BASIC CONCEPTS, CONVENTION AND PRINCIPLES

Prepared by May Anne M. Arabit, CPA PSBA - Manila

Accounting Concept
are important assumptions or ideas which accountants observe in recording business transactions.

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Accounting Conventions
are accounting practices that practitioners accept because of their long existence and use.

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Accounting Principles
refers to a doctrine, which is the basis of all other rules, procedures and methods..

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The generally accepted accounting principle (gaap)

Accounting Assumptions
IMPLICIT ASSUMPTION

UNDERLYING ASSUMPTION

TIME PERIODS MONETARY UNIT ACCOUNTING ENTITY

GOING CONCERN

Accounting Assumptions
Accounting Entity Going concern Monetary unit
(Quantifiable & Stability of Peso)

P
Time Periods

THE CONCEPTUAL FRAMEWORK OF FINANCIAL REPORTING

PURPOSE
Development of accounting standards l Application of accounting standards l Review and adoption of IFRS l Interpretation of financial statements l Assists auditors in forming an opinion l Provide information in the formulation of PFRS
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SCOPE
Objective of financial reporting l Qualitative characteristics of useful financial information l Definition, recognition, and measurement of the elements from which financial statements are constructed l Concepts of capital and capital maintenance
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OBJECTIVE OF FINANCIAL REPORTING

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The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

FINANCIAL INFORMATION
FINANCIAL PERFORMANCE l FINANCIAL POSITION
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ECONOMIC RESOURCES u LIQUIDITY u SOLVENCY u FINANCIAL STRUCTURE u CAPACITY OF ADAPTATION

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FUNDAMENTAL QUALITATIVE CHARACTERISTICS

Materiality u Relevance Predictive Value Completeness Confirmatory Value Neutrality Free from Error
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Faithful Representation

OLD CONCEPTUAL FRAMEWORK

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Substance Over Form

The substance of a transaction or economic event is more important than its legal form.

OLD CONCEPTUAL FRAMEWORK Conservatism

-anticipated losses
are to be provided and anticipated gains are not to be accounted for unless realized.

ENHANCING QUALITATIVE CHARACTERISTICS

uComparability uUnderstandability

uVerifiability
uTimeliness

RECOGNITION OF ACCOUNTING ELEMENTS

PRESENT OBLIGATION ASSET (legal or constructive)

COST LIABILITY PRINCIPLE

PROBABLE MEASURABLE

INCOME

EXPENSE

INCOME RECOGNITION
It is probable that future economic benefits will flow to the entity as a result of an increase in an asset and or a decrease in a liability. l The economic benefits can be measured reliably.
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POINT OF SALE

INCOME DEFINED
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Income encompasses both revenue and gains.

EXCEPTIONS TO THE POINT OF SALE

l Installment

Method l Cost Recovery Method l Cash Method l Percentage of Completion l Production Method

EXPENSE RECOGNITION
It is probable that decrease in future economic benefits has occurred as a result ofMATCHING asset and or a decrease in an an increase in a liability. PRINCIPLE be l The economic benefits can measured reliably.
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THREE APPLICATIONS OF MATCHING PRINCIPLE

Cause and Effect Association l Systematic and Rational Allocation l Immediate Recognition
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CONCEPT OF CAPITAL AND CAPITAL MAINTENANCE

Capital Maintenance Concept

Under this concept, corporate income for a period of time is the amount that may be paid to stockholders during that period and still enable the corporation to be as well off at the end of the period as it was at the beginning.

CONCEPT OF CAPITAL AND CAPITAL MAINTENANCE

Assume a corporation has net assets of P45,000 at the beginning and P80,000 at the end of the year, and that no additional investments or withdrawals were made.
Ending net assets Less: Additional investment Ending net assets excluding investment Less: Beginning net assets Total income for the year

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P80,000 0 P80,000 (45,000) P35,000

CONCEPT OF CAPITAL AND CAPITAL MAINTENANCE

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Assume a corporation has net assets of P45,000 at the beginning and P80,000 at the end of the year, stockholders made additional capital investments of P10,000.
Ending net assets Less: Additional investment Ending net assets excluding investment Less: Beginning net assets Total income for the year P80,000 10,000 P70,000 (45,000) P25,000

Financial capital maintenance absolute monetary value

Physical capital maintenance quantitative measure of productive capacity

Difference is in the treatment of holding gains

ANG PAGMAMAHAL NG ISANG CPA

Ang pagmamahal ng isang CPA ay hindi nagde-DEPRECIATE. l RELIABLE regardless of the face and looks dahil ang prinsipyo nito ay laging SUBSTANCE OVER FORM. l COMPLETE, yung tipong wala ka ng hahanapin pa kasi marunong magADJUST.
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ANG PAGMAMAHAL NG ISANG CPA

Nagbibigay ng ALLOWANCE at sa lahat ng ginagawa nya, yung mahal nya ang laging PREFERRED... laging inuuna. l Palaging meron appropriate DISCLOSURE para ipakita sa buong mundo ang tunay na pagmamahal.
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ANG PAGMAMAHAL NG ISANG CPA

Kung may samaan ng loob, naraWRITEOFF kaagad, kung me tampuhan, nao-OFFSET ng pagmamahal. l Yung mga nakaraan, iyakan at lambingan, nake-CARRY FORWARD sa next FISCAL YEAR.
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ANG PAGMAMAHAL NG ISANG CPA

Ang pagmamahal ng isang CPA, it keeps no RECORDS of wrong dahil merong REVERSAL of forgiveness at CORRECTING ENTRY kung kailangan. l Kung meron man fortuitous event dahil sa third party, anjan parin ang pusong nakahandang mag-AUDIT dahil ang partnership nila ay based on TRUST and CONFIDENCE.
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ANG PAGMAMAHAL NG ISANG CPA

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Sumusunod sila sa IFRS at SARBANES-OXLEY act pagdating sa lambingan dahil ang bawat isa ay marunong tumupad sa sinumpaang... none will commit the ACTS DISCREDITABLE to the PROFESSION.

ANG PAGMAMAHAL NG ISANG CPA

Ang bawat detalye ng suyuan at tagpuan ay nakaRECORD sa WORKSHEET ng diary at handang ipahayag for the sake of TRANSPARENCY. l Kahit wala ng pera ang bawat isa, they still say that the FINANCIAL STATEMENTS PRESENTS FAIRLY at FREE OF MATERIAL MISSTATEMENT.
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ANG PAGMAMAHAL NG ISANG CPA

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Higit sa lahat... GOING CONCERN kung magmahal... panghabang buhay