Accounting

Accounting - The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.

Accountable Event - An event that affects the assets, liabilities, equity, income, or expenses of an entity. Also known as economic activity.

Recognition - The process of including the effects of an accountable event in the statement of financial position or the statement of comprehensive income through a journal entry.

External Events - Events that involve an entity and another external party.

Exchange - A reciprocal transfer of economic resources or discharging of economic obligations between an entity and an external party.

Non-reciprocal Transfer - A "one-way" transaction where the party giving something does not receive anything in return.

External Event Other Than Transfer - An event that involves changes in the economic resources or obligations of an entity caused by an external party or external source but does not involve transfers of resources or obligations.

Internal Events - Events that do not involve an external party.

Production - The process by which resources are transformed into finished goods.

Casualty - An unanticipated loss from disasters or other similar events.

Measuring - Assigning numbers, normally in monetary terms, to the economic transactions and events.

Historical Cost - The value of an asset determined on the basis of acquisition cost.

Valuation by Fact - When measurement is unaffected by estimates.

Valuation by Opinion - When measurement is affected by estimates.

Communicating - Transforming economic data into useful accounting information, such as financial statements and other accounting reports, for dissemination to users.

Recording - Systematically committing into writing the identified and measured accountable events in the journal through journal entries.

Classifying - Grouping similar and interrelated items into their respective classes through postings in the ledger.

Summarizing - Putting together or expressing in condensed form the recorded and classified transactions and events.

Basic Purpose of Accounting - To provide information that is useful in making economic decisions.

Economic Entity - A separately identifiable combination of persons and property that uses or controls economic resources to achieve certain goals or objectives.

Not-for-profit Entity - An entity that carries out socially desirable needs of the community or its members and whose activities are not directed towards making profit.

Business Entity - An entity that operates primarily for profit.

Economic Activities - Activities that affect the economic resources (assets) and obligations (liabilities), and consequently, the equity of an economic entity.

Quantitative Information - Information expressed in numbers, quantities, or units.

Qualitative Information - Information expressed in words or descriptive form.

Financial Information - Information expressed in money.

General Purpose Accounting Information - Designed to meet the common needs of most statement users.

Special Purpose Accounting Information - Designed to meet the specific needs of particular statement users.

Going Concern Assumption - The entity is assumed to carry on its operations for an indefinite period of time.

Separate Entity Concept - The entity is viewed separately from its owners.

Stable Monetary Unit Assumption - Assets, liabilities, equity, income, and expenses are stated in terms of a common unit of measure.

Time Period Concept - The life of the entity is divided into series of reporting periods.

Materiality Concept - Information is material if its omission or misstatement could influence economic decisions.

Cost-Benefit Concept - The cost of processing and communicating information should not exceed the benefits to be derived from it.

Accrual Basis of Accounting - The effects of transactions and other events are recognized when they occur (and not as cash is received or paid).

Matching Concept - Costs are recognized as expenses when the related revenue is recognized.

Entity Theory - The accounting objective is geared towards proper income determination.

Proprietary Theory - The accounting objective is geared towards the proper valuation of assets.

Residual Equity Theory - This theory is applicable when there are two classes of shares issued (ordinary and preferred).

Fund Theory - The accounting objective is neither proper income determination nor proper valuation of assets but the custody and administration of funds.

Realization - The process of converting non-cash assets into cash or claims for cash.

Prudence - The use of caution when making estimates under conditions of uncertainty.

Matching Concept (Direct Association of Costs and Revenues) - Costs that are directly related to the earning of revenue are recognized as expenses in the same period the related revenue is recognized.

Systematic and Rational Allocation - Costs that are not directly related to the earning of revenue are initially recognized as assets and recognized as expenses over the periods their economic benefits are consumed.

Immediate Recognition - Costs that do not meet the definition of an asset, or ceases to meet the definition of an asset, are expensed immediately.

Financial Accounting - The branch of accounting that focuses on general purpose financial statements.

General Purpose Financial Statements - Statements that cater to the common needs of external users, primarily the potential and existing investors, and lenders and other creditors.

Philippine Financial Reporting Standards (PFRSs) - Represent the generally accepted accounting principles (GAAP) in the Philippines.

Financial Reporting - The provision of financial information about an entity that is useful to external users in making investment and credit decisions.

Primary Objective of Financial Reporting - To provide information about an entity's economic resources, claims to those resources, and changes in those resources.

Secondary Objective of Financial Reporting - To provide information useful in assessing the entity's management stewardship.

Bookkeeping - The process of recording the accounts or transactions of an entity.

Accountancy - The profession or practice of accounting.

Public Practice - The rendering of audit or accounting related services to more than one client on a fee basis.

Private Practice - Employment in the private sector in a position which involves decision making requiring professional knowledge in the science of accounting.

Practice in Commerce and Industry - Employment in the private sector in a position which involves decision making requiring professional knowledge in the science of accounting.

Practice in Education/Academe - Employment in an educational institution which involves teaching of accounting, auditing, management advisory services, finance, business law, taxation, and other technically related subjects.

Practice in the Government - Employment or appointment to a position in an accounting professional group in the government or in a government-owned and/or controlled corporation.

Generally Accepted Accounting Principles (GAAP) - The common set of accounting principles, standards, and procedures that companies use to compile their financial statements.

Hierarchy of Reporting Standards - The order in which an entity considers different sources of guidance when selecting its accounting policies.

Financial Reporting Standards Council (FRSC) - The official accounting standard setting body in the Philippines.

Philippine Interpretations Committee (PIC) - A committee formed by the Accounting Standards Council (ASC) with the role of reviewing the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) for approval and adoption by the FRSC.

Board of Accountancy (BOA) - The professional regulatory board created under R.A. No. 9298 to supervise the registration, licensure, and practice of accountancy in the Philippines.

Securities and Exchange Commission (SEC) - The government agency tasked in regulating corporations and partnerships, capital and investment markets, and the investing public.

Bureau of Internal Revenue (BIR) - Administers the provisions of the National Internal Revenue Code.

Bangko Sentral ng Pilipinas (BSP) - Influences the selection and application of accounting policies by banks and other entities performing banking functions.

Cooperative Development Authority (CDA) - Influences the selection and application of accounting policies by cooperatives.

International Accounting Standards Board (IASB) - The standard-setting body of the IFRS Foundation with the main objectives of developing and promoting global accounting standards.

International Financial Reporting Standards (IFRSs) - Standards issued by the IASB.

International Accounting Standards (IASs) - Standards issued by the IASC which were adopted by the IASB.

International Financial Reporting Interpretations Committee (IFRIC) - A committee that prepares interpretations of how specific issues should be accounted for under the application of IFRS.

IFRS Advisory Council - A group of organizations and individuals with an interest in international financial reporting.

International Federation of Accountants (IFAC) - A nonprofit, non-governmental, non-political organization of accountancy bodies that represents the worldwide accountancy profession.

International Organization of Securities Commissions (IOSCO) - An international body of security commissions.

Norwalk Agreement - A memorandum of understanding entered into by FASB and the IASB in October 2002.

Cookie Jar Reserve - A form of fraudulent reporting wherein during periods of high profits, liabilities are overstated through excessive provisions of expenses or non-recognition of income.

Hidden Reserve - A form of fraudulent reporting wherein liabilities are overstated to create a reserve that can be reversed to income in subsequent periods.