CHAPTER 1 - INTRO TO FINANCIAL ACCTING

• Accounting is the art of recording, classifying and summarizing in terms of money, transactions and events. 

• Primary Users - uses financial information for investment and lending purposes; main providers of funds to an entity

• Investors - buy, hold or sell their stakes

• Lenders/Creditors - if an entity will be able to pay off its debts

• Government - through BIR, determines whether an entity is paying the correct amount of tax. 

MANAGERIAL vs. FINANCIAL

• Managerial Accounting - focuses on needs of other users

  • Management accounting: produce reports and provide information inside the company, produced as needed.

  • More flexible

• Financial Accounting - answers needs of primary users

  • Produce general financial statements

  • Follow guidelines set by the IASB. PHIL - we use PRFS promulgated by the PRFSC

CONCEPTUAL FRAMEWORK (IFRS):

• Fundamental Characteristics

  • Relevance: capable of making a difference in decisions made by a user

  • Faithful Representation: complete, neutral and free from material error

• Enhancing Characteristics 

  • Comparability: similarities and differences

  • Consistency: same method for same items

  • Verifiability: observers could reach a consensus

  • TImeliness: having information promptly that influences their decisions

  • Understandable: characterized, classified and presented clearly and concisely. 

Underlying Assumption:

• Going-concern - entity will continue in operation for a foreseeable future.

• Accrual basis - effects of transactions and other events are recognized when they occur not when cash is received or paid

FINANCIAL STATEMENTS: 

• SFP (end of period) - assets, liabilities, and equity (A = L + E)

• SPL/SOCI (for the period) - income, expense, gains, losses

• SCE (for the period) - changes in net assets

• SCF (for the period) - cash and cash equivalents

• Notes - narrative descriptions. Disaggregation of items

ELEMENTS & PERFORMANCE

ELEMENTS OF FINANCIAL STATEMENTS:

• Assets: resource controlled by an entity

• Liabilities: present obligation 

• Equity: residual interest in an entity’s assets after deducting liabilities

FINANCIAL PERFROMANCE:

• Income: increase in assets/ decrease in liabilities

  • Revenues (arise from ordinary activities) and gains 

• Expenses: depletion of assets/Incurrence of liabilities