MODULE 2 - ACCOUNTING CONCEPTS AND PRINCIPLES Flashcards
and PFRS for Small and Medium-sized Entities
Philippine Financial Reporting Standards (PFRS)
the authoritative body that establishes and promulgates GAAP and standards in the Philippines
Financial Reporting Standards Council (FRSC
Its main objective is to create a semblance of uniformity in the accounting practices among the different nations of the world.
International Accounting Standards Board (IASB)
reporting standards carried out by the IASB.
International Financial Reporting Standards
the amount of profit or loss is determined by deducting the total expenses incurred (whether they are already paid for or not) during the period from the total income earned (whether they are collected or not) for the same time frame.
Accrual Basis
under this assumption, also known as continuity assumption, the primary financial statements of a business enterprise are prepared on the assumption that the normal operations of the enterprise will continue indefinitely.
Going Concern Assumption
assumes that the business and its owner are separate and distinct entities.
Business Entity Principle
the assumption that the operating life of the business may be divided into time-periods
Periodicity Concept
for every value received, there is an equal value given up.
Concept of Equality of the Value Received and Value Given Up
the assumption that the business transactions can be objectively measured or quantified in terms of “peso”
Monetary Concept
the assumption that the results of business operations could be measured if there is a proper matching of income and expenses within a reporting period.
Matching Concept
Financial information possesses the quality of relevance when its knowledge can make a difference in whatever decisions the data-users will make. Financial information is considered relevant if it has:
Relevance
exists if the reported information could be used to assess the outcome of the past activities and transactions.
Feedback Value
exists if this could be used as a basis for forecasting what may happen in the future.
Predictive Value
allows the data-users to assess the similarities and differences either for the same enterprise over different time periods or among different enterprises for the same period of time.
Comparability
using the same procedures, systems, and methods from one period to another.
Consistency
using the same procedures, systems, and methods from one period to another.
Consistency
n item of information is deemed material if it is important enough to have an effect on the data-user’s decision-making process.
depends on its relative size, its nature, the precision with which it can be estimated, and how large the business enterprise is
Materiality
exists if repeating the method by different independent accountants will obtain basically the same results.
Verifiability
Financial information is considered reliable if it is verifiable, neutral, and if it represents that which it intends to represent.
Reliability
exists when financial information is not biased.
faithful Representation
exists if the accountant did not use the measurement method properly or if the reported information is consistently too high or too low in order to intentionally favor certain interest groups.
Bias
exists when the recognition and measurement of the reported financial information are not intended to favor only a certain chosen group of decision-makers or data-users.
Neutrality
having financial information available to decision makers to be capable in influencing their decisions.
Timeliness
