CHAPTER 1 CONCEPTUAL FRAMEWORK

2 QUALITATIVE CHARACTERISTIC
3 RECOGNITION PRINCIPLES
4 ACCOUNTING PROCESS
5 STATEMENT OF FINANCIAL POSITION
6 NOTES TO FINANCIAL STATEMENTS
7 RELATED PARTY DISCLOSURES
8 EVENTS AFTER THE REPORTING PERIOD
9 STATEMENT OF COMPREHENSIVE INCOME
10 NONCURRENT ASSETS HELD FOR SALE DISCONTINUED OPERATIONS
11 ACCOUNTING CHANGES
12 INTERIN FINANCIAL REPORTING
13 OPERATING SEGMENTS
14 CASH AND CASH EQUIVALENTS
15 ACCOUNTS RECEIVABLE
16 NOTES RECEIVABLE
17 LOAN RECEIVABLE
18 RECEIVABLE FINANCING
19 INVENTORIES
20 INVENTORY VALUATION
21 GROSS PROFIT AND RETAIL METHOD
22 BIOLOGICAL ASSETS
23 FINANCIAL INSTRUMENTS
24 FINANCIAL ASSETS AT FAIR VALUE
25 INVESTMENT IN EQUITY SECURITIES
26 INVESTMENT IN ASSOCIATE
27 FINANCIAL ASSET AT AMORTIZED COST
28 INVESTMENT PROPERRTY
29 DERIVATIVES
30 PROPERTY PLANT AND EQUIPMENT
31 GOVERNMENT GRANT
32 BORROWING COST
33 LAND, BUILDING AND MACHINERY
34 DEPRECIATION
35 DEPLETION
36 REVALUATION
37 IMPAIRMENT OF ASSET
38 INTANGIBLE ASSET
39 SPECIFIC INANGIBLE ASSETS
40
ACCOUNTING STANDARD COUNCIL DEFINES ACCOUNTING AS
ACCOUNTING AS A SERVICE ACTIVITY. ITS FUNCTION IS TO PROVIDE QUANTITATIVE INFORMATION, PRIMARILY
FINANCIAL IN NATURE, ABOUT ECONOMIC ENTITIES, THE IS INTENDED TO BE USEFUL IN MAKING ECONOMIC D

THE COMMITTEE OF ACCOUNTING TERMINOLOGY OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOU
DEINES ACCOUNTING AS
ART OF RECORDING, CLASSIFYING AND SUMMARIZING IN A SIGNIFICANT MANNER AND IN TERMS OF MONEY, T
AND EVENTS WHICH ARE IN PART AT LEAST OF A FINANCIAL CHARACTER AND INTERPRETING THE RESULTS THE

AMERICAN ACCOUNTING ASSOCIATION DEFINES ACCOUNTING AS

THE POCESS OF IDENTIFYING, MEASURING AND COMMUNICATING ECONOMIC INFORMATION TO
PERMIT INFORMED JUDGMENT AND DECISION BY USERS OF INFORMATION

RA 9298 - IS THE LAW REGULATING THE PRACTICE OF ACCOUNTANCY IN THE PHILIPPINES.

THIS LAW IS ALSO KNOWN AS THE PHILIPPINE ACCOUNTANCY ACT 2004

BOARD OF ACCOUNTANCY -IS THE BODY AUTHORIZED BY LAW TO PROMULGATE RULES AND REGULATIONS
AFFECTING THE PRACTICE OF ACCOUNTANCY PROFESSION IN THE PHILIPPINES

FINANCIAL ACCOUNTING- IS PRIMARILY CONCERNED WITH THE RECORDING OF BUSINESS TRANSACTIONS AND
PREPARATION OF FINANCIAL STATEMENTS INTENDED FOR INTERNAL AND ETERNAL USERS

MANAGERIAL ACCOUNTING- IS THE ACCUMULATION AND PREPARATION OF REPORTS FOR INTERNAL USERS O

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES -REPRESENT THE RULES, PROCEDURES, PRACTICE AND STAND
IN THE PREPARAION AND PRESENTATION OF FINANCIAL STATEMENTS

DEVELOPMENT OF GAAP WAS FORMALIZED BY THE ACCOUNTING STANDARD COUNCIL (ASC) OR NOW KNOW

FRSC -IS THE ACCOUNTING STANDARD SETTING BODY CREATED BY CREATED BY THE PHILIPPINE REGULATION C
THE RECOMMENDATION OF BOA TO ASSIST BOA IN CARRYING OUT ITS POWERS AND FUNCTIONS P

PHILIPPINE ACCOUNTING STANDARD (PAS) AND PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS) ARE T

FRSC IS COMPOSED OF 15 MEMBERS WITH A CHAIRMAN WHO HAD BEEN OR PRESENTLY A SENIOR ACCOUNTIN
FROM THE FOLLOWING:

BOA 1
SEC 1
BSP 1
BIR 1
COA 1
 MAJOR ORG 1
ACCREDITED NATIONAL ORGANIZATION OF CPAS:
PUBLIC PR 2
COMMERCE 2
ACADEME 2
GOVERNM 2
14

ACCOUNTING ASSUMPTIONS OR ACCOUNTING POSTULATES ARE THE BASIC NOTIONS OR FUNADAMENTAL PR

ACCOUNTING PROCESS IS BASED.

UNDERLYING ACCOUNTING ASSUMPTIONS ARE THE FOLLOWING:

1. GOING CONCERN
2. ACCOUNTING ENTITY
3. TIME PERIOD
4. MONETARY UNIT

1. GOING CONCERN
MEANS THAT THE ACCOUNTING ENTITY IS VIEWED AS CONTINUING IN OPERATIONS INDEFINITELY IN THE ABSE

2. ACCOUNTING ENTITY
UNDER THIS ASSUMPTION, THE ENTITY IS SEPARATE FROM THE OWNERS, MANAGERS, AND EMPLOYEES WHO

3. TIME PERIOD
REQUIRES THAT THE INDEFINITE LIFE OF AN ENTITY IS SUBDIVIDED INTO TIME PERIOD AND ACCOUNTING PERIO
EQUAL LENGTH FOR THE PURPOSE OF PREPARING FINANCIAL STATEMENTS

4. MONETARY UNIT
HAS TWO ASPECTS THE QUANTIFIABILITY AND THE STABILITY OF THE PESO.

CONCEPTUAL FRAMEWORK
IS A SUMMARY OF THE TERMS AND CONCEPTS THAT UNDERLIE THE PREPARATION AND PRESENTATION OF FIN
IT S CONCERNED WITH GENERAL PURPOSE FINANCIAL STATEMENTS, INCLUDING CONSOLIDATED FINANCIAL ST
NOTE:
IF THERE IS STANDARD OR INTERPRETATION THAT SPECIFICALLY APPLIES TO A TRANSACTION, THE STANDARD O
OVERRIDES THE CONCEPTUAL FRAMEWORK.

UNDER THE NEW CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING, THE USERS MAY BE CLASSIFIED INTO
NAMELY PRIMARY USERS AND OTHER USERS

PRIMARY USERS INCLUDE:

INVESTORS, LENDERS AND OTHER CREDITORS

OTHER USERS:
EMPLOYEES, CUSTOMERS,GOVERNMENTS AND OTHER AGENCIES AND PUBLIC

FINANCIAL REPORTING IS THE PROVISION OF FINANCIAL INFORMATION ABOUT AN ENTITY TO ETERNAL USERS

GENERAL PURPOSE FINANCIAL REPORTS PROVIDE INFORMATION ABOUT THE FINANCIAL POSITION AND FINAN

FINANCIAL POSITION
IS INFORMATION ABOUT THE ENTITY'S ECONOMIC AND THE CLAIMS AGAINST THE REPORTING ENTITY.
THE ECONOMIC RESOURCES ARE THE ASSETS AND THE CLAIMS ARE THE LIABILITIES AND EQUITY.
THIS HELPS USERS TO ASSESS ENTITY'S LIQUIDITY AND SOLVENCY.

LIQUIDITY - IS THE AVAILABILITY OF CASH IN THE NEAR FUTURE TO COVER CURRENTLY MATURING OBLIGATION

SOLVENCY - IS THE AVAILABILITY OF CASH OVER A LONG TERM TO MEET FINANCIAL COMMITMENTS WHEN TH

FINANCIAL PERFORMANCE- COMPRISES ENTITY'S REVENUE, EXPENSES, AND NET INCOME OR LOSS FOR A PERI

CONCEPTS IN CONJUNCTION WITH THE OBJECTIVE OF FINANCIAL REPORTING:

1. ENTITY THEORY
2. PROPRIETARY THEORY
3. RESIDUAL EQUITY THEORY
4. FUND THEORY

1. ENTITY THEORY
THE OBJECTIVE IS TO GEARED PROPER INCOME DETERMINATION. PROPER MATCHING OF COST AGAINST REV

ASSETS = LIABILITIES + CAPITAL

2. PROPRIETARY THEORY
DIRECTED TOWARD PROPER VALUATION OF ASSETS.

CAPITAL =ASSETS - LIABILITIES

3. RESIDUAL EQUITY THEORY

PROPER VALUATION OF ASSETS BUT APPLICABLE WHEN THERE ARE TWO CLASSES OF SHAREHOLDER, NAMELY

ORDINARY SHAREHOLDERS EQUITY = ASSETS- LIABILITIES- PREFERENCE SHAREHOLDERS EQUITY

4. FUND THEORY
ITS OBJECTIVE IS CUSTODY AND ADMINISTRATION OF FUNDS
NFORMATION, PRIMARILY
IN MAKING ECONOMIC DECISION.

CERTIFIED PUBLIC ACCOUNTANTS

ND IN TERMS OF MONEY, TRANSACTIONS

PRETING THE RESULTS THERE OF.

RMATION TO

LES AND REGULATIONS

NESS TRANSACTIONS AND EVENTUAL

S FOR INTERNAL USERS ONLY

RES, PRACTICE AND STANDARDS FOLLOWED

CIL (ASC) OR NOW KNOWN AS FRSC.

PHILIPPINE REGULATION COMMITTEE UPON

OWERS AND FUNCTIONS PROVIDED UNDER RA 9298

STANDARDS (PFRS) ARE THE APPROVED STATEMENTS OF FRSC

NTLY A SENIOR ACCOUNTING PRACTITIONER AND 14 REPRESENTATIVES

NS OR FUNADAMENTAL PREMISES ON WHICH THE

NDEFINITELY IN THE ABSENCE OF EVIDENCE TO THE CONTRARY.

S, AND EMPLOYEES WHO CONSTITUTE THE ENTITY.

D AND ACCOUNTING PERIODS WHICH ARE USUALLY

ND PRESENTATION OF FINANCIAL STATEMENTS.

NSOLIDATED FINANCIAL STATEMENTS.

ACTION, THE STANDARD OR INTERPRETATION

S MAY BE CLASSIFIED INTO TWO,

NTITY TO ETERNAL USERS THAT IS USEFUL TO THEM IN MAKING ECONOMIC DECISIONS.

CIAL POSITION AND FINANCIAL PERFORMANCE OF A REPORTING ENTITY.

EPORTING ENTITY.
ND EQUITY.

LY MATURING OBLIGATIONS.

COMMITMENTS WHEN THEY FALL DUE.

OME OR LOSS FOR A PERIOD OF TIME.

NG OF COST AGAINST REVENUE IS THE ULTIMATE END.

F SHAREHOLDER, NAMELY ORDINARY AND PREPFERENCE.

AREHOLDERS EQUITY
QUALITATIVE CHARACTERISTICS- ARE THE QUALITIES THAT MAKE FINANCIAL INFORMATION USEFUL.

FUNDAMENTAL QUALITATIVE CHARACTERISTICS ARE:

A. RELEVANCE
B. FAITHFUL REPRESENTATION

ENHANCING QUALITATIVE CHARACTERISTICS

A. UNDERSTANDABILITY
B. COMPARABILITY
C. VERIFIABILITY
D. TIMELINESS

MAJOR INGREDIENTS OF RELEVANCE ARE

A. PREDICTIVE VALUE -PREDICTINGAND FORECASTING OF EVENTS OUTCOME
B. CONFIRMATORY VALUE -PREVIOUS EVALUATION OR HISTORICAL COST

3 CHARACTERISTICS OF FAITHFUL REPRESENTATION

A. COMPLETENESS -SHOUD HAVE AN ADEQUATE DISCLOSURE
B. NEUTRALITY -FREE FROM BIAS
C. FREE FROM ERROR -NO ERRORS AND NO OMISSIONS

CONSERVATISM /PRUDENCE-ALTERNATIVE WHICH HAS THE LEAST EFFECT ON EQUITY SHALL BE CHOSEN.
IT MEANS IN CASE OF DOUBT RECORD ANY LOSS BUT DO NOT RECORD ANY GAIN.

UNDERSTANDABILITY- MEANS FINANCIAL INFORMATION MUST BE COMPREHENSIBLE OR INTELLIGIBLE FOR IT T

COMPARABILITY- ALSO MEANS CONSISTENCY

COMPARABILITY -MEANS UNIFORM APPLICATION OF ACCOUNTING METHOD BETWEEN AND ACROSS ENTITIES

CONSISTENCY -MEANS UNIFORM APPLICATION OF ACCOUNTING METHOD WITHIN AN ENTITY

VERIFIABILITY -IMPLIES CONSENSU

SO IT MUST BE SUPPORTIVE BY EVIDENCE

TIMELINESS -MEANS HAVING INFORMATION AVAILABLE TO DECISION MAKERS

MATION USEFUL.

Y SHALL BE CHOSEN.

E OR INTELLIGIBLE FOR IT TO BE USEFUL

EN AND ACROSS ENTITIES

RECOGNITION -MEANS THE PROCESS OF REPORTING AN ASSET,LIABILITY,INCOME OR EXPENSE

ASSETS -ARE DEFINED AS RESOURCES CONTROLLED BY THE ENTITY AS A RESULT OF PAST TRANSACTIONS OR EV
FUTURE ECONOMIC BENEFITS ARE EXPECTED TO FLOW

LIABILITIES- PRESENT OBLIGATIONS OF THE ENTITY ARISING FROM PAST TRANSACTIONS OR EVENTS, THE SETTL
EXPECTED TO RESULT IN AN OUTFLOW FROM THE ENTITY EMBODYING ECONOMIC BENEFITS.

EQUITY- IS THE RESIDUAL INTEREST IN THE ASSET OF THE ENTITY AFTER DEDCUTING ALL OF ITS LIABILITIES

INCOME- IS THE INCREASE IN ECONOMIC BENEFIT DURING THE ACCOUNTING PERIOD IN THE FORM OF AN INFL
OR INCREASE OF OF ASSET OR DECREASE OF LIABILITY OR DECREASE OF LIABILITY THAT RESULTS AN

EXPENSE - IS THE DECCREASE IN ECONOMIC BENEFIT DURING THE ACCOUNTING PERIOD IN THE FORM OF AN O
OR DECREASE OF OF ASSET OR DECREASE OF LIABILITY OR DECREASE OF LIABILITY THAT RESULTS AN

EXCEPTION TO THE POINT OF SALE REALIZATION PRINCIPLE

A. INSTALLMENT METHOD - REVENUE IS RECONIZED AT THE POINT OF COLLECTION

B. COST RECOVERY OR SUNK COST METHOD -ALL COLLECTIONS ARE FIRST APPLIED TO THE COST OF THE MERC

C.CASH METHOD -REVENUE IS RECOGNIZED WHEN RECEIVED REGARDLESS OF WHEN EARNED.

D. PERCENTAGE OF COMPLETION METHOD - DEPENDING ON THE STAGE OF COMPLETION

E. PRODUCTION METHOD - REVENUE IS RECOGNIZED AT THE POINT OF PRODUCTION

MATCHING PRINCIPLE FOR EXPENSES

A. CAUSE AND EFFECTS ASSOCIATION

B. SYSTEMATIC AND RATIONAL ALLOCATION
C. IMMEDIATE RECOGNITION

A. CAUSE AND EFFECTS ASSOCIATION

EXPENSE IS RECOGNIZED WHEN REVENUE IS ALREADY RECOGNIZED.
EX. COST OF SALES, DOUBTFUL ACCOUNTS, WARRANTY EPENSE AND SALES COMMISSIONS

B. SYSTEMATIC AND RATIONAL ALLOCATION

SOME EXPENSE ARE EXPENSED BY SIMPLY ALLOCATING THEM OVER THE PERIOD BENEFITED

EX. DEPRECIATION, AMORTIZATION AND ALLOCATION OF PREPAYMENTS

C. IMMEDIATE RECOGNITION
THE COST INCURRED IS EXPENSED OUTRIGHT
EX. SALARIES, ADMINISTRATIVE ADVERTISING AND DISTRIBUTION COST

MEASUREMENT IS THE PROCESS OF DETERMINING THE MONETARY AMOUNTS AT WHICH THE ELEMENTS OF
FINANCIAL STATEMENTS ARE TO BE RECOGNIZED.

4 MEASUREMENT BASES

HISTORICAL COST -IS THE AMOUNT OF CASH OR CASH EQUIVALENT PAID OR THE FAIR VALUE OF THE CONSIDE
GIVEN TO ACQUIRE ASSET AT THE TIME OF ACQUISITION

CURRENT COST - IS THE AMOUNT OF CASH OR CASH EQUIVALENT THAT WOULD HAVE TO BE PAID IF THE SAME
EQUIVALENT AASET WAS ACQUIRED CURRENTLY

REALIZABLE VALUE -IS THE AMOUNT OF CASH OR CASH EQUIVALENT THAT COULD CURRENTLY BE OBTAINED B
IN AN ORDERLY DISPOSAL.

PRESENT VALUE- THE DISCOUNTED VALUE OF THE FUTURE NET CASH INFLOWS THAT THE ITEM IS EXPECTED TO
IN THE NORMAL COURSE OF BUSINESS
AST TRANSACTIONS OR EVENTS AND FROM WHICH

ONS OR EVENTS, THE SETTLEMENT OF WHICH

ONOMIC BENEFITS.

ALL OF ITS LIABILITIES

D IN THE FORM OF AN INFLOW

ABILITY THAT RESULTS AN INCREASE IN EQUITY

OD IN THE FORM OF AN OUTFLOW

ABILITY THAT RESULTS AN INCREASE IN EQUITY

O THE COST OF THE MERCHANDISE

HICH THE ELEMENTS OF

R VALUE OF THE CONSIDERATION

E TO BE PAID IF THE SAME OR AN

URRENTLY BE OBTAINED BY SELLING THE ASSET

THE ITEM IS EXPECTED TO GENERATE

STEPS IN THE ACCOUNTING CYCLE

1. ANALYZING
2. JOURNALIZING
3. POSTING
4. PREPARING THE UNADJUSTED TRIAL BALANCE
5. PREPARING THE ADJUSTING ENTRIES
6. PREPARING THE FINANCIAL STATEMENTS
7. PREPARING THE CLOSING ENTRIES
8. PREPARING A POST CLOSING TRIAL BALANCE
9. PREPAPRING THE REVERSING ENTRIES

STEPS ARE CLASSIFIED INTO TWO PHASES

A. RECORDING PHASE
B. SUMMARIZING PHASE

JOURNAL/GENERAL JOURNAL- IS THE FUNDAMENTAL JOURNAL

JOURNAL- IS A CHRONOLOGICAL RECORD OF TRANSACTIONS

SIMPLE JOURNAL ENTRY -CONSISTS OF ONE DEBIT AND ONE CREDIT

COMPOUND JOURNAL ENTRY -CONSISTS OF TWO OR MORE DEBITS OR TWO OR MORE CREDITS

SPECIAL JOURNALS

1. SALES JOURNAL - ONLY SALES OF MERCHANDISE ON CREDIT ARE RECORDED

2. CASH RECEIPTS JOURNAL - RECEIPTS OF CASH FROM ANY SOURCE ARE RECORDED

3. PURCHASE JOURNAL -AS A RULE, PURCHASE OF MERCHANDISE ON CREDIT ARE RECORDED

4.CASH DISBURSEMENTS JOURNAL - ALL PAYMENTS OF CASH FOR ANY PURPOSE ARE RECORDED

GENERAL LEDGER -IS A GROUP OF ACCOUNTS

ACCOUNT- IS THE ACCOUNTING DEVICE USED IN SUMMARIZING THE EFFECTS OF TRANSACTIONS ON EACH ASSET,

CHART OF ACCOUNTS- IS A LISTING OF ALL THE ENTITY'S GENERAL LEDGER ACCOUNTS IN A SYSTEMATIC FORM.
SUBSIDIARY LEDGER - IS THE DEVICE USED IN STORING THE DETAILS OF CERTAIN GENERAL LEDGER ACCOUNT

CLASSES OF ACCOUNTS
1. REAL ACCOUNTS- REPRESENT ASSETS, LIABILITIES AND EQUITY.
ALSO KNOWN AS PERMANENT ACCOUNTS BECAUSE THEY ARE CARRIED FROM ONE ACCOUNTING PERIO

2. NOMINAL ACCOUNTS - REPRESENT REVENUES AND EXPENSES.

ALSO KNOWN AS TEMPORARY ACCOUNTS BECAUSE THEY ARE CLOSED AT THE END OF ACCOUNTING PE

3. MIXED ACCOUNTS -REPRESENT THOSE WITH REAL AND NOMINAL ELEMENT.

CONTRA ACCOUNTS- ARE OFFSET ACCOUNTS OR ACCOUNTS WHICH ARE DEDCUTED FROM THE RELATED ACCOUN

ADJUNCT ACCOUNTS -ARE ACCOUNTS WHICH ARE ADDED TO THE RELATED ACCOUNT.

VOUCHER SYSTEM- IS A SYSTEM OF INTERNAL CONTROL OVER ALL CASH DISBURSEMENTS.

VOUCHER - IS THE BUSINESS DOCUMENT WRITTEN AUTHORIZATION FOR EVERY CASH DISBURSEMENT

VOUCHER REGISTER- IS THE JOURNAL WHERE ALL VOUCHERS ARE RECORDED IN NUMERICAL SEQUENCE.

CHECK EGISTER- IS THE JOURNAL WHERE ALL CHECKS ISSUED FOR PAYMENT ARE RECORDED.

TRIAL BALANCE - IS A LIST OF GENERAL LEDGER ACCOUNTS WITH THEIR RESPECTIVE DEBIT OR CREDIT BALANCE.

UNADJUSTED TRIAL BALANCE- BECAUSE ACCOUNT BALANCES DO NOT YET REFLECT ADJUSTMENTS.

PURPOSE OF TRIAL BALANCE:

A. IT PROVIDES EVIDENCE THAT THE TOTAL DEBITS IN THE GENERAL LEDGER EQUAL CREDITS.
B. IT PROVIDES INFORMATION THAT HELPS THE ACCOUNTANT TO FORMULA ADJUSTMENTS.

DESCRIPTION OF THE FOLLOWING ERRORS:

1.TRANSPOSITION- THE FIGURES ARE INTERCHANGED- EX. 1,234 IS WRITTEN AS 4,123
2. TRANSPLACEMENT- ERROR IN PLACING THE DECIMAL POINT. EX. 12,000 IS WRITTEN AS 1,200
3. ERROR OF OMISSION -TRANSACTION NOT RECORDED

TWO METHODS OF RECORDING EXPENSES

1. EXPENSE METHOD -THE ORIGINAL PAYMENT IS DEBITED TO AN EXPENSE ACCOUNT.

2. ASSET METHOD -THE ORIGINAL PAYMENT IS DEBITED TO AN ASSET ACCOUNT.
TWO METHODS OF RECORDING INCOME:

1. INCOME METHOD - AN INCOME ACCOUNT IS CREDITED FOR THE RECEIPT OF THE INCOME

2. LIABILITY METHOD -A LIABILITY ACCOUNT IS CREDITED FOR THE RECEIPT OF THE INCOME.

ADJUSTING ENTRIES - ARE MADE AT THE END OF EVERY ACCOUNTING PERIOD IN ORDER TO SPLIT MIXED ACCOUNT
OR TO BRING THE ACCOUNT UP TO DATE.
ADJUSTING ENTRIES ALLOCATE REVENUE AND EXPENSES BETWEEN CURRENT AND FUTURE PERIODS

PREPAID EXPENSES -ARE LAREADY PAID BUT NOT YET INCURRED AND THEREFORE AN ASSET.

ACCRUED EXPENSE - ARE EXPENSES ALREADY INCURRED BUT NOT YET PAID AND THEREFORE A LIABILITY

DEFERRED INCOME - IS INCOME ALREADY RECEIVED BUT NOT YET EARNED AND THEREFORE A LIABILITY

WORKSHEET - IS MULTICOLUMN SHEET OF PAPER THAT AN ACCOUNTING USES IN COMPILING AND SUMMARIZING
THE INFORMATION NECESSARY FOR THE PREPARATION OF FINANCIAL STATEMENTS.
IT IS NOT A FORMAL STATEMENT. IT IS ONLY A TOOL OF AN ACCOUNTANT IN THE PREPARATION OF FINA

CLOSING ENTRIES -ARE MADE AT THE END OF AN ACCOUNTING PERIOD AFTER ADJUSTING ENTRIES AND FINANCIA
FOR THE PURPOSE OF CLOSING ALL NOMINAL OR TEMPORARY ACCOUNTS. TO CLOSE AN ACCOUNT MEA

MOST OF THE ACCOUNTANTS TRANSFER NOMINAL ACCOUNT TO INCOME SUMMARY.

REVERSING ENTRIES
ARE MADE AT THE BEGINNING OF THE NEW ACCOUNTING PERIOD IN ORDER TO TRANSFER ALL ACCRUED AND PRE
BY ADJUSTING ENTRIES TO THE NOMINAL ACCOUNTS THAT ARE TO BE USED IN RECORDING TRANSACTIONS DURIN

ADJUSTMENTS NORMALLY REQUIRING REVERSAL AT THE BEGINNING OF THE NEW PERIOD ARE:

A. ACCRUED EXPENSES AND INCOME

B. PREPAID EXPENSES (IF THE EXPENSE METHOD IS USED IN RECORDING EXPENSE)
C. DEFERRED INCOME (IF INCOME METHOD IS USED IN RECORDING THE INCOME)

DEBIT -REFERS TO THE LEFT SIDE OF AN ACCOUNT

CREDIT - REFERS TO THE RIGHT SIDE OF AN ACCOUNT
 RECORDED

ANSACTIONS ON EACH ASSET, LIABILITY, EQUITY, REVENUE AND EXPENSE

S IN A SYSTEMATIC FORM.
NERAL LEDGER ACCOUNT

ROM ONE ACCOUNTING PERIOD TO ANOTHER.

THE END OF ACCOUNTING PERIOD

FROM THE RELATED ACCOUNT.

H DISBURSEMENT

MERICAL SEQUENCE.

DEBIT OR CREDIT BALANCE.

ADJUSTMENTS.
DER TO SPLIT MIXED ACCOUNTS

NT AND FUTURE PERIODS

REFORE A LIABILITY

REFORE A LIABILITY

OMPILING AND SUMMARIZING

IN THE PREPARATION OF FINANCIAL STATEMENTS.

STING ENTRIES AND FINANCIAL STATEMENTS HAVE BEEN PREPARED

. TO CLOSE AN ACCOUNT MEANS TO REDUCE ITS BALANCE TO ZERO.

SUMMARY.

NSFER ALL ACCRUED AND PREPAID ITEMS ESTABLISHED

RDING TRANSACTIONS DURING THE PERIOD.
FINANCIAL STATEMENTS -ARE THE MEANS BY WHICH THE INFORMATION ACCUMULATED AND PROCESSED IN FINA
SI PERIODICALLY COMMUNICATED TO THE USERS.

GENERAL PURPOSE FINANCIAL STATEMENTS -ARE STATEMENTS THAT HAVE BEEN PREPARED FOR USE BY THOSE
WHO ARE NOT IN POSITION TO REQUIRE AN ENTITY TO PREPARE REPORTS TAILORED TO THEIR PARTICULAR INFOR

COMPLETE SET OF FINANCIAL STATEMENTS COMPRISES:

1.STATEMENT OF FINANCIAL POSITION
2. INCOME STATEMENT
3. STATEMENT OF COMPREHENSIVE INCOME
4. STATEMENT OF CHANGES IN EQUITY
5. STATEMENT OF CASH FLOWS
6. NOTES TO FINANCIAL STATEMENTS
ATED AND PROCESSED IN FINANCIAL ACCOUNTING

EPARED FOR USE BY THOSE

D TO THEIR PARTICULAR INFORMATION NEEDS.
NOTES TO FINANCIAL STATEMENTS PROVIDE NARRATIVE DESCRIPTION OF DISGREGATION OF ITEMS PRESENTED IN
FINANCIAL ELEMENTS AND INFORMATION ABOUT ITEMS THAT DO NOT QUALIFY FOR RECOGNITION.

PURPOSE OF NOTES TO FS - IS TO PROVIDE THE NECESSARY DISCLOSURES REQUIRED BY THE PHILIPPINE FINANCIAL

PAS 1 ,PARAGRAPH 114, PROVIDES TAT NOTES ARE NORMALLY PRESENTED IN THE FOLLOWING ORDER:

A. STATEMENT OF COMPLIANCE WITH PFRS.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USED.
C. SUPPORTING INFORMATION OR COMPUTATION FOR LINE ITEMS PRESENTED IN THE FINANCIAL STATEMENTS.
D. OTHER DISCLOSURES, SUCH AS CONTINGENT LIABILITIES, UNRECOGNIZED CONTRACTUAL COMMITMENTS AND
TION OF ITEMS PRESENTED IN THE
UALIFY FOR RECOGNITION.

BY THE PHILIPPINE FINANCIAL REPORTING STANDARDS

OLLOWING ORDER:

HE FINANCIAL STATEMENTS.
ACTUAL COMMITMENTS AND NON FINANCIAL DISCLOSURES.
RELATED PARTY -PARTIES ARE CONSIDERED TO BE RELATED IF ONE PARTY IS:

A.THE ABILITY TO CONTROL THE OTHER PARTY.

B.THE ABILITY TO EXERCISE SIGNIFICANT INFLUENCE OVER THE OTHER PARTY.
C. JOINT CONTROL OVER ANOTHER ENTITY.

RELATED PARTY TRANSACTION - IS A TRANSFER OF RESOURCES OR OBLIGATIONS BETWEEN RELATED PARTIES, REG
WHETHER A PRICE IS CHARGED.

CONTROL -IS OWNERSHIP, DIRECTLY OR INDIRECTLY THROUGH SUBSIDIARES OF MORE THAN HALF OF THE VOTING
SIMPLY STATED, AS THE POWER TO GOVERN.

SIGNIFICANT INFLUENCE- IS PARTICIPATION IN THE FINANCIAL AND OPERATING POLICY DECISIONS OF AN ENTITY
BUT NOT CONTROL OF THE POLICIES.

JOINT CONTROL -IS THE CONTRACTUALLY AGREED SHARING OF CONTROL OVER AN ARRANGEMENT WHICH EXISTS
WHEN DECISIONS ABOUT THE RELEVANT ACTIVITIES REQUIRE UNANIMOUS CONSENT OF THE PARTIES S

AFFILIATES- MEANING THE PARENT, THE SUBSIDIARY AND THE SUBSIDIARIES.

ASSOCIATES - THESE ARE ENTITIES FOR WHICH THE INVESTMENTS ARE ACCOUNTED BY THE EQUITY METHOD.
IF THE INVESTEMENT IN ORDINARY SHARES IS 20% TO 50%, THE EQUITY METHOD IS USED IN ACCOUNTI
 WEEN RELATED PARTIES, REGARDLESS

RE THAN HALF OF THE VOTING POWER.

CY DECISIONS OF AN ENTITY

RRANGEMENT WHICH EXISTS ONLY

S CONSENT OF THE PARTIES SHARING THE CONTROL.

BY THE EQUITY METHOD.

METHOD IS USED IN ACCOUNTING FOR THE INVESTMENT.
EVENTS AFTER REPORTING PERIOD - ARE THOSE EVENTS BOTH FAVORABLE AND UNFAVORABLE THAT OCCUR B
THE END THE REPORTING PERIOD AND THE DATE WHEN THE FINANCIAL STATEMENTS ARE AUTHORI

SUBSEQUENT EVENTS MAY REQUIRE ADJUSTEMENT OR DISCLOSURE.

TYPES OF EVENTS AFTER THE REPORTING PERIOD:

1. ADJUSTING EVENTS AFTER REPORTING PERIOD - ARE THOSE THAT PROVIDE EVIDENCE OF CONDITIONS THA
THE END OF REPORTING PERIOD.

2. NONADJUSTING EVENTS AFTER REPORTING PERIOD -ARE THOSE THAT ARE INDICATIVE OF CONDITIONS THA
END OF THE REPORTING PERIOD.

EXAMPLES OF ADJUSTING EVENTS:

1. RESOLUTION AFTER THE REPORTING PERIOD OF A COURT CASE BECAUSE IT CONFIRMS THAT THE
HAD A PRESENT OBLIGATION.

2. BANKRUPTCY OF A CUSTOMER WHICH OCCURS AFTER THE REPORTING PERIOD.

3. SALE OF INVENTORIES AFTER THE REPORTING PERIOD MAY GIVE EVIDENCE ABOUT THE NET REALI

4. THE DETERMINATION AFTER THE REPORTING PERIOD THE COST OF ASSETS PURCHASED OR THE P

5. THE DETERMINATION AFTER THE REPORTI NG PERIOD OF THE RPOFIT SHARING OR BONUS PAYME
OBLIGATION AT THE REPORTING DATE TO MAKE SUCH PAYMENT.

6. THE DISCOVERY OF FRAUD OR ERRORS THAT SHOW THE FINANCIAL STATEMENTS WERE INCORRE
FAVORABLE THAT OCCUR BETWEEN
TATEMENTS ARE AUTHORIZED FOR ISSUE.

NCE OF CONDITIONS THAT EIST ATE

ATIVE OF CONDITIONS THAT ARISE AFTER THE

E IT CONFIRMS THAT THE ENTITY ALREADY

NCE ABOUT THE NET REALIZABLE VALUE AT REPORTING PERIOD.

ETS PURCHASED OR THE PROCEEDS FROM ASSETS SOLD BEFORE REPORTING DATE.

HARING OR BONUS PAYMENT IF THE ENTITY HAS THE PRESENT

TEMENTS WERE INCORRECT.

COMPREHENSIVE INCOME - IS THE CHANGE IN EQUITYDURING A PERIOD RESULTING FROM TRANSACTIONS
AND OTHER EVENTS OR OTHER EVENTS OTHER THAN CHANGES RESULTING FROM TRANSACTIONS WITH OWNERS

COMPREHENSIVE INCOME INCLUDES:

1. COMPONENTS OF PROFIT OR LOSS
2. COMPONENTS OF OTHER COMPEHENSIVE INCOME.

PROFIT OR LOSS - IS THE TOTAL OF INCOME LESS EXPENSES, EXCLUDING THE COMPONENTS OF OCI.

OTHER COMPREHENSIVE INCOME -COMPRISES ITEMS OF INCOME AND EXPENSE INCLUDING RECLASSIFICATION
ADJUSTMENTS THAT ARE NOT RECOGNIZED IN PROFIT AND LOSS AS REQUIRED OR PERMITTED BY PFRS.

THE COMPONENTS OF OTHER COMPREHENSIVE INCOME INCLUDE THE FOLLOWING:

1. UNREALIZED GAIN OR LOSS ON FINANCIAL ASSET MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE
2. GAIN OR LOSS FROM TRANSLATING THE FINANCIAL STATEMENTS OF A FOREIGN OPERATION.
3. REVALUATION SURPLUS DURING THE YEAR.
4. UNREALIZED GAIN OR LOSS FROM DERIVATIVE CONTRACTS DESIGNATED AS CASH FLOW HEDGE.
5. REMEASUREMENTS OF DEFINED BENEFIT PLAN INCLUDING ACTUARIAL GAIN OR LOSS DEFINED BENEFIT OBLIGA

LINE ITEM FOR OCI THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS INCLUDE THE FOLLOWING:

A.GAIN OR LOSS FROM TRANSLATING FINANCIAL STATEMENTS OF FOREIGN OPERATION.

B.UNREALIZED GAIN OR LOSS ON DERIVATIVE CONTRACTS DESIGNATED AS CASH FLOW HEDGE.

CAPITAL MAINTENANCE APPROACH - OR NET ASSTES APPROACH MEANS THAT NET INCOME OCCURS ONLY AFTER
FROM THE BEGINNING OF THE PERIOD IS MAINTAINED.

THE APPROACH HAS TWO VARIATIONS, NAMELY FINANCIAL CAPITAL AND PHYSICAL CAPITAL.

FINANCIAL CAPITAL - IS THE MONETARY AMOUNT OF THE NET ASSETS CONTRIBUTED BY SHAREHOLDERS AND THE
NET ASSETS RESULTING FROM EARNINGS RETAINED BY THE ENTITY.
IT IS A TRADITIONAL CONCEPT BASED ON HISTORICAL COST.

PHYSICAL CAPITAL - IS THE QUANTITATIVE MEASURE OF THE PHYSICAL PRODUCTIVE CAPACITY TO PRODUCA GOOD
THE CONCEPT REQUIRES THAT PRODUCTIVE ASSETS BE VALUED AT CURRENT COST.

FORMS OF PRESENTING THE INCOME STATEMENT:

1. FUNCTIONAL PRESENTATION
IS THE TRADITIONAL AND COMMON FORM OF INCOME STATEMENT. IT IS ALSO KNOWN AS THE COST O

2. NATURAL PRESENTATION
IS REFERRED TO AS THE NATURE OF EXPENSE METHOD. UNDER THIS FORM, EXPENSES AGGREGATED AC
THEIR NATURE AND NOT ALLOCATED AMONG THE VARIOUS FUNCTIONS WITHIN THE ENTITY.
FROM TRANSACTIONS
ANSACTIONS WITH OWNERS IN THEIR CAPACITY.

NENTS OF OCI.

LUDING RECLASSIFICATION
IRED OR PERMITTED BY PFRS.

UGH OTHER COMPREHENSIVE INCOME.

FLOW HEDGE.
OSS DEFINED BENEFIT OBLIGATION.

NCLUDE THE FOLLOWING:

NCOME OCCURS ONLY AFTER THE CAPITAL USED

BY SHAREHOLDERS AND THE INCREASE IN

CAPACITY TO PRODUCA GOODS AND SERVICES.

ALSO KNOWN AS THE COST OF SALES ETHOD.

M, EXPENSES AGGREGATED ACCORDING TO

WITHIN THE ENTITY.
DISPOSAL GROUP - IS A GROUP OF ASSETS TO BE DISPOSED OF, SALES OR OTHERWISE, TOGETHER AS A GROUP IN A

PFRS 5, PARAGRAPG 6, PROVIDES THAT A NONCURRENT ASSET IS CLASSIFIED AS HELD FOR SALE IF THE CARRYONG
BE RECOVERED PRINCIPALLY THROUGH A SALE TRANSACTION RATHER THAN CONTINUING USE.

CONDITIONS THAT MUST BE PRESENT FOR A NONCURRENT ASSET OR DISPOSAL GROUP TO BE CLASSIFIED AS HELD

1. THE ASSET OR DISPOSAL GROUP IS AVAILABLE FOR IMMEDIATE SALE IN THE PRESENT CONDITION SUBJECT ONLY
2. THE SALE MUST BE PROBABLE.

MEASUREMENT FOR NONCURRENT ASSETS HELD FOR SALE IS THE LOWER OF CARRYING AMOUNT AND FAIR VALU
THE SAID ASSETS SHALL NOT BE DEPRECIATED, BUT SUBJECT TO IMPAIRMENT LOSS.
E, TOGETHER AS A GROUP IN A SINGLE TRANSACTION.

D FOR SALE IF THE CARRYONG AMOUNT SHALL

AN CONTINUING USE.

UP TO BE CLASSIFIED AS HELD FOR SALE.

NT CONDITION SUBJECT ONLY TO TERMS THAT ARE USUAL AND CUSTOMARY.

NG AMOUNT AND FAIR VALUE LESS COST TO DISPOSAL.