existed or happened.
Ingredients of faithful representation
 1. Completeness – presented in a way
that facilitates understanding and
avoids erroneous implication.
- The result of the adequate disclosure
standards or the principle of full
disclosure.
Standards of adequate disclosure – all
significant and relevant information leading to
the preparation of financial statements shall be
clearly reported.
2. Neutrality – without bias in the
preparation of presentation of
financial information.
Prudence – the exercise of care and caution
when dealing with uncertainties in the
measurement process such that assets or income
are not overstated and liabilities or expenses are
not understated.
Conservatism – means that when alternatives
exist, the alternative which has the least effect
on equity should be chosen.
Contingent loss – recognized as “provision” if
the loss is probable and the amount can be
reliably measure.
Contingent gain – not recognized but disclosed
only.
3. Free from error – there are no
errors or omissions in the
description of the phenomenon or
transaction
Measurement uncertainty – when monetary
amounts in financial reports cannot be observed
directly and must instead be estimated.
Substance over form – transactions and events
are accounted in accordance with their substance
and reality and not merely their legal form.
Enhancing Qualitative Characteristics
- Relate to the presentation or form of
the financial information.
 Comparability – the ability to bring
together for the purpose of noting points
of likeness and difference.
Comparability within an entity – the quality of
information that allows comparisons within a
single entity through time or from one
accounting period to the next.
Comparability between and across entity - the
quality of information that allows comparisons
between two or more entities engaged in the
same industry.
 Consistency – refers to the use of the
same method for the same item, either
from period to period within an entity or
in a single period across entities.
 Understandability – requires that
financial information must be
comprehensible or intelligible if it is to
be most useful.
 Verifiability – different knowledge and
independent observers could reach
consensus, although not necessarily
complete agreement, that a particular
depiction is faithful representation.
Direct Verifications - means verifying an
amount or other representation through direct
observation, for example, by counting cash.
Indirect Verifications – checking inputs to a
model, formula or other techniques and
recalculating the inputs using the same
technology.
 Timeliness – financial information must
be available or communicated early
enough when a decision is to be made.
Cost constraint – a consideration of the cost
incurred in generating financial information
against the cost incurred in generating financial
information against the benefit to be obtained
from having information.
Cost – a pervasive constraint on the information
that can be provided by financial reporting.
CHAPTER 4: UNFERLYING
ASSUMPTIONS
General Objective of Financial Statements
 Provide information about economic
resources of the reporting entity, claims
against the entity and changes in the
economic resources and claims.
TYPES OF FINANCIAL STATEMENTS
1. Consolidated Financial Statements
- Financial statements prepared when
the reporting entity comprises both
the parent and its subsidiaries.
2. Unconsolidated Financial Statements
- Prepared when the reporting entity
is the parent alone.
3. Combined Financial Statements
- Reporting entity comprises two or
more entities that are not linked by a
parent and subsidiary relationship.
REPORTING ENTITY
- An entity the required or choose to
prepare financial statements.
“Reporting entity is not necessarily a legal
entity.”
REPORTING PERIOD
- The period when financial
statements are prepared for general
purposes for general purpose
financial reporting.
Interim basis – less than a year period
- Not required but optional.
Annual basis – twelve month period
UNDERLYING ASSUMPTIONS (Postulates)
- The basic notations or fundamental
premises on which the accounting
process is based
- Serve as the foundation or bedrock
of accounting.
 Going Concern – assumption that the
entity will continue in operations for the
foreseeable future.
If there’s an evidence that the entity would
experience large and persistent losses or that the
entity’s operations are to be terminated, the
going concern assumption is abandoned.
 Accounting Entity – the specific
business organization, which may be a
proprietorship, partnership or
corporation.
 Time Period – the indefinite life of an
entity is subdivided into accounting
periods
Fiscal Period – a one year period or a period of
twelve months.
Calendar Year – a twelve-month period that
ends on December 31.
Natural Business Year – a twelve-month
period that ends on any month when the
business is at the lowest or experiencing slack
season.
 Monetary Unit
1. Quantifiability Aspect – assets,
liabilities, equity, income and expenses
should be stated in terms of a unit
measure which is the peso in the
Philippines.
2. Stability of the Peso – the purchasing
of power of the peso is stable or
constant and that its instability is
insignificant and therefore may be
ignored.
CHAPTER 5: ELEMENTS OF FINANCIAL
STATEMENTS
Financial Statements – portray the financial
effects of transactions and other events by
grouping them into broad classes according to
their economic characteristics.
Elements of Financial Statements – refer to the
quantitative information reported in the
statement of financial position and income
statement.
- The building blocks from which
financial elements are constructed.
Equity – the residual interest in the assets of the
entity after deducting all of the liabilities.
ASSET – a present economic resource
controlled by the entity as a result of past events.
Economic Resource – is a right that has the
potential to produce economic benefits.
Control – ability to prevent others from using
such assets, and therefore preventing others from
obtaining the economic benefits from the asset.
LIABILITY - present obligation of an entity to
transfer an economic resource as a result of past
events.
Obligation – a duty or responsibility that an
entity has no practical ability to avoid.
INCOME – increase in assets or decrease in
liabilities
- Encompasses both revenue and
gains.
Revenue – arises in the course of the ordinary
regular activities and is referred to by variety of
different names
Gains – represent other items that meet the
definition of income and do not arise in the
course of the ordinary regular activities.
Statement of Financial Performance – refers
to the statement of profit or loss and a statement
presenting other comprehensive income.
Expense – decrease in assets or increase in
liabilities.
Loss – do not arise in the course of the ordinary
regular activities and include losses resulting
from disasters.
CHAPTER 6: RECOGNITION AND
MEASUREMENT
RECOGNITION – process of capturing for
inclusion in the financial statements an item that
meets the definition of an asset, liability, equity,
income or expense.
Carrying amount – the amount at which an
asset, liability or equity is recognized in the
statement of financial position.
Point of sale recognition – income shall be
recognized when earned.
Expenses Recognition – expenses are
recognized when incurred.
Matching Principle – require that those costs
and expenses incurred in earning a revenue shall
be reported in the same period.
 Cause and Effect Association –
expenses is recognized when the
revenue is already recognized.
 Systematic and Rational Allocation –
costs are expensed by simply allocating
m over the periods benefited.
 Immediate recognition – cost incurred
is outright because of uncertainty of
future economic benefits or difficulty of
reliably associating certain costs with
future revenue.
a. When an expenditure produces no
future economic benefit.
b. Cost incurred does not qualify or
ceases to qualify for recognition as
an asset.
DERECOGNITION – the removal of all or
part of a recognized asset or liability from the
statement of financial position.
Derecognition of an asset – when an entity
loses control of all part of the asset.
Derecognition of a liability – when an entity
no longer has a present obligation for all part of
the liability.
MEASUREMENT – quantifying in monetary
terms the elements in the financial statements.
CATEGORIES
a. Historical Cost
b. Current Value
Historical Cost – cost incurred in acquiring or
creating the asset comprising the consideration
paid plus transaction cost.
Fair value of an asset – the price that would be
received to sell an asset in orderly transaction
between market participants at measurement
date.
Fair value of a liability – the price that would
paid to transfer a liability in an orderly
transaction between market partcicipants at
measurement date.
Value in use – the present value of the cash
flows that an entity expects to derive from the
use of an asset and from the ultimate disposal.
Fulfillment Value – the present value of cash
that an entity expects to transfer in paying or
settling a liability.
Current Cost of an asset – the cost of an
equivalent asset at the measurement date
comprising the consideration paid and
transaction cost.
Current Cost of a liability – the consideration
that would be received less any transaction cost
at measurement date.
CHAPTER 7: PRESENTATION AND
DISCLOSURE
Presentation and Disclosure – an effective
communication tool about the information in
financial statements.
Classification – the sorting of assets, liabilities,
equity, income and expenses on the basis of
shared or similar characteristics.
Statement of profit or loss – the primary source
of information about an entity’s financial
performance for the reporting period.
Aggregation – the adding together of assets,
liabilities, equity, income and expenses that have
similar or shared characteristics.
Transaction approach – the traditional
preparation of an income statements.
Capital maintenance approach – means that
net income occurs only after the capital used
from the beginning of the period is maintained.
Net income – the amount an entity can
distribute to its owners and be as “well-of” at the
end of the year as at the beginning.
Return on capital – amount in excess of their
original investment.
Return of Capital – erosion of the capital
invested in the entity.
TWO CONCEPTS OF CAPITAL
MAINTENANCE
a. Financial capital
b. Physical capital
Financial Capital – the monetary amount of the
net assets contributed by shareholders and the
amount increase in net assets
- Traditional concept based on
historical cost and adopted by most
entities.
Physical Capital – the quantitative measure of
the physical productive capacity to produce
goods and services.
CHAPTER 8: STATEMENT OF
FINANCIAL POSITION
Financial Statements – the means by which the
information accumulated and processed in
financial accounting is periodically
communicated to the users.
- End product or main output of the
financial accounting process.
Objective Financial Statements – to provide
information about the financial position,
financial performance and cash flows of an
entity that is useful to a wide range of users in
making economic decisions.
Statement of Financial Position – is a formal
statement showing the three, elements
comprising financial position, namely assets,
liabilities and equity.
Operating cycle – the time between the
acquisition of assets for processing and their
realization in cash or cash equivalents.
Property, plant and equipment – tangible
assets which are held by an entity for use in
production or supply of goods and services
Long-term Investments (IASC) – an asset held
by an entity for the accretion of wealth through
capital distribution, such as interest, royalties,
dividends and rentals
Covenants – often attached to borrowing
agreements which represent undertakings by the
owner.
Covenants – are actually restrictions on the
borrower as to undertaking further borrowings,
paying dividends, maintaining specified level of
working capital and so forth.
Equity – is the residual interest in the assets of
the entity after deducting all of its liabilities.
Owners – holders of instruments classified as
equity
Shareholder’s equity – is the residual interest
of owners in the net assets of corporation
measured by excess of assets over liabilities.
Notes to financial statements – provide
narrative description or disaggregation of items
presented in the financial statements and
information about items that do not qualify for
recognition.
Purpose of the notes to financial statements –
to provide the necessary disclosures required by
PFRS
Report form – this form sets forth the three
major sections in a downward sequence
Account form – assets on the left side and the
liabilities and equity on the right side
Common practice – is to present currents assets
before noncurrent assets
CHAPTER 9: STATEMENT OF
COMPREHENSIVE INCOME
Income Statement – a formal statement
showing the financial performance of an entity
for a given period of time.
Comprehensive Income – the change in equity
during a period resulting from transactions and
other events, other than changes resulting from
transactions with owners in their capacity as
owners.
Profit or loss – the total of income less
expenses, excluding the components of other
comprehensive income.
Other comprehensive income - comprises
items of income and expenses including
reclassification adjustments that are not
recognized in profit or loss as required or
permitted by PFRS.
Statement of comprehensive Income – the
combined statement showing the components of
profit or loss and components of other
comprehensive income in a single statement.
COMPONENTS OF EXPENSE
a. Cost of goods sold
b. Distribution costs
c. Administrative expenses
d. Other expenses
e. Income tax expense
Distribution costs – costs which are directly
related to selling, advertising and delivery of
goods to customers.
a. Salesmen’s salaries
b. Salesmen’s commissions
c. Traveling and marketing expenses
d. Advertising and publicity
e. Freight out
f. Depreciation od delivery and store
equipment
Administrative Expenses – constitute cost of
administering the business. Statement of retained earnings – shows the
a. Doubtful accounts changes affecting directly the retained earnings
b. Office Salaries of an entity and relates the income statement to
c. Expenses of general executives the statement of financial position.
d. Expenses of general accounting and
credit department Statement of changes in equity – is a basic
e. Office supplies used statement that shows the movements in the
f. Certain taxes elements or components of the shareholder’s
g. Contribution equity.
h. Professional fees
i. Depreciation of office building and
office equipment
j. Amortization of intangible assets
COST OF GOODS SOLD FORMULA
Other expenses – expenses which are not Beginning raw materials P xxx
directly related to the selling and administrative Net purchases xxx
function. Raw materials available for use xxx
a. Loss on sale of trading investments Ending raw materials (xxx)
b. Loss on disposal of property, plant and Raw materials used xxx
equipment Direct Labor xxx
c. Loss on sale of noncurrent investment Factory Head xxx
d. Casualty loss Total manufacturing cost xxx
Beginning goods in process xxx
Functional Presentation – classifies expenses Total goods in process xxx
according to their function as part of cost of Ending goods in process (xxx)
goods sold, distribution costs, administrative Cost of goods manufactured xxx
expenses and other expenses. Beginning finished goods xxx
Goods available for sale xxx
Natural Presentation – expenses are Ending finished goods (xxx)
aggregated according to their nature and nature Cost of goods sold xxx
and not allocated among the various functions
within the entity.
Jenix Jethro Ayup
Performance Task #4 in Arts

Philippine Arts

Spoliarium
By: Juan Luna
It illustrates the horrific and tragic experiences the Filipinos have experienced during the 19th century. It
asserts the violation of human rights made the first colonizers of our country, the Spaniards. Spoliarium
other paintings and works of art created by Juan Luna were the first works of art that became famous to
the other countries particularly in the European countries that has given him a lot of recognition due to his
creative and expressive style of creating an art. This painting have made Juan Luna won a gold medal at
the National Exposition of Fine Arts which was held in Madrid, Spain. With this influential painting, it
ablazed the heart of our fellow countrymen to create works of art in order to express their emotions
against the colonizers and to continue to fight for their freedom.