CFAS Accreditation to Practice Public Accountancy

Chapter 1: The Accountancy Profession  Certificate of Accreditation – registrant has acquired a

minimum of 3 years of meaningful experience in any of
the areas of public practice including taxation
Accounting Definition;  Certificate of Registration – valid for 3 years and
renewable every 3 years
Accounting Standards Council

 service entity
 to provide quantitative information, intended to be useful General Practices of CPA’s;
in making decision 1. Public Accounting
American Institute of Certified Public Accountant (AICPA)  auditing – primary service
 art of recording, classifying, and summarizing in a  taxation
significant manner  management advisory services

American Accounting Association 2. Private Accounting

 process of identifying, measuring, and communicating  Controller – highest accounting officer

economic information to permit informed judgement and 3. Government Accounting
decision by users of the information
 focus is the custody and administration of public funds

Accounting Process;
Continuing Professional Development (CPD);
1. Identifying
 RA No. 10912 – the law mandating and strengthening the
 recognition or nonrecognition of business activities as
continuing professional development program for all
“accountable” events
regulated professions, including the accounting profession
 an event is accountable or quantifiable when it has an
 it raises and enhances the technical skill and competence
effect on Asset, Liabilities, and Equity
of the CPA
 the subject matter is economic activity (external and
internal transactions) or the measurement of economic CPD Credit Units
resources and economic obligations
 External Transactions – one entity to another entity  15 CPD credits units are required for the renewal of CPA
 Internal Transactions – one entity only license
 120 CPD credit units are required for accreditation for a
2. Measuring CPA to practice the accountancy profession
 assigning of peso amounts to the accountable economic Exemption from CPD
transactions and events
 Historical Cost – original acquisition cost and the most  upon reaching the age of 65 years
common measure of financial transactions  applied only to the renewal of CPA license and not for the
 Current Value – includes fair value, value in use, purpose of accreditation
fulfillment value, and current cost
3. Communicating
Accounting Auditing
 preparing and distributing accounting reports to potential accounting embraces one of the areas of
users of accounting information auditing accounting
 Recording – journalizing constructive (helping to analytical
 Classifying – posting to the ledger improve) in nature
 Summarizing – preparation of financial statements ceases (ends) when FS are begins when the work of
already prepared accountant ends

Accounting as an Information System Accounting Bookkeeping

conceptual procedural
 measures business activities, processes information into concerned with the reason concerned with
reports and communicates the reports to decision makers or justification for any development and
 financial reports tell us how well an entity is performing action adopted maintenance of accounting
in terms of P/L and where it stands in financial terms records
“why” of accounting “how” of accounting

The Accountancy Profession;

Accounting Accountancy
 RA No. 9298 – the Philippine Accountancy Act of 2004 reference only to a profession of accounting
 Board of Accountancy (BOA) – body authorized by law particular field of practice
to promulgate (promote) rules and regulations affecting accountancy
the practice of the accountancy profession in the
Philippines
Limitation of the Practice of Public Accountancy

 SEC shall not register any corporation organized for the

practice of public accountancy
 Financial Accounting Managerial Accounting Chapter 2: Conceptual Framework
recording of business accumulation and
transactions and the preparation of financial Objective of Financial Reporting
eventual preparation of reports for internal users
financial statements only
intended for internal and Conceptual Framework;
external users
reporting to creditors and developing accounting  a complete, comprehensive, and single document
investors information for use within promulgated (promoted) by the IASB
an entity  summary of the terms and concepts that underlie the
preparation and presentation of FS for external users
 describes the concepts for general purpose financial
Generally Accepted Accounting Principles (GAAP); reporting
 to provide overall theoretical foundation for accounting
 rules, procedures, practice, and standards followed in the
preparation and presentation of FS Standard Foundation
 like laws that must be followed in financial reporting
 a political process which incorporates political actions  contribute to transparency
 strengthen accountability
Accounting Standards Purpose  contribute to economic efficiency
 identify proper accounting practices for FS Users of Financial Information
 create a common understanding to preparers and users
 ensure comparability and uniformity in FS  Primary Users – existing and potential investors, lenders,
and other creditors
Financial Reporting Standards Council (FRSC);  Other Users – employee, customers, governments and
their agencies, and the public
 ASC to GAAP
 ASC to FRSC Scope of Revised Conceptual Framework
 to establish and improve accounting standards that will be
generally accepted in the Philippines a. Objective of Financial Reporting (Ch. 2)
b. Qualitative Characteristics of Useful Financial
 highest hierarchy of GAAP in Philippines
Information (Ch. 3)
 known as Philippine Accounting Standards (PAS) and
c. Financial Statements and Reporting Entity (Ch. 4)
Philippine Financial Reporting Standards (PFRS)
d. Elements of Financial Statements (Ch. 5)
Philippine Interpretations Committee e. Recognition and Derecognition (Ch. 6)
f. Measurement (Ch. 6)
 to prepare interpretations of PFRS for approval by the g. Presentation and Disclosure (Ch.7)
FRSC and to provide timely guidance (authoritative h. Concepts of Capital and Capital Maintenance (Ch.7)
guidance) on financial reporting issues not specifically
addressed in current PFRS
Objectives of Financial Reporting;

International Accounting Standards Committee (IASC);
 achieving uniformity in the accounting principles for
financial reporting around the world
International Accounting Standards Board (IASB);
 IASC to IASB
 publishes International Financial Reporting Standards
(IFRS)
Move toward IFRS
 at present, FRSC has adopted in their entirely all IAS and
IFRS
 essential to achieve the goal of one uniform and globally
accepted financial reporting standards
Philippine Financial Reporting Standards (PFRS)
 standards in a series of pronouncements issued by FRSC
 PFRS = IFRS
 PAS = IAS
 PIC = IFRIC / SIC
 forms the foundation of conceptual framework
 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
 “why”, purpose or goal of accounting
Specific Objectives of Financial Reporting
To provide information useful in…
a. making decisions about providing resources to the entity
b. assessing the cashflow prospects (opportunity) of the
entity
c. entity resources, claims, and changes in resources and
claims
Accrual Accounting
 income is recognized when earned regardless of when
received
 expense is recognized when incurred regardless of when
paid
Managements Stewardship
 an ethical term in accounting that imposes a responsibility
to the management of an organization to take care of
business carefully and provide reliable information the
stakeholders about the resources of business by financial
reporting
Chapter 3: Conceptual Framework
Qualitative Characteristics
Qualitative Characteristics;
 qualities or attributes that make financial accounting
information useful to the users
 to ensure that the information is useful to the users in
making economic decisions
 classified into fundamental and enhancing qualitative
characteristics
Fundamental QC
 relate to the content or substance of financial information
 relevance and faithful representation
Application of QC
1. identify an economic phenomenon that has the potential
to be useful
2. identify the type of information about the phenomenon
that would be most relevant and can be faithfully
represented
3. determine whether the information is available
Relevance
 capacity of the information to influence a decision
 requires the financial information to be related to the
economic decision
 information that doesn’t bear on an economic decision is
useless
 to be useful, information must be relevant to the decision-
making needs of users
Ingredients of Relevance
1. Predictive Value – if it can be used as an input to
processes employed by users to predict future outcome
(forecasting outcome of events)
2. Confirmatory Value – if it provides feedback about
previous evaluations (confirm or correct earlier
expectations)
Materiality
 Information is material if omitting, misstating, or
obscuring information could reasonably be expected to
influence the economic decisions that primary users of
general-purpose financial statements make on the basis of
those statements which provide financial information
about a specific reporting entity (IASB)
Could Reasonably be Expected to Influence
 adds an element of reasonability of financial information
on which economic decision is based
 ensures that information is capable of influencing
economic decision of the primary users to be included in
the FS
Obscuring Information
 information is obscured if presenting or communicating it
would have a similar effect as omitting or misstating the
information
 the presentation of financial information is not readily
understood or not clearly expressed
 may be characterized by deliberate vagueness, ambiguity,
and abstruseness (uncertain and unclear)
Primary Users
 these groups are the users to whom general purpose of
financial statements are primarily directed
Faithful Representation
 means that financial reports represent economic
phenomena or transactions in words and numbers
 the descriptions and figures must match what really
existed or happened
 the actual effects of the transactions shall be properly
accounted for and reported in the FS
Ingredients of Faithful Representation;
1. Completeness
 requires that relevant information should be presented in a
way that facilitates understanding and avoids erroneous
implication
 the result of adequate disclosure standard or the principle
of full disclosure
 Standard of Adequate Disclosure – best describes by
disclosure of any financial facts significant enough to
influence the judgement of informed users
 Notes to FS – to provide necessary disclosures to be
complete required by PFRS
2. Neutrality
 without bias in the preparation or presentation of financial
information (free from bias)
 information is directed to the common needs of many
users and not only to the particular needs of specific users
 to be neutral is to be fair
 Prudence – exercise of care and caution when dealing
with the uncertainties in the measurements process
 Conservatism – in case of doubt, record any loss and do
not record any gain
3. Free from Error
 no errors or omissions in the description of the
phenomenon or transaction
Measurement Uncertainty
 arises when monetary amounts in financial reports can’t
be observed directly and must instead be estimated
Substance over Form
 it inherently represents the substance of an economic
phenomenon or transaction rather than merely
representing the legal form
Enhancing QC
 relate to the presentation or form of the financial
information
 intended to increase the usefulness of the financial
information that is relevant and faithfully represented
Comparability
 the ability to bring together for the purpose of noting
points of likeness and difference
 may be made within an entity (horizontal comparability or
intracomparability) or between and across entities
(intercomparability or dimensional comparability)
 like things must look alike and different things must look
different
Comparability Consistency
the goal helps to achieve that goal
between and across entities from period to period within
in the same industry an entity
Understandability
 must be comprehensible or intelligible
 should be presented in a form and expressed in
terminology that a user understands
 it is readily understandable by users
Verifiability
 means that different knowledgeable and independent
observers could reach consensus, although not necessarily
complete agreement, that a particular depiction is a
faithful representation
 supported by evidence
 Direct Verification – verifying an amount or other
representation through direct observation (e.g. counting
cash)
 Indirect Verification – checking the inputs to a model,
formula or other technique and recalculating the inputs
using the same methodology
Timeliness
 means that financial information must be available or
communicated early enough when a decision is to be
made
 the older the information, the less useful
 enhances the truism (truth) that without knowledge of the
past, the basis for prediction will usually be lacking and
without interest in the future, knowledge of the past is
sterile (weak)
 what happened in the past would become the basis of
what would happen in the future
Cost Constraint on Useful Information
 Cost – pervasive constraint (limit) on the information that
can be provided by financial reporting
 a consideration of the cost incurred in generating financial
information against the benefit to be obtained from having
the information
 the evaluation of it is subsequently a judgement process
Chapter 4: Conceptual Framework
Financial Statements, Reporting Entity and Underlying
Assumptions
Financial Statements
 provide information about economic resources of the
reporting entity, claims against the entity, and changes in
the economic resources and claims
 provide financial information about an entity’s assets,
liabilities, equity, income, and expenses useful to users of
FS in
a. assessing future cash flows to the reporting entity
b. assessing management stewardship of the entity’s
economic resources
1. Statement of Financial Position (Balance Sheet) – assets,
liabilities, and equity
2. Statement of Financial Performance (Income Statement) –
income and expenses
3. Other Statements and Notes
a. recognized assets, liabilities, equity, income, and
expenses
b. unrecognized assets and liabilities
c. cash flows
d. contribution from equity holders and distribution to
equity holders
e. method, assumption, and judgement in estimating
amount presented
Types of FS
1. Consolidated FS – prepared when the reporting entity
comprises both the parent and its subsidiaries
2. Unconsolidated FS – prepared when the reporting entity is
the parent alone
3. Combined FS – the reporting entity comprises of 2 or
more entities that are not linked by a parent and
subsidiary relationship
Reporting Entity
 an entity required or choose to prepare FS
 not necessarily a legal entity
Reporting period
 Interim Basis – 3 months, 6 months, or 9 months
 Annual Basis – 12 months or 1 year
Underlying Assumptions
 also known as postulates (principle)
 serve as the foundation of accounting in order to avoid
misunderstanding but rather enhance the understanding
and usefulness of the FS
Going Concern (Continuity Assumption)
 in the absence of evidence to the contrary, the accounting
entity is viewed as continuing in operation indefinitely
 FS are normally prepared on the assumption that the
entity will continue in operations for the foreseeable
future
Accounting Entity (Economic Entity)
 the specific business organizations (e.g. proprietorship,
partnership, or corporation)
 the entity is separate from the owners, managers, and
employees
 to have a fair presentation of FS
 each business in an independent accounting entity
Time Period
 Fiscal Year – one year or a period of 12 months
 Calendar Year – 12-month period that ends on Dec. 31
 Natural Business Year – 12-month period that ends on
any month when the business is at the lowest
  the residual interest in the assets of the entity after
deducting all its liabilities
Monetary Unit

 Quantifiability – accounts should be stated in terms of a

unit of measure which is the Ph Peso
 Stability of the Peso – the purchasing power of the peso is
stable or constant

Chapter 5: Conceptual Framework Income

Elements of Financial Elements  increases in assets or decreases in liabilities that result in

increases in equity
 Revenue – arises bin the course of the ordinary regular
activities (regularity)
Elements of Balance Sheet  Gains – do not arise in the course of the ordinary regular
a. Asset activities
b. Liability
c. Equity
Expense
Elements of Income Statement
 decreases in assets or increases in liabilities that results in
a. Income
decreases in equity
b. Expense
 encompasses losses as well as those expenses that arise in
the course of the ordinary regular activities
 Losses – do not arise in the course of the ordinary regular
Asset activities and include losses resulting from disasters
 a present economic resource controlled by the entity as a
result of past events
Chapter 6: Conceptual Framework
Economic Resource
Recognition and Measurement
 a right that has potential to produce economic benefits
Right
Recognition
1. Rights that corresponds to an obligation of another entity
(e.g. right to receive cash, goods or services)  the process of capturing for inclusion in the FS an item
2. Rights that don’t correspond to an obligation of another that meets the definition of an asset, liability, equity,
entity (e.g. right over physical objects and intellectual income, or expense
property)  Carrying Amount – amount at which an asset, liability or
3. Rights established by contract or legislation (e.g. owning equity is recognized in the balance sheet
a debt and equity instrument)
Point of Sale (POS) Income Recognition
Control of an Economic Resource
 income shall be recognized when earned
 if it has present ability to direct the use of the asset and
obtain the economic benefits that flow from it Expense Recognition
 arise if an entity enforces legal rights  expenses are recognized when incurred
Matching Principles
Liability 1. Cause and Effect Association
 present obligation of an entity to transfer an economic  expense is recognized when the revenue is already
resource as a result of past events recognized
Obligation  the matching of cost with revenue

 a duty or responsibility that an entity has no practical 2. Systematic and Rational Allocation
ability to avoid  some costs are expense by simply allocating them over
 Legal Obligations – consequence of a binding contract the periods benefited
 Constructive Obligations – arise from normal business
practice, custom, and a desire to maintain good business 3. Immediate Recognition
relations
 cost incurred is expensed outright because of uncertainty
Transfers of an Economic Resource of future economic benefits

 obligation to pay cash, or to deliver goods

Past Event Derecognition

 already obtained economic benefits
 must transfer an economic resource
Equity
 the removal of all or part of a recognized asset or liability
from the balance sheet
 Derecognition of Asset – occurs when the entity loses
control pf all or part of the asset
 Derecognition of Liability – occurs when the entity no
longer has a present obligation for all or part of the
liability
Measurement
 quantifying in monetary terms the elements in the FS
Historical Cost (Original Acquisition Cost)
 the entry price or entry value to acquire an asset or a
liability
 Asset – the cost incurred in acquiring or creating the asset
comprising the consideration paid plus transaction cost
 Liability – the consideration received to incur the liability
minus transaction cost
 Amortized Cost – measurement for financial asset and
financial liability
Current Value;
1. Fair Value
 an exit price or exit value
 not adjusted for transaction cost
 Asset – the price that would be received to sell an asset in
an orderly transaction between market participants at
measurement date
 Liability – the price that would pay to transfer a liability
 PV of Cash Flows – can be use if FV cannot be measured
2. Value in Use
 PV of the cash flows that an entity expects to derive from
these of an asset and from ultimate disposal
 does not include transaction cost on acquiring the asset
but includes transaction cost on disposal of the asset
 an exit price or exit value
3. Fulfillment Value
 PV of cash that an entity expects to transfer in paying or
settling a liability
 does not include transaction cost on incurring a liability
but includes transaction cost on fulfillment of a liability
 an exit price or exit value
4. Current Cost
 like historical cost, it is based on the entry price or entry
value but reflects market conditions on measurement date
 Asset – the cost of an equivalent asset at the measurement
date comprising the consideration paid and transaction
cost
 Liability – the consideration that would be received less
any transaction cost at measurement date
Chapter 7: Conceptual Framework
Presentation and Disclosure
Concepts of Capital
Presentation and Disclosure
 an effective communication tool about the FS
Effective Communication
 makes the information more relevant and contributes to a
faithful representation of an entity’s accounts
 enhances the understandability and comparability of
information in the FS
 is supported by not duplicating information in different
parts of the FS
Classification
 sorting of assets, liabilities, equity, income, and expenses
on the basis of shared or similar characteristics
 Income and Expenses – classified as components of P/L
and OCI
 Statement of Financial Performance – P/L together with
the OCI
Aggregation
 adding together of assets, liabilities, equity, income, and
expenses that have similar or shared characteristics
 makes information more useful by summarizing a large
volume of detail (e.g. balance sheet and income statement
without schedule notes)
Capital Maintenance
 Transaction Approach – the traditional preparation of an
income statements
 Capital Maintenance – net income occurs only after the
capital used from the beginning of the period is
maintained
 Return on Capital – excess of investors’ original
investment
 Return of Capital – an erosion of the capital invested in
the entity
Financial Capital
 synonymous with net assets or equity of the entity such as
invested money or invested purchasing power
 the monetary amount of the net assets contributed by
shareholders
 the traditional concept based on historical cost
 Net Income – occurs when the nominal amount of the net
assets at the end of the year exceeds the beginning of the
period, after excluding distributions to and contributions
by owners during the period (Net Asset Approach)
 Net Assets – (Total Assets – Total Liabilities)
Physical Capital
 the quantitative measure of the physical productive
capacity to produce goods and services
 requires that productive assets be measured at current
cost, rather than historical cost
 equal to the net assets of the entity expressed in terms of
current cost
 Productive Assets – inventories and PPE
 Net Income – occurs when the physical productive capital
of the entity at the end of the year exceeds the physical
productive capital at the beginning of the period. also,
after excluding distributions to and contributions by
owners during the period
Chapter 8: Presentation of Financial Statements
Statement of Financial Position PAS 1 Noncurrent Assets (PAS 1, par. 66)

 is a residual definition of CA
Financial Statements Property, Plant and Equipment
 the means by which the information accumulated and  tangible assets which are held by an entity for use in
processed in financial accounting and is periodically production or supply of goods and services, for rental to
communicated to the users others, or for administrative purposes, and are expected to
e used during more than one period
 PPE, except Land – (Cost – Accumulated Depreciation)
a. Land
b. Building
c. Machinery
d. Equipment
e. Furniture and Fixtures
Components of FS f. Others

1. Statement of Financial Position Long-term Investments

2. Income Statement  an asset held by an entity for the accretion (growth) of
3. Statement of Comprehensive Income wealth through capital distribution such as interest,
4. Statement of Changes in Equity royalties, dividends and rentals, for capital appreciation or
5. Statement of Cash Flows for other benefits to the investing entity such as those
6. Notes to FS obtained through trading relationship
Objective of FS Intangible Assets
 to provide information about the financial position,  an identifiable nonmonetary asset without physical
financial performance, and cash flows of an entity that is substance
useful to a wide range of users in making economic a. Patent
decisions b. Franchise
Frequency of Reporting c. Copyright
d. Lease Right
 shall be presented at least annually e. Trademark
f. Computer Software
 Unidentifiable Intangible Asset – Goodwill
Statement of Financial Position Other Noncurrent Assets
 a formal statement showing the 3 elements comprising  assets that do not fit into the definition of NCA
financial position, namely assets, liabilities, and equity a. Long-term Advances to Officers, Directors,
 to evaluate such factors as liquidity, solvency, and the Shareholders, and Employees
need of the entity for additional financing b. Abandoned Property
c. Long-term Refundable Deposit

Asset
 an economic resource controlled by an entity as a result of
past event
 Economic Resource – a right that has potential to produce
economic benefits
 Classification – current and noncurrent
 Operating Cycle – the time between the acquisition of
assets for processing and their realization in cash or cash
equivalents
Liability
 a present obligation of an entity to transfer an economic
resource as a result of past event
 Obligation – a duty or responsibility that an entity has no
practical ability to avoid (Legal or Constructive)
 Classification – current and noncurrent
Current Liabilities (PAS 1, par. 69)

Current Assets (PAS 1, par. 66); a. expects to settle the liability within the entity’s normal
operating cycle
a. cash or cash equivalent unless the asset is restricted to b. holds the liability primarily for the purpose of yarding
settle a liability for more than 12 months after reporting c. due to be settled within 12 months after the reporting
period period
b. holds the asset primarily for the purpose of trading d. does not have an unconditional right to defer settlement of
c. expects to realize the asset within 12 months after the the liability for at least 12 months after the reporting
reporting period period
d. expects to realize the asset or intends to sell or consume it
within the entity’s normal operating cycle Presentation of CL (PAS 1, par. 54)

Presentation of CA (PAS 1, par. 54) a. Trade and Other Payables;

 Accounts Payable
a. Cash and Cash Equivalents  Notes Payable
b. Financial Assets at FV such as Trading Securities and  Accrued Interest on Note Payable
other investments in quoted Equity Instruments  Dividends Payable
c. Trades and Other Receivables  Accrued Expenses
d. Inventories b. Current Provisions
e. Prepaid Expenses c. Short-term Borrowing
d. Current Portion of Long-term Debt
e. Current Tax Liability
Noncurrent Liabilities a. Report Form – downward sequence of assets, liabilities,
and equity
 also, a residual definition of CL b. Account Form – assets are shown on the left side and the
a. Noncurrent Portion of Long-term Debt liabilities and equity on the right side
b. Finance Lease Liability
c. Deferred Tax Liability
d. Long-term Obligations to company Officers
e. Long-term Deferred Revenue
Currently Maturing Long-term Debt

 Current – if refinance or reschedule of payment is

completed after the reporting period and before the FS are
authorized for issue
 Noncurrent – if refinancing is completed on or before the
end of the reporting period

Discretion to Refinance
Chapter 9: Presentation of Financial Statements
 Noncurrent – if the refinancing or rolling-over is at the
Statements of Comprehensive Income PAS 1
discretion (caution) of the entity
 Current - if the refinancing or rolling-over is not at the
discretion (caution) of the entity
Income Statement
Covenants
 a formal statement showing the financial performance of
 restriction on the borrower (conditions) as to undertaking an entity for a given period of time
further borrowings, paying dividends, maintaining  level of income earned by the entity
specified level of working capital and so forth  also known as the results of operations of the entity
 if conditions relating to the borrower’s financial situation  Transaction Approach – traditional preparation of the
are breached, the liability becomes payable on demand income statement in conformity with accounting
Effect of Breach of Covenants standards
Comprehensive Income
 Current – even if the lender has agreed after the reporting
period and before the statements are authorized for issue,  change in equity during a period resulting from
not to demand payment as a consequence of the breach transactions and other events, other than changes in
 Noncurrent – if the lender ahs agreed on or before the end resulting from transactions with owners in their capacity
of reporting period as owners
a. Components of Profit & Loss
b. Components of Other Comprehensive Income
Equity
Profit or Loss
 residual interest in the assets of the entity after deducting
 (Total Income – Expenses) excluding the OCI
all its liabilities
 bottom line in traditional income statement
 (“Net Assets” or Total Assets – Total Liabilities)
a. Owner’s Equity (Proprietorship) Other Comprehensive Income
b. Partners’ Equity (Partnership)
c. Stockholders’ or Shareholders’ Equity (Corporation)  items of income and expenses including reclassification
adjustments that are not recognized in P/L as required or
Philippine Term IAS Term permitted by PFRS
Capital Stock Share Capital 1. Unrealized Gain or Loss on Equity Investment
Subscribed Capital Stock Subscribed Share Capital measured at FVOCI – Retained Earnings
Preferred Stock Preference Share Capital 2. Unrealized Gain or Loss on Debt Investment
Common Stock Ordinary Share Capital measured at FVOCI – P/L
Additional Paid Capital Share Premium 3. Gain or Loss from translation of the FS of a Foreign
Retained earnings (Deficit) Accumulated Profits (Losses) Operation – P/L
Retained Earnings Appropriation Reserve 4. Revaluation Surplus during the year – Retained
Appropriated Earnings
Revaluation Surplus Revaluation Reserve 5. Unrealized Gain or Loss from Derivative Contracts
Treasury Stock Treasury Share designated as Cash Flow Hedge – P/L
6. Remeasurements of Defined Benefit Plan, including
Actuarial Gain or Loss – Retained Earnings
Notes to FS 7. Chance in FV attributable to credit risk of a financial
liability designated at FV thru P/L – Retained
 provide narrative description of items presented in the FS Earnings
and information about items that do not qualify for
recognition Presentation of OCI (PAS 1, par. 82A)
 used to report information that doesn’t fit into the body of
the FS in order to enhance the understandability  shall present line items for amounts of OCI during the
 to provide the necessary disclosures required by PFRS period classified by nature
a. OCI that will be reclassified subsequently to P/L
when specific conditions are met
b. OCI that will not be reclassified subsequently to P/L
Forms of Balance Sheet but to Retained Earnings
Presentation of Comprehensive Income f. Depreciation of Delivery Equipment and Store
Equipment
1. Two Statements
a. Income Statement
b. Statement of Comprehensive Income
2. Single Statement of Comprehensive Income 3. Administrative Expenses
a. Statement of Financial Performance
 constitute cost of administering the business
Sources of Income  include all operating expenses not related to selling and
goods sold
1. Sales of Merchandise to Customers a. Doubtful Accounts
2. Rendering of Services b. Office Salaries
3. Use of Entity Resources c. Expenses of General Executives
4. Disposal of Resources other than products d. Expenses of General Accounting and Credit Dept.
e. Office Supplies Used
f. Certain Taxes
g. Contribution
h. Professional Fees
i. Depreciation of Office Building and Office
Equipment
j. Amortization of Intangible Assets
Components of Expense

1. Cost of Goods Sold or Cost of Sales 4. Other Expenses

Merchandising Concern  expenses which are not directly related to the selling and
administrative function
Beginning Inventory xxx a. Loss on Sale of Trading Investments
Net Purchases * xxx b. Loss on Disposal of PPE
Goods Available for Sale xxx c. Loss on Sale of Noncurrent Investment
Ending Inventory ( xxx ) d. Casualty Loss – Flood, Earthquake, and Fire
Cost of Goods Sold xxx

* Gross Purchases xxx 5. Income Tax Expense

Freight In xxx
Total xxx  a component that features on the income statement under
Purchase Returns, Allowances and ( xxx ) the heading of 'other expenses '
Discounts  it is a type of liability on the business or an individual
Net Purchases xxx  it is a tax levied by the government on a business's
earnings and an individual's income.

Manufacturing Concern Forms of Income Statement

a. Functional Presentation
Beginning Raw Materials xxx  classifies expenses according to their function as part of
Net Purchases xxx COGS, Distribution Costs, Administrative Expenses and
Raw Materials Available for Use xxx Other Expenses
Ending Raw Materials ( xxx )  also known as the COGS Method
Raw Materials Used xxx b. Natural Presentation
Direct Labor xxx  referred to as the nature of Expense Method
Factory Overhead xxx
 expenses are grouped or aggregated and presented as one
Total Manufacturing Cost xxx item
Beginning Goods in Process xxx
Total Cost of Goods in Process xxx
Ending Goods in Process ( xxx )
Cost of Goods Manufactured xxx Statement of Retained Earnings
Beginning Finished Goods xxx
 shows the changes affecting directly the retained earnings
Goods Available for Sale xxx of an entity and relate the IS to Balance Sheet
Ending Finished Goods ( xxx ) a. P/L for the period
Cost of Goods Sold xxx b. Prior Period Errors
c. Dividends Declared and Paid to Shareholders
d. Effect of Change in Accounting Policy
2. Distribution Cost or Selling Expense e. Appropriation of Retained Earnings

 constitute costs which are directly related to selling,

advertising, and delivery of goods to customers Statement of Changes in Equity
a. Salesmen’s Salaries
b. Salesmen’s commissions  shows the movements in the elements or components of
c. Travelling and Marketing Expense the shareholders’ equity
d. Advertising and Publicity a. Comprehensive Income for the Period
e. Freight Out
 b. Effects of Changes in Accounting Policies and f. cash payments or refunds of income taxes unless
Correction of Errors specifically identified with financing and investing
c. Reconciliation between the Carrying Amount at the activities
beginning and end of the period, separately g. cash receipts and cash payments for securities for
disclosing changes from: trading
 P/L
 Each Item of OCI Trading Securities
 Transactions with Owners in their Capacity as
 cashflows arising from the purchase and sale of dealing or
Owners showing separately Contributions by and
TS are operating activities
Distributions to Owners
 cash advances and loans made by financial institution are
operating activities

Investing Activities

 derived from the acquisition and disposal of long-term

 include cash flows transactions involving nonoperating
Chapter 10: Statement of Cash Flows
Statement of Cash Flows
 summarizing the operating, investing, and financing
activities of an entity
 provides about cash receipts and cash payments
 Classification – inflows and cash payments of cash and
cash equivalents
assets and other investments not included in cash
equivalent
assets
a. cash payments to acquire PPE, intangibles and other
long-term assets
b. cash payments from sales of PPE, intangibles and
other long-term assets
c. cash payments to acquire equity or debt instruments
of other entities
d. cash receipts from sales of equity or debt instruments
of other entities
e. cash advances and loans to other parties other than
advances and loans made by financial institution
f. cash receipts from repayment of advances and loans
made to other parties
g. cash payments for future, forward, option, and swap
contract
h. cash receipts from future, forward, option, and swap
contract

Cash and Cash Equivalents;

Financing Activities
Cash
 derived from the equity capital and borrowings of the
 Cash on Hand entity
 Demand Deposits  Equity Financing – between entity and the owners
 Debt Financing – between entity and the creditors
Cash Equivalents  include the cash flows from transactions involving
nontrade liabilities and equity of an entity
 short-term highly liquid investments that are readily
a. cash receipts from issuance of ordinary and
convertible to known amount of cash and which are
preference shares
subject to an insignificant risk of change in value
b. cash payments to acquire treasury shares
 has a short maturity of 3 months or less from date of
c. cash receipts from issuing debentures, loans, notes,
acquisition
bonds, mortgages, and other short or long-term
a. 3-month BSP Treasury Bill
borrowings
b. 3-year BSP Treasury Bill purchased 3 months before
d. cash payments for amounts borrowed
date of maturity
e. cash payments by a lessee for the reduction of the
c. 3-month Time Deposit
outstanding principal lease liability
d. 3-month Money Market Instrument or Commercial
Paper *cash payments to settle such obligations as trade
accounts and notes payable, income tax payable, accrued
expenses are operating, not financing
Operating Activities

 derived primarily from the principal revenue producing Noncash Transactions

activities of the entity
 result from transactions and other events that enter into
the determination of net income/loss
a. cash receipts from sale of goods and rendering
service
b. cash receipts from royalties, rental, fees, commission
c. cash payments to suppliers for goods and services
d. cash payments for selling, administrative and other
expenses
e. cash receipts and cash payments of an insurance
entity for premiums and claims. annuities, ang other
policy benefits
 investing and financing transactions that do not require
use of cash or cash equivalents shall be excluded from the
SCF
 SCF is strictly a cash concept
a. acquisition of assets by assuming directly related
liability
b. acquisition of assets by issuing share capital
c. acquisition of assets by issuing bonds payable
d. conversion of bonds payable into share capital
e. conversion of preference shares into ordinary shares
Interest

 Interest Paid – Financing if it is a cost of obtaining

financial resources
 Interest Received – Investing if it is a Return on
Investment (ROI)
 Both – Operating if it is for financial institution
Dividends

 Dividend Received – Operating if it enters the

determination of net income
 Dividend Received – Investing if it is a ROI
 Dividend Paid – Financing if it is a cost of obtaining
financial resources
 Dividend Paid – Operating if to assist users to determine
the ability of the entity to pay dividends
Income Taxes

 shall be separately disclosed as cash flows from operating

unless they can be specifically identified with investing
and financing