Financial Accounting and Reporting (FAR) - Concept Notes

Vocabulary practice flashcards covering the Accountancy Profession, Standard-Setting Bodies, Accounting Process, and the Revised Conceptual Framework based on CPALE concept notes.

Accounting (AAA Definition)

The process of identifying, measuring, and communicating economic information to permit informed judgment and decision by users of the information.

Identifying Phase

The analytical component of accounting that involves analyzing events to determine whether they are accountable (recognized) or non-accountable (disclosed if with accounting relevance).

Measuring Phase

The technical component of accounting that involves determining the monetary amounts at which accounts are to be recognized and carried in the financial statements.

Communicating Phase

The formal component of accounting that involves preparing and distributing accounting reports to users, including recording, classifying, and summarizing.

Professional Regulatory Board of Accountancy (PR-BOA)

The body authorized by law to promulgate the rules and regulations of RA 9298 (PH Accountancy Act of 2004), consisting of $1$ chairman and $6$ members appointed by the PH President.

Philippine Financial Reporting Standards (PFRS)

Principle-based guiding principles in financial statement preparation setting out requirements for recognition, measurement, presentation, and disclosures in general-purpose financial statements for profit-oriented entities.

Financial and Sustainability Reporting Standards Council (FSRSC)

The current standard-setting body in the Philippines that pronounces PFRS and serves as the successor to the Accounting Standards Council (ASC).

Philippine Interpretations Committee (PIC)

A committee created by the FSRSC to issue interpretations giving authoritative guidance on accounting issues likely to receive divergent or unacceptable treatment.

International Accounting Standards Board (IASB)

The body of $16$ members appointed by the IFRS Foundation Trustees that prepares and issues International Financial Reporting Standards (IFRS).

IFRS Interpretations Committee (IFRIC)

A committee appointed by the trustees that interprets existing standards and develops IFRICs for approval and issuance by the IASB.

General Journal

A type of journal used for recording non-routine or non-repetitive transactions.

Special Journal

A type of journal used for recording repetitive transactions, including Sales, Purchases, Cash Receipts, and Cash Disbursements Journals.

Permanent (Real) Accounts

Accounts that are not closed at year-end, which include balance sheet accounts and valuation accounts (adjunct and contra accounts).

Temporary (Nominal) Accounts

Income statement accounts and drawings that are closed at every year-end.

Transplacement

An accounting recording error where digits are shifted by place value (e.g., recording $1,000$ as $10,000$).

Transposition

An accounting recording error where the order of digits is inadvertently reversed or swapped (e.g., recording $1,234$ as $1,243$).

Accruals

Adjusting entries representing late cash flows where revenue is earned or expense is incurred before cash is received or paid.

Deferrals

Adjusting entries representing early cash flows where cash is received or paid before revenue is earned or expense is incurred.

Income Method (Deferred Income)

An accounting method where cash received in advance is initially credited to an income account, requiring an adjusting entry at year-end for the unearned portion.

Liability Method (Deferred Income)

An accounting method where cash received in advance is initially credited to an unearned income liability account, requiring an adjusting entry at year-end for the earned portion.

Asset Method (Deferred Expense)

An accounting method where cash paid in advance is initially debited to a prepaid expense asset account, requiring an adjusting entry at year-end for the expired portion.

Expense Method (Deferred Expense)

An accounting method where cash paid in advance is initially debited to an expense account, requiring an adjusting entry at year-end for the unexpired portion.

Reversing Entries

Optional entries made at the beginning of a succeeding year to reverse specific adjusting entries, permitted for all accruals, deferred income under the income method, and deferred expense under the expense method.

Going Concern

The underlying assumption of the Conceptual Framework assuming that an entity will continue operating for the foreseeable future.

Relevance

A fundamental qualitative characteristic of financial information describing its capability of making a difference in user decisions through predictive value, confirmatory value, or both.

Faithful Representation

A fundamental qualitative characteristic requiring financial information to be a complete, neutral, and free from error depiction of economic phenomena.

Verifiability

An enhancing qualitative characteristic that implies different knowledgeable and independent observers could reach consensus regarding the faithful representation of a depiction.

Comparability

An enhancing qualitative characteristic that enables users to identify and understand similarities in, and differences among, items across entities.

Consistency

The use of the same methods for the same items across periods or across entities, serving as the primary means to achieve comparability.

Timeliness

An enhancing qualitative characteristic requiring information to be available to decision-makers early enough to be capable of influencing their decisions.

Understandability

An enhancing qualitative characteristic requiring information to be classified, characterized, and presented clearly for users with reasonable knowledge of business and economic activities.

Consolidated Financial Statements

Financial statements where a parent entity and its subsidiaries are presented and reported as a single reporting entity.

Asset

A present economic resource (a right that has potential to produce economic benefits) controlled by the entity as a result of a past event.

Liabilities

A present obligation of the entity (with no practical ability to avoid) to transfer an economic resource as a result of a past event.

Equity

The residual interest in the assets of the entity after deducting all of its liabilities.

Historical Cost

A measurement basis representing the transaction price at the time of initial recognition.

Fair Value

A current value measurement defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Value in Use (VIU)

The present value of the cash flows expected to be derived from the use and ultimate disposal of an asset.

Current Cost

The cost of an equivalent asset at the measurement date, comprising the consideration paid plus any transaction costs.

Fulfillment Value

The present value of cash flows (discounted amount) expected to be required for the payment or settlement of a liability.

Financial Capital

A concept of capital defined in terms of invested money or invested purchasing power, measured at historical cost.

Physical Capital

A concept of capital defined in terms of the entity's productive capacity, measured at current cost.