Conceptual framework for financial accounting

HIERARCHY OF STANDARDS

1. SPECIFIC PHILIPPINE FINANCIAL REPORTING STANDARDS PFRS

2. RELATED STANDARD- KUNG WALANG SPECIFIC STANDARD PUNTA SA RELATED
3. CONCEPTUAL FRAMEWORK- KUNG WALA PARIN DITO NA PAPASOK SI C.F
4. OTHER APPLICABLE ACCEPTED ACCOUNTING PRINCIPLES

WHAT IS C.F?

BOOK (GENERAL TERMS & CONCEPTS THAT IS USED IN PREPARATION AND PRESENTATION OF
FINANCIAL STATEMENTS

ANONG URI NG FINANCIAL STATEMENT

2 TYPES OF FINANCIAL STATEMENT

1. SPECIAL PURPOSE FINANCIAL STATEMENT – FROM THE WORD ITSELF SPECIAL MEANS IT IS
CREATED FOR “SPECIFIC PURPOSE” ONLY
EX. YOU ARE A NON-PROFIT ENTITY OR RELIGIOUS ENTITY NA HINDI NAG P’PROFIT
THAT MEANS IT WILL FALL UNDER S.P.F.S AND HINDI SIYA SAKOP NI C.F. GENERAL PURPOSE F.S
LANG MAGAGAMIT MO.

2. GENERAL PURPOSE FINANCIAL STATEMENT- IF YOU ARE ACCOUNTANT, YOU CAN USED G.P.F.S
KUNG WALA KANG NAKITANG STANDARD OR RELATED DOON SA NEED MONG GAWIN
- IT IS THE ONLY SCOPE OF C.F

PURPOSES OF CONCEPTUAL FRAMEWORK

INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)- IN DEVELOPING IFRS BASED ON

CONSISTENR CONCEPTS

-ACCOUNTING SETTING BODY (KUNG BAGA SILA YUNG GUMAGAWA NG MGA STANDARDS)

-THROUGH THE USED OF C.F MAKAKAPAG DEVELOP NG IFRS BASED ON CONSISTENT CONCEPTS

-SO SA PAG DEDEVELOP NG ACCOUNTING SETTING BODY THEY CAN USED C.F

PREPARERS OF FINANCIAL STATEMENT-TO DEVELOP CONSISTENT ACCOUNTING POLICY FOR

TRANSACTIONS

-WHEN WE ARE MAKING F.S WE NEED TO BE CONSISTENT EX. KUNG ANONG GINAWA NATIN LAST
YEAR GAWIN DIN NATIN THIS YR AS LONG AS IT IS APPLICABLE TO THE ENTITY

-SO THOUGHT THE USED OF C.F MAKAKAPAG DEVELOP SI PREPARER NG FS. NG CONSISTENT ACC
POLICIES FOR THE TRANSACTIONS THAT NEEDED IN OUR F.S

ALL PARTIES-TO UNDERSTAND AND INTERPRET STANDARD

 -TO ALL USERS

LIMITATION OR AUTHORITATIVE STATUS IF C.F (hanggang saan lang power ni c.f)

Note: c.f is not a standard, hence it does not define any standard for any particular measurement or
disclosure issue.

-laman lang talaga ni C.F. General Concepts

UNDERLYING ASSUMPTIONS (these are concepts and theories where accounting process is pattern or
based.)

-accounting assumptions or accounting postulates are the basic notions or fundamentals premises on
which the accounting process is based.

-the Conceptual Framework for Financial Reporting mentions only one assumption, namely

” GOING CONCERN”

1. Going Concern (CONTINUITY ASSUMPTION)- means the accounting entity is viewed as

continuing in operation indefinitely in the absence of evidence to the contrary.

-when we are making a F.S and by next year hindi mag cloclose, inaassume natin na yung
nip’present natin na F.S yung balance don is patuloy lang, means walang katapusan
-ex. We have non and current assets, yung pag lagay natin ng non and current ginagamitan to ng
going concern. Once nilagay, means nag aassume ka na yung business is going concern ang
company.
-current asset (u will realize it within 1 year)
-noncurrent assets ( it will be realize more for than 1 year)
-Going Concern lang ang kinikilala ni C.F

2. Accrual Principle- addresses the recognition of income and expenses against the cash basis
principle
-recording income rendered, regardless of collection. while expense, recording expense incurred
regardless of payment.
-nag rerecord tayo income once na perform mo na yung service regardless kung kailan mo
macocollect yung payment.

3. Accounting Entity Concept- under this concept, the entity is viewed separately from its
owners,managers, and employess who constitute the entity.
-si company or business mo is the artificial person and you is the natural person.
-in the financial accounting it is the specific business organization, which may be a
proprietorship, partnership or corporation.
-the reason for the entity assumption is to have a fair presentation of financial statements.
 4. Time Period Principle- under this principle, the life of the entity is divided into the series of
reporting periods.
-it is a completely accurate report on the financial position and performance of an entity cannot
be obtained until the entity is finaly dissolved and liquidated.
-inaassume natin dito , every now and then kailangan natin ng acc record or naka pag report
tayo para makita natin if yung business is still working perfectly fine.
-even thou indefinite yung business need parin natin mag reporton a certain time of period.
2 type of accounting time period
Accounting period or Fiscal period-is 1 years or a period or 12 months
1. Calendar Year- yung reporting mo is start ng January 1 and mag eend ng dec 31
2. Natural Business Year-12 months period that ends in any month

One-year period- is the traditionally the accounting period because usually it is after 1 year that
the government reports are required

5. Monetary Unit Principle- under this principle, the accounting information should be stated in a
common measurement basic to the useful
-dapat bawat geographic dapat meron ginagamit na basic para maging uniform
- in our country we used PHP (PHILIPPINE PESO)
-it is also recognized “NO CHANGE, OF PURCHASING POWER” means bulag si F.S pag dating sa
INFLATION & DEFLATION, means constant or stable
Ex. You bought equipment worth 10,000 in the year 2018, so this 2022 that same equipment is
still worth of 10,000.
-it assumes that the concept that the purchasing power of the peso is regarded as constant or
stable

2 ASPECTS OF MONETARY UNIT ASSUMPTION

1. Quantifiability aspect – means that the asset, liabilities, equity, income and expenses should
be stated in terms of unit measure which is the peso of the Philippines.
2. Stability of Peso- assumption means that the purchasing power of the peso is stable or
constant and that its insignificant and therefore may be ignored.

CHAPTER 1: OBJECTIVE OF FINANCIAL REPORTING

Chapter 1- it is the foundation, dito lahat nag sisimula dahil may objective.

USERS CONCERN(S)
Investors a. A risk & return of investments.
b. Ability to pay dividends
Lenders & other Creditors Liquidity
Solvency
Employees Stability
Profitability
Customers Continuity
Government Regulatory
Public Various

USERS OF FINANCIAL INFORMATION

A. PRIMARY USER- these are the existing & potential investors, lenders and other creditors.
B. OTHER USERS- these include the employees, customers, governments, and their agency and the
public.
1. INVESTORS- if u are an investor and you want to see the F.S of the company your concern is the
risk and return of investments.
a. -you need to analyze the F.S of that company because you want of see the ability na
maibalik yung investments mo and syempre yung value ng investment mo like tumaas
b. – if you have stocks, you are expecting atleast na may natatanggap ka na dividends income
Dividend income-is a short-term income na maaari mong makuha once na nag invest ka sa
company, usually annual ang pag bibigay ng corporatin, however it is not a requirement kahit di
sya annually mag bigay ng dividend income.
2. LENDERS AND OTHER CREDITORS- kapag ikaw ay mag papautang sa isang company ang unang
gagawin mo ay hingin ang F.S ng isang company, because you need to see the liquidity and
solvency of the company
LIQUIDITY- “short term”, kakayahang mag bayad ng utang ni company ng mga short term
SOLVENCY- “short- & long-term obligations” all obligation. Ability na makapag bayad.
3. EMPLOYEES- you need to see the stability and profitability
STABILITY- is the company is unstable baka di ka mabayaran ng sahod
PROFITABILITY- to see the F.S to see if nag p’profit or not ba yung company then you have the
rights to demand na itaas yung sahod mo.
4. CUSTOMERS- (continuity) you would like to see the F.S to have a long-term R.L with your
supplier.
5. GOVERNMENT- would like to see the F.S of the company para malaman niya if the company is
following the rules and regulations
6. PUBLIC- (various) any users na may concern

BAKIT NGA BA MAYROONG “Financial Reporting”?

(OBJECTIVE) -its principal or overall objective 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.
LIMITATIONS OF FINANCIAL REPORTING

1. Do not and cannot provide all of the information that existing and potential investor,lenders and
other creditors need.
-hindi kayang ibigay lahat ni F.S means general purpose lamang yung kayang ibigay (common
needs lang ng mga users). Then yung mga special purpose naman ay hindi sakop ng F.S using C.F
2. Another user to control
-hindi ito designed to show the value of the entity
-general purpose financial reports are not designed to show the value of an entity, but the
reports provide information to help the primary users estimate the value of the entity

Bakit hindi kayang ipakita ng fs ang true value ng entity kung mga numbers naman sila

3. Hindi kayang ipakita ang true value nung fs because most of the amount in the f.s are only based
on estimates and judgments
-general purpose financial reports are intended to provide common information to users and
cannot accommodate every request for information.

CHAPTER 2: QUALITATIVE CHARACTERISTICS OF USEFUL INFORMATION

(anong klaseng information ba ang meron dapat sa F.S, ito ay mga useful information)

-dapat merong fundamental and enhancing

QUALITATIVE CHARACTERISTICS

-FUNDAMENTAL QUALITATIVE CHARACTERISTICS

-ENHANCING QUALITATIVE CHARACTERISTICS

CHAPTER 3: THE FINANCIAL STATEMNTS AND THE REPORTING ENTITY

REPORTING ENTITY-

AS A RESULT, WE HAVE A FEW TYPES OF FINANCIAL STATEMENTS

EX. Jollibee corpo, meron siyang sister company like inasal, chowking, red ribbon and jolibee is the
parent or the king.

1. CONSOLIDATED- pag si parent gumawang f.s at isa lang with sisters like Jollibee and inasal
(PARENT PLUS SUBSIJERY)
2. UNCONSOLIDATED/INDIVIDUAL- gumawa si jolibbe ng fs na sya lng, lsame kay chowking, inasal
etc
3. COMBINED- next pag nag sama yung 2 sisters, like si inasal and chowking nag combing sa iisang
F.S.

Chapter 4: ELEMENTS OF FINANCIAL STATEMENTS

-refer to the quantitative information shown in the statement of the financial position and statement of
comprehensive income.

Financial position Financial Performance

assetl Incomee
liabity expensef
equity

Assets- resources controlled by entity from past event that brings economic entity

-resources meaning hindi required na may physical formed kasi meron tayong tangible and intangible
asset

-controlled meaning is the power to govern

-hindi importante yung ownership yung importante yung control

-past event meaning it cannot arise from future event

-economic entity means pag pasok ng benefits through asset

Liabilities- is a present obligation of the entity to transfer an economic resource as a result of past event

Take note: hindi ni rerequire ni fs kung kanino ka may utang plus hindi mo alam kung kailan mo I
sesettle, ang mahalaga inaacknowlegde mo na may liabity ka.

Equity- is the residual interest in the assets of the entity after deducting all of its liabilities

-tinatawag din siyang net asset

Income- is an inflow of future economic benefit that increase equity, other than contributions by owners

May income pag nag increase in asset and equity that’s income and decrease in liabilities and increase in
asset that’s all an income.

REVENUE GAIN
Arises from Ordinary course of business Incidental or peripheral
operations
Presentation in the FS At gross amount At net amount

Expense

Chapter 5: Recognition and Derecognition

Recognition- is a term which means the process of reporting an asset, liability, income or expense on the

Recognition Criteria:

1. It meets the definition of an asset, liability, equity, income or expose and

2. Recognizing it would be useful information

Expense Recognition is the application of MATCHING PRINCIPLE

NOTE: MATCHING PRINCIPLE IT REQUIRES THE COST AND EXPENSE INCURRED IN EARNING A
REVENUE SHALL BE REPORTED IN THE SAME TIME PERIOD

3 APPLICATIONS OF THE MATHING PRINCIPLE

1. Cause and effect association- means hanggat walang related revenue walang expense.
Ex. Warranty expense like warranty sa cp hanggang wala kang binebenta na cp wala kang I
miminus another yung sales commition yung mga nag bebenta ng sasakyan or car
2. Systematic and Rational Allocation- yung cost mo inaallocate mo over
-benefit of the use

3. Immediate Recognition- taliwas . okay lang na walang renuew pwede kang mag expense like hindi
lahat pwede.

Derecognition- is the opposite of recognition

Chapter 6: Measurement

-is the process of determining the monetary amounts at which the elements of the financial statements
are to be recognized and carried in the statement of financial position and income statement.

1. Historical Cost- meaning original cost

-2018 10k yung equipment then 2022 ngayon mo lang naisipan na gamitin 10k parin

2. Current cost- it is the amount na gagastusin mo

The historial cost and current cost are called “entry values”
Current Value

1. Fair Value- kung ibebenta mo today mag kano kaya sa market

-your basis is the market
-remember since sa market manggagaling it is not a entity specific measurement
2. Value in Use- kapag ginamit mo continuously nung asset imbes ibenta gagamitin mo nalang
magkano yung value

Exit Value

CHAPTER 7: Presentation and Disclosure

Effective communication makes information useful. It requires:

1. Focusing on presentation and disclosure objectives and principles rather than on rules
2. Classifying information by groupings similar items and separating dissimilar items.
3. Aggregation information in a manner that it is not obscured either by excessive details or by
excessive summarization

CHAPTER 8: CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE

-The capital maintenance approach means that the net income occurs only after the capital used from
the beginning