MODULE 2 - ACCOUNTING CONCEPTS AND PRINCIPLES

Question 1

and PFRS for Small and Medium-sized Entities

Answer 1

Philippine Financial Reporting Standards (PFRS)

Question 2

the authoritative body that establishes and promulgates GAAP and standards in the Philippines

Answer 2

Financial Reporting Standards Council (FRSC

Question 3

Its main objective is to create a semblance of uniformity in the accounting practices among the different nations of the world.

Answer 3

International Accounting Standards Board (IASB)

Question 4

reporting standards carried out by the IASB.

Answer 4

International Financial Reporting Standards

Question 5

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.

Answer 5

Accrual Basis

Question 6

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.

Answer 6

Going Concern Assumption

Question 7

assumes that the business and its owner are separate and distinct entities.

Answer 7

Business Entity Principle

Question 8

the assumption that the operating life of the business may be divided into time-periods

Answer 8

Periodicity Concept

Question 9

for every value received, there is an equal value given up.

Answer 9

Concept of Equality of the Value Received and Value Given Up

Question 10

the assumption that the business transactions can be objectively measured or quantified in terms of “peso”

Answer 10

Monetary Concept

Question 11

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.

Answer 11

Matching Concept

Question 12

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:

Answer 12

Relevance

Question 13

exists if the reported information could be used to assess the outcome of the past activities and transactions.

Answer 13

Feedback Value

Question 14

exists if this could be used as a basis for forecasting what may happen in the future.

Answer 14

Predictive Value

Question 15

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.

Answer 15

Comparability

Question 16

using the same procedures, systems, and methods from one period to another.

Answer 16

Consistency

Question 16

using the same procedures, systems, and methods from one period to another.

Answer 16

Consistency

Question 17

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

Answer 17

Materiality

Question 18

exists if repeating the method by different independent accountants will obtain basically the same results.

Answer 18

Verifiability

Question 19

Financial information is considered reliable if it is verifiable, neutral, and if it represents that which it intends to represent.

Answer 19

Reliability

Question 20

exists when financial information is not biased.

Answer 20

faithful Representation

Question 21

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.

Answer 21

Bias

Question 22

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.

Answer 22

Neutrality

Question 23

having financial information available to decision makers to be capable in influencing their decisions.

Answer 23

Timeliness

Question 24

useful information should be readily understood by the data-users; information should be clearly presented and with additional information, if needed.

Answer 24

useful information should be readily understood by the data-users; information should be clearly presented and with additional information, if needed.

Question 25

otherwise known as conservatism

• an accountant exercises prudence by choosing to apply the method that will tend to make the profit smaller.

Answer 25

Prudence

Question 26

financial information should be gathered or provided to the data-users only if the benefits to be derived from it exceed the costs of collecting and providing such information.

Answer 26

Costs Vs. Benefits (or Trade-off)