01 Introduction to Accountancy Profession & Preface to PFRS Flashcards
What is wrong with ASC’s definition of accounting?
Accounting is a service activity - Definition is too clerical
What is wrong with AICPA’s definition of accounting?
Accounting is the art of recording, classifying and summarizing… - Definition implies accounting is subject to interpretation (any process to meet the objective)
Which accounting definition stood the test of time and who provided that definition?
Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information -American Accounting Association
What are the characteristics of accounting?
User-based
Quantitative or financial in nature
Subject to interpretation
What are accountable and non-accountable events?
Accountable events - affect the accounting equation
Non-Accountable events - do not affect the accounting equation
What is the analytical component of the accounting process?
Identifying - analyze whether transaction should be recognized
Do you recognize non-accountable events?
No, but disclosed only if relevant
What are the types of accountable events?
External - external part/entity/transaction involved
Internal - no external factor/entity involved
What are the types of external events? Give examples.
Exchange - reciprocal transfer (e.g. sale and purchase of inventories, payment of liabilities)
Non-reciprocal Transfer - unilateral transfer (e.g. donation/gifts, theft, fines/penalties)
Other events that do not involve Transfer (e.g. changes in FV, obsolescence, vandalism)
What are examples of internal events?
Production - conversion of RM to FG
Casualty - decrease in resources resulting from sudden, unexpected or unusual event
What is the technical component of the accounting process?
Measuring - need technicalities/measurement basis to assign amounts to items
What is the formal component of the accounting process?
Communicating - preparing and distributing reports to potential users formally following a specific format
Under what process is classifying and summarizing?
Communicating - classifying (posting) and summarizing (trial balance and FS)
What is the end product of accounting?
Financial Statements
What is the law that regulates the practice of accounting in the Philippines?
RA 9298: The Philippine Accountancy Act of 2004