Basics

Meaning of Accounting

Art of recording classifying summarizing and interpreting financial information

Purpose of Accounting

Provides useful relevant reliable and comparable information for decision making

Primary Users of Financial Information

Investors and creditors

Other Users of Financial Information

Management government employees suppliers customers and the public

Needs of Primary Users

Profitability liquidity solvency cash flows and financial position

Conceptual Framework

Foundation that guides preparation of financial statements and resolution of accounting issues

Purpose of the Conceptual Framework

Helps develop standards guides accountants and assists users in understanding financial statements

Fundamental Qualitative Characteristics

Relevance and faithful representation

Relevance

Information with predictive value or confirmatory value

Faithful Representation

Information that is complete neutral and free from error

Enhancing Qualitative Characteristics

Comparability verifiability timeliness and understandability

Elements of Financial Statements

Assets liabilities equity income and expenses

Asset

Present resource controlled by the entity

Liability

Present obligation of the entity

Equity

Residual interest in assets after deducting liabilities

Income

Increase in economic benefits

Expenses

Decrease in economic benefits

Recognition Criteria

Item must be probable and capable of reliable measurement

Measurement Bases

Historical cost fair value current cost and present value

Underlying Assumptions

Accrual basis and going concern

Accounting Standards

Specific rules that apply the conceptual framework

Types of Accounting Standards

PFRS PAS and interpretations

Purpose of Accounting Standards

Promotes comparability consistency transparency and credibility of financial reporting

International Standard Setter

IASB

Philippine Standard Setter

FRSC

Philippine Interpretations Committee

PIC issues interpretations when needed

Hierarchy of Application

Standards first conceptual framework second

Objective of Financial Reporting

Provide information to assess cash flows financial performance and financial position