2. HARRY R. CHUA
CPA, MBA, DBA
1. Be prompt; tardiness nor absences is not excused (unless
your dead)
2. Proper uniform
3. Behave, no unnecessary noise
4. Use of cellphones are not allowed inside the classroom
(kept it in silence mode)
5. Always bring the following:
◦ 2-column journal, ledger and yellow pad paper
◦ Ruler
◦ Calculator (non-programmable)
3. HARRY R. CHUA
CPA, MBA, DBA
Midterm:
Attendance/Class Standing 10%
Assignments/Seatworks/Quizzes 40%
Midterm Examination . 50%
100%
Final:
Midterm Grade 50%
Attendance/Class Standing 5%
Assignment/Seatworks/Quizzes 20%
Final Examination . 25%
100%
NOTE: absence for 3 hours means minus 2.5 on attendance
4. HARRY R. CHUA
CPA, MBA, DBA
1. Concepts & Principles related to Financial Statements
2. Accounting for Cash & Cash Equivalents
3. Accounting for Receivables
4. Accounting for Investments
5. Accounting for Inventories
6. Accounting for Biological Assets
7. Accounting for Plant, Property & Equipment
8. Accounting for Intangible Assets
9. Accounting for Other Investments/Noncurrent Assets
5. HARRY R. CHUA
CPA, MBA, DBA
Per Accounting Standards Council:
Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature,
about economic decision.
Per American Institute of Certified Public Accountants
(AICPA):
Accounting is the art of recording, classifying and
summarizing in a significant manner and in terms of
money, transactions and events which are in part at least
of a financial character, and analyzing and interpreting the
results thereof.
6. HARRY R. CHUA
CPA, MBA, DBA
Per American Accounting Association (AAA):
Accounting is the process of identifying, measuring and
communicating economic information to permit informed
judgment and decision by users of the information.
Key features of these definitions:
Identifying – is the analytical component of the accounting
process that recognizes or not recognizes business activities
as “accountable” events. An event is accountable or
quantifiable when it has an effect on assets, liabilities and
equity.
7. HARRY R. CHUA
CPA, MBA, DBA
Measuring – is the technical component of the accounting
process that assigns monetary amount to the accountable
economic transactions and events. The measurement bases
are historical cost, current cost, realizable value and present
value.
Communicating – formal component of the accounting
process that prepares and distributes accounting reports to
potential user of the accounting information.
8. HARRY R. CHUA
CPA, MBA, DBA
Accounting versus Auditing:
Accounting is essentially constructive in nature while auditing
is analytical.
Accounting ceases when financial statement are already
prepared. The work of an auditor begins when the work of
the accountant ends.
Accounting versus Bookkeeping:
Bookkeeping is procedural and largely concerned with the
“how” or development and maintenance of accounting
records while Accounting is conceptual and is concerned with
the “why” or reason or justification for any action adopted.
9. HARRY R. CHUA
CPA, MBA, DBA
Accounting versus Accountancy:
Technically speaking, Accountancy refers to the profession of
accounting practice while Accounting is used in reference only
to a particular field of accountancy such as public accounting,
private accounting and government accounting.
Financial Accounting versus Managerial Accounting:
Financial Accounting is primarily concerned with recording,
classifying and summarizing of business transactions and
preparation of financial statements intended for internal and
external users while Managerial Accounting emphasizes
developing accounting information needed by management in
planning, controlling and evaluating the entity’s operations.
10. HARRY R. CHUA
CPA, MBA, DBA
Going concern – means that in the absence of evidence to
the contrary, the entity is viewed as continuing in operation
indefinitely.
Accounting entity – is the specific business organization,
which may be a proprietorship, partnership or corporation.
It is assumed that the entity is separate from the owners,
managers, and employees who constitute the entity.
Personal transactions of these people shall not be allowed
to distort the financial statements of information about the
entity.
Time period – users of financial reports needs timely
information for making an economic decision.
11. HARRY R. CHUA
CPA, MBA, DBA
Monetary unit – financial information must be quantifiable
in terms of money which has a stable character. Stability of
money means that the purchasing power is stable or
constant and that its instability is insignificant and ignorable
as far as the accounting process is concern.
12. HARRY R. CHUA
CPA, MBA, DBA
The financial statements most frequently provided are
(1) the statement of financial position (balance sheet),
(2) the statement of results from operations or financial
performance (income statement),
(3) the statement of cash flows, and
(4) the statement of changes in owners’ or stockholders’
equity.
Note disclosures are an integral part of each financial
statement.
13. HARRY R. CHUA
CPA, MBA, DBA
Objectives of Financial Reporting:
1. To provide information useful in making decisions about
providing resources to the entity;
2. To provide information useful in assessing the prospects
of future net cash flows to the entity;
3. To provide information about entity resources, claims
and changes in resources and claims;
14. HARRY R. CHUA
CPA, MBA, DBA
Qualitative characteristics of financial reports:
Relevance – means that the financial reports are useful and
has the capacity to influence an economic decision. Financial
information must have predictive value that can be used as an
input to processes to predict future outcome. It must also
have confirmatory value that can provide feedback about
previous evaluations to enable corrective actions in the future.
Materiality – is the quantitative threshold of relevance,
meaning that the size and nature of the item is significant
enough to affect the evaluation, decision and fairness of the
financial statements. This concept if also known as doctrine of
convenience.
15. HARRY R. CHUA
CPA, MBA, DBA
Faithful representation – means that the actual effects of
the transaction shall be properly accounted for and
reported in the financial statements.
Three characteristics of faithful representation:
◦ Completeness – adequate disclosure
◦ Neutrality – fair; without bias
◦ Free from error – no errors or omissions
Adequate disclosure – means that all significant and
relevant information leading to the preparation of financial
statements shall be clearly reported. To be complete,
financial statements must be accompanied by “Notes to
Financial Statements.”
16. HARRY R. CHUA
CPA, MBA, DBA
Substance over Form – as far as accounting is concerned,
the economic substance of transactions and events are
usually emphasized when economic substance differs from
the legal form.
Example: When the lessee leased property from the lessor
and the terms of the lease provide that the lease transfer
ownership of the asset to the lessee at the end of the lease
term.
In form, the contract is a lease as popularly understood. But
in substance, the “transfer of ownership provision” states
that the real intention is an installment purchase of the
property by the lessee.
17. HARRY R. CHUA
CPA, MBA, DBA
Conservatism – in case of doubt, record any loss and do not
record any gain. Contingent loss is recognized as a
“provision” if the loss is probable and the amount can be
reliably measured wile Contingent gain is not recognized but
disclosed only. It is synonymous with prudence.
Prudence – is the desire to exercise care and caution when
dealing with the uncertainties in the measurement process
such that assets or income are not overstated and liabilities
or expenses are not understated.
18. HARRY R. CHUA
CPA, MBA, DBA
Comparability – is the enhancing qualitative characteristic
of the enables users to identify and understand similarities
and dissimilarities among items.
Relevant and faithful represented information is most useful
if it can be compared with similar information about the
same entity for the previous period and with similar
information report by other entities.
For information to be comparable, like things must look
alike and different things must look different. Comparability
is not enhance by making unlike things look alike or making
like things look different.
19. HARRY R. CHUA
CPA, MBA, DBA
Consistency – requires that the accounting methods and
practices should be applied on a uniform basis from period
to period.
Understandability – requires that financial information
must be comprehensible or intelligible if it is to be most
useful. The information should be presented in a form and
expressed in terminology that a user understands.
Verifiability – means that the financial information is
supported by evidence so that an accountant looking at the
same evidence would arrive at same economic decision or
conclusion.
20. HARRY R. CHUA
CPA, MBA, DBA
Timeliness – means that financial information must be
available or communicated early enough when a decision is
to be made.
Cost constraint on useful information – cost is a pervasive
constraint on the information that can be provided by
financial reporting. Reporting financial information imposes
cost and it is important that such cost is justified by the
benefit derived from the financial information. The rule is
“the benefit derived from the information should exceed the
cost incurred in obtaining the information.”
21. HARRY R. CHUA
CPA, MBA, DBA
Asset Recognition Principle – an asset is recognize when it
is probable that future economic benefits will flow to the
entity and the asset has a cost or value that can be
measured reliably.
◦ Future economic benefit – is the potential to contribute
directly or indirectly to the flow of cash and cash
equivalents to the entity.
◦ Cost principle – requires that assets should be recorded
initially at original acquisition cost.
22. HARRY R. CHUA
CPA, MBA, DBA
Liability Recognition Principle – a liability is recognize when
it is probable that an outflow of resources embodying
economic benefits will be required for the settlement of a
present obligation and the amount of the obligation can be
measured reliably.
◦ Legal obligation – is the consequence of a binding
contract or statutory requirement.
◦ Constructive obligation – arise from normal business
practice, custom and a desire to maintain good business
relations or act in an equitable manner.
23. HARRY R. CHUA
CPA, MBA, DBA
Income Recognition Principle – income must be recognized
when earned. Income is recognized when it is probable that
an increase in future economic benefits related to an
increase in an asset or a decrease in a liability has arisen
and tat the increase in economic benefits can be measured
reliably.
◦ Revenue – arises in the course of ordinary regular
activities and is referred to by a variety of different names
including sales, fees, interest, dividends, royalties and
rent.
◦ Gains – represent other items that meet the definition of
income and do not arise in the course of the ordinary
regular activities.
24. HARRY R. CHUA
CPA, MBA, DBA
PAS 18, Paragraph 14 – Revenue from sale of goods:
1. The entity has transferred to the buyer the significant
risks and rewards of ownership of the goods.
2. The entity retains neither continuing managerial
involvement nor effective control over the goods sold.
3. The amount of revenue can be measured reliably.
4. It is probable that economic benefits associated with
the transaction will flow to the entity.
5. The costs incurred or to be incurred in respect of the
transaction can be measured reliably.
25. HARRY R. CHUA
CPA, MBA, DBA
Exceptions to the Point of Sale:
1. Installment method – revenue is recognized at point of
collection (amount of revenue is determined by
multiplying the gross profit rate by the amount of
collection).
2. Cost recovery method or sunk cost method – revenue is
recognized at point of collection (all collections are fist
applied to the cost of the merchandise sold and the
remainder are considered revenue).
3. Cash method – revenue is recognized when received
regardless of when earned (all collections are treated as
revenue).
26. HARRY R. CHUA
CPA, MBA, DBA
4. Percentage of completion method – contract revenue
and contract costs associated with the construction
contract shall be recognized as and expenses by
reference to the stage of completion of the contract
activity.
5. Production method – revenue is recognized at the point
of production; applicable only to agricultural, forest and
mineral products (allowed when a sale is assured under a
forward contract or a government guarantee, or when
homogeneous market exists and there is a negligible risk
of failure to sell).
27. HARRY R. CHUA
CPA, MBA, DBA
PAS 18, Paragraph 19 – Revenue from rendering services:
1. The amount of revenue can be measured reliably.
2. It is probable that the economic benefits associated
with the transaction will flow to the entity.
3. The stage of completion of the transaction at the end
of reporting period can be measured reliably.
4. The costs incurred for the transaction and the costs to
complete can be measured reliably.
28. HARRY R. CHUA
CPA, MBA, DBA
Revenue from interest, royalties and dividends:
1. Interest revenue – recognized at the time of
proportionate basis that takes into account the effective
yield on the asset.
2. Royalties – recognized on an accrual basis in accordance
with the substance of the relevant agreement.
3. Dividends – recognized as revenue when the
shareholder’s right to receive payment is established
(dividends are declared).
29. HARRY R. CHUA
CPA, MBA, DBA
Other income recognition:
1. Installation fees – recognized as revenue over the period
of installation by reference to the stage of completion.
2. Subscription revenue – recognized on a straight line
basis over the subscription period.
3. Admission fees – recognized as revenue when the event
takes place.
4. Tuition fees – recognized as revenue over the period in
which tuition is provided.
30. HARRY R. CHUA
CPA, MBA, DBA
Expense Recognition Principle – expenses are recognized
when incurred; when it is probable that a decrease in
future economic benefits related to decrease in an asset or
an increase in liability has occurred and that the decrease in
economic benefits can be measured reliably.
Matching principle – costs and expenses incurred in earning
a revenue must be reported in the same period.
◦ Cause & effect association – expense is recognized when the
revenue is already recognized.
◦ Systematic & rational allocation – some costs are expensed by
simply allocating them over the periods benefited.
◦ Immediate recognition – expensed outright because of
uncertainty of future economic benefits or difficulty of reliably
associating certain costs with future revenue.
31. HARRY R. CHUA
CPA, MBA, DBA
Measurement of elements – the process of determining
the monetary amounts at which the elements of financial
statements are to be recognized and carried in the balance
sheet and income statement.
◦ Historical cost – amount of cash or cash equivalent paid
or fair market value of the consideration given to acquire
an asset at the time of acquisition.
◦ Current cost – amount of cash or cash equivalent that
would have to be paid if the same or equivalent asset was
acquired currently (current purchase exchange price).
◦ Realizable value – amount of cash or cash equivalent that
that could currently be obtained by selling the asset in an
orderly disposal (current sale exchange price).
32. HARRY R. CHUA
CPA, MBA, DBA
◦ Present value – the discounted value of the future net cash
inflows that the item is expected to generate in the normal
course of business (future exchange price).
Capital maintenance approach – in preparing income
statement, the net income occurs only after the capital used
from the beginning of the period is maintained.
◦ Financial capital concept – the absolute monetary amount
of the net assets contributed by shareholders and the
amount of the increase in net assets resulting from
earnings retained by the entity (based in historical cost).
◦ Physical capital concept – the quantitative measure of the
physical productivity capacity to produce goods and
services (based on current cost).
