FAR chap 1-2 Flashcards
Procedural steps in the Accounting Cycle
- journalizing or recording
- posting
- preparing the trial balance
- adjusting entries
- using worksheets
- preparing financial statements
- closing entries
- preparing the post-closing trial balance
- reserving entries
Provider of Risk Capital and their adviser are concerned with the risk inherent in. Information to whether they should buy, hold or sell.
Investors
Interested in information about the stability and profitability of their employees,
Employees
Interested in information that enables them to determine whether loans. interest earned will be paid
Lenders
Interested in information- determine wether amount owing to them will be paid when due
Suppliers and other trade creditors
interested in continuance of an entity- especially long term involvement,
Customer
interested in allocation of resources
Government and other agencies
Entities affect members of the public in a variety of ways. “Substantial contribution to local economy” ”financial statements may assist of public development.”
Public
interest in information contained in the financial statement- help carry out responsibility out its planning, decision making and control responsibilities.
Management
- are resources controlled by the entity result of a past event – future economic events expect to flow
Asset
- present obligation of an entity arising from past events
Liabilities
the residual interest in the asset of the entity after deducting all its liabilities
Equity
Ability of a Business entity to settle its currently maturing financial obligation
Liquidity
Ability of a business to pay its long term financial obligation.
Solvency
Amount of capital or resources financed by creditors and the amount provided by owners.
Financial Structure
ability of a business to invest excess available resources or raise necessary funds through borrowings without exigency
Capacity for adaptation
FRAMEWORK
sets out the concepts that underlie the preparation and presentation of financial statement for external users
The Framework
SCOPE OF FRAMEWORK
- Objectives
- Qualitative Characteristics
- Recognition
- Disclosure
- Concepts of Capital
- Measurement
PURPOSE OF FRAMEWORK
facilitate the consistent and logical formulation of Philippines Financial Reporting Standard
means applying a new accounting policy to transactions as if that policy had always been applied.
Retrospective application
is correcting the recognition, measurement, and disclosure of amounts of elements of financial statements as if a prior period error had never occurred
Retrospective restatement
refers to the issuance of the complete set of financial statements to various users and the interpretation of data in the financial statements.
Communication
Statement are based on rules, procedures, and standards. The set of accounting procedure, practices , and rules is technically called:
General Accepted Accounting Principle (GAAP)
is the frequent used as measure of performance or as the basis of other measures like determination of ROI or EPS .
Profit
are decrease in economic benefit during accounting period in the form of outflows
Expenses
entity shall prepare FS except for cash flow information, using the accrual basis of accounting.
Accrual Basis
Under this basis, the effects of transactions and other events are recognized when they occur and not as cash that is received or paid and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.
- FS on an accrual basis inform users not only of past transactions involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future.
notes!
QUALITATIVE CHARACTERISTIC
An essential quality of the information provided in financial statements, it is readily understandable by users.
Understandability
it influences the economic decision of users by helping them evaluate past, present, or future events or correcting their past.
Relevance
it is free from material error and bias. Level of confidence users place on truthfulness of the information.
Reliability
Under reliability!
information must present faithfully the transaction and other events it either purports to represent
Faithful Representation
If information is to represent faithfully the transaction and other events that it purports to represent, they are accounted in accordance substance and economic reality not legal forms.
substance over from
Financial Statement must be neutral , that is free from bias
Neutrality
is the inclusion of degree of caution in the exercise of judgement needed in making the estimates required undercertainty.
Prudence
information in the financial statements must be complete without bounds of materiality and cost
Completeness
Users are able to compare the financial statements of an entity through time in order to identify trends – financial position and performance.
Comparability
increase in economic benefit during accounting period form of inflows
income
Assets are recorded at the amount of cash or cash equivalent paid or the fair value of the consideration given.
Historical cost
process of determining the monetary value amount elements of the financial statement
Measurement
Are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.
Accounting policies
Complete set of Financial Statement
Statement of Financial Position
Statement of Comprehensive Income
Statement of changes in equity
Statement of changes in cash flow
Notes and disclosure of accounting policies.
summary of financial balances or elements directly related to the measurement of financial position
Statement of financial position
reflects the operating performance of the business
Statement of comprehensive income
the movement and changes in the owners’ equity section of the balance sheet reflected in statement of changes in equity
Statement of changes in equity
report cash flow during the period classified by operating investing and financing activities
Statement of cash flows
report cash flow during the period classified by operating investing and financing activities
Statement of cash flows
as far as practicable, are presented in systematic manner
Notes and disclosure of accounting policies
are the final product of the accounting system
Financial Statements
