-            relate to the content or substance of financial information

fundamental qualitative characteristics are

          -            is the capacity of the information to influence a decision

          -            the financial information must be capable of making a difference in the decisions made by users

          -            requires that the financial information should be related or pertinent to the economic decision

          -            to be useful, information must be relevant to the decision making needs of users

ingredients of relevance

the book value per share information is more relevant than earnings per share in determining the attractiveness of an investment

can be used as an input by users to predict future outcome; help users increase the likelihood of correctly or accurately predicting or forecasting outcome of events

it provides feedback about previous evaluations; enables users confirm or correct earlier expectations

          -            a practical rule in accounting which dictates that strict adherence to GAAP is not required when the items are not significant enough to affect the evaluation, decision and fairness of the financial statements

          -            also known as the doctrine of convenience

          -            a quantitative threshold linked very closely to the qualitative characteristic of relevance

materiality depends on absolute size rather than relative size

          -            adds an element of reasonability of financial information on which economic decision is based

          -            material information shall be limited to the economic decision of primary users rather than to all users which is too broad in scope.

          -            insures that information capable of influencing economic decision of the primary users shall be included in the financial statements

          -            if presenting or communicating it would have a similar effect as omitting or misstating the information

          -            the presentation of financial information not readily understood or not clearly expressed

information may be characterized by deliberate vagueness, ambiguity and abstruseness

          -            affected by general purpose financial statements

          -            include the existing and potential investors, lenders and other creditors

          -            these groups are the users to whom general purpose financial statements are primarily directed

          -            must rely on general purpose financial reports for how much financial information is needed

include the employees, customers government agencies and the public in general

the _______ of the item in relation to the total of the group to which the item belongs is taken into account

the _______ of the item may be inherently material because by its very nature it affects economic decision

          -            financial reports represent economic phenomena or transactions in words and numbers

          -            the reported descriptions and figures must match what really existed or happened

the actual effects of the transactions shall be properly accounted for and reported in the financial statements

ingredients of faithful representation

          -            replaces reliability as a primary quality

          -            presented in a way that facilitates understanding and avoids erroneous implication

          -            includes all information necessary for a user to understand the phenomenon or transaction being depicted, including all necessary description and explanation

          -            financial statements shall be accompanied by notes to financial statements (the purpose of the notes is to provide the necessary disclosures required by Philippine Financial Reporting Standards)

          -            is without bias in the preparation or presentation of financial information

          -            financial information 'should not favor one party to the detriment of another party

          -            the information is directed to the common needs of many users and not to the particular needs of specific users

          -            synonymous with the all-encompassing principle of fairness (to be neutral is to be fair)

          -            is the exercise of 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

neutrality is supported by this exercise

          -            is synonymous with prudence

          -            when alternatives exist, the alternative which has the least effect on equity should be chosen.

          -            "in case of doubt, record any loss and do not record any gain."

          -            inventories are measured at the lower of cost and net realizable value

is recognized in the financial statements if the loss is probable and the amount can be reliably measured

is not recognized but disclosed only

is not recognized but disclosed only

          -            means there are no errors or omissions in the description of the phenomenon or transaction

          -            the process used to produce the reported information has been selected and applied with no errors in the process

measurement uncertainty arises when monetary amounts in financial reports cannot be observed directly and must instead be estimated

if information is to represent faithfully the transactions and other events it purports to represent, it is necessary that the transactions and events are accounted for

          -            emphasized when economic substance differs from legal form

          -            relate to the presentation or form of the financial information

          -            are intended to increase the usefulness of the financial information that is relevant and faithfully represented

          -            the ability to bring together for the purpose of noting points of likeness and difference

          -            enables users to identify and understand similarities and dissimilarities among items

          -            may be made within an entity or between and across entities

             -            is not the same as comparability

          -            refers to the use of the same method for the same item, either from period to period within an entity or in a single period accross entities

          -            comparability is the goal and __________ helps to achieve that goal

          -            is the uniform application of accounting method from period to period within an enitity

          -            if the FIFO method is adopted in one year, such method is followed from year to year

          -            is desirable and essential to achieve comparability of financial statements

          -            there shall be full disclosure of the change and the peso effect thereof

          -            requires that financial information must be comprehensible or intelligible if it is to be most useful

          -            presented in a form and expressed in terminology that a user understands

          -            Classifying, characterizing and presenting information "clearly and concisely" makes it understandable

          -            the users shall have an understanding of the complex economic activities, the financial accounting process and the terminology in the financial statements

          -            Financial statements cannot realistically be understandable to everyone

          -            is very essential because a relevant and faithfully represented information may prove useless if it is not understood by users

          -            information is verifiable if different and knowledgeable and independent observers could reach similar conclusions based on the information

          -            ________ implies consensus

          -            supported by evidence so that an accountant that would look into the same evidence would arrive at the same economic decision or conclusion

          -            provides results that would be substantially duplicated by measurers using the same measurement method

_________ is synonymous with objectivity.

Comparability within an entity is also known as

Comparability across entities is also known as

means verifying an amount or other representation through direct observation, for example, by counting cash

means checking the inputs to a model, formula or other technique and recalculating the inputs using the same methodology

          -            financial information must be available or communicated early enough when a decision is to be made

          -            _______ if it is received on time to make difference to the decision maker

          -            the older the information, the less useful

          -            some information may continue to be timely long after the end of reporting period because some users may need to identify and assess trends

          -            enhances the truism that without knowledge of the past, the basis for prediction will usually be lacking and without interest in the future, knowledge of the past is sterile

          -            what happened in the past would become the basis of what would happen in the future

is a pervasive constraint on the information that can be provided by financial reporting

is a consideration of the cost incurred in generating financial information against the benefit to be obtained from having the information

are the financial statements prepared when the reporting entity comprises both the parent and its subsidiaries

are the financial statements prepared when the reporting entity is the parent alone

are the financial statements when the reporting entity comprises two of more entities that are not linked by a parent and subsidiary relationship

          -            required or chooses to prepare financial statements

          -            can be a single entity or a portion of an entity, or can comprise more than one entity

          -            is not necessarily a legal entity

          -            the period when financial statements are prepared for general purpose financial reporting

          -            financial statements may be prepared on an interim basis, for example, three months, six months or nine months (Interim financial statements are not required but optional)

          -            financial statements must be prepared on an annual basis or a period of twelve months

          -            or accounting postulates are the basic notions or fundarmental premises on which the accounting process is based

          -            serve as the foundation or bedrock of accounting in order to avoid misunderstanding but rather enhance the understanding and usefulness of the financial statements

          -            or continuity assumption means that in the absence of evidence to the contrary, the accounting entity is viewed as continuing in operation indefinitely

          -            is the very foundation of the cost principle

          -            assets are normally recorded at cost. As a rule, market values are ignored

          -            some new standards require measurement of certain assets at fair value

          -            If there is evidence that the entity would experience large and persistent losses or that the entity's operations are to be terminated, the going concern assumption is abandoned

          -            users of the statements will have a great interest in the amount of cash that will be generated from the entity's assets in the short term

          -            is the specific business organization, which may be a proprietorship, partnership or corporation

          -            the entity is separate from the owner, managers, and employees who constitute the entity

          -            transactions of the entity shall not be merge with the transactions of the owners

          -            The reason for the entity assumption is to have a fair presentation of financial the corporation

          -            a completely accurate report on the financial position and performance of an entity cannot be obtained until the entity is finally dissolved and liquidated

          -            for accounting information to be relevant, it must be timely

          -            the reliability of the information often must be sacrificed to provide relevant disclosure

          -            the use of estimate is required for timely reporting but also implies a possible loss of reliability

          -            requires that the indefinite life of an entity is subdivided into accounting periods which are usually of equal length for the purpose of preparing financial reports on financial position, performance and cash  flows

          -            means that the assets, liabilities, equity, income and expenses should be stated in terms of a unit of measure which is the peso in the Philippines

            -            means that the purchasing power of the peso is stable or constant and that its instability is insignificant and therefore may be ignored

          -            is actually an amplification of the going concern assumption so much so that adjustments are unnecessary to reflect any changes in purchasing power

          -            The accounting function is to account for nominal pesos only and not for constant pesos or changes in purchasing power

is a twelve-month period that ends on December 31

is a twelve-month period that ends on any month when the business is at the lowest or experiencing slack season

          -            portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics

          -            refers to the income statement and a statement presenting other comprehensive income

          -            a present economic resource controlled by the entity as a result of past events

          -            present obligation of an entity to transfer an economic resource as a result of past events

          -            the obligation to transfer an economic resource and not the ultimate outflow of economic benefits

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

          -            increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity holders

·         is to transfer an economic resource

          -            legally enforceable as a consequence of a binding contract or statutory requirement

arise from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner

·         arises in the course of the ordinary regular activities and is referred to by variety of different names including sales, fees, interest, dividends, royalties, and rent

          -            the essence is regularity

·         other items that meet the definition of income and do not arise in the course of the ordinary regular activities

          -            disposal of noncurrent asset, unrealized gain on trading investment and gain from expropriation

primary source of information about an entity’s financial performance

          -            decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity holders

          -            arise in the course of the ordinary regular activities

          -            the process of capturing for inclusion in the financial statements an item that meets the definition of an asset, liability, equity, income or expense

          -            the amount is reported as carrying amount

income shall be recognized when earned

expenses are recognized when incurred; application of the matching principle

when an expenditure produces no future economic benefit; when cost incurred does not qualify or ceases to qualify for recognition as an asset

removal of all or part of a recognized asset or liability from the statement of financial position

when entity loses control of all or part of the asset

when entity no longer has a present obligation for all or part of the liability

          -            quantifying in monetary terms the elements in the financial statements

the cost incurred in acquiring or creating the asset comprising the consideration paid plus transaction cost

is the consideration received to incur the liability minus transaction cost

is the entry price or entry value to acquire an asset or to incur a liability

reflects the estimate of future cash flows discounted at a rate determined at initial recognition

is the price that would be received to sell an asset in an orderly transaction between market participants at measurement date

is the price that would paid to transfer a liability in an orderly transaction between market participants at the measurement date

          -            – is an exit price or exit value

          -            in cases where itcannot be directly measured, an entity can use present value of cash flows

          -            is the present value of the cash flows that an entity expects to derive from the use of an asset and from the ultimate disposal

          -            does not include transaction cost on acquiring the asset but includes transaction cost on the disposal of the asset

          -            is the present value of cash that an entity expects to transfer in paying or settling a liability

          -            does not include transaction cost on incurring a liability but includes transaction cost on fulfillment of a liability

is the cost of an equivalent asset at the measurement date comprising the consideration paid and transaction cost

is the consideration that would be received less any transaction cost at measurement date

          -            can be an effective communication tool about the information in financial statements

          -            is the sorting of assets, liabilities, equity, income and expenses on the basis of shared or similar characteristics

          -            is the adding together of assets, liabilities, equity, income and expenses that have similar or shared characteristics and are included in the same classification

          -            makes information more useful by summarizing a large volume of detail

          -            more detailed information is provided in the notes to financial statements

is the traditional preparation of an income statement

means that net income occurs only after the capital used from the beginning of the period is maintained

          -            synonymous with net assets or equity of the entity based on historical cost

          -            is the 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

          -            capital is maintained when the entity has positive earnings for the year

          -            also known as net assets approach

          -            net income occurs when the nominal amount of the net assets at the end of the year exceeds the nominal amount of the net assets at the beginning of the period, after excluding distributions to and contributions by owners during the period

          -            is the quantitative measure of the physical productive assets to produce goods and services

requires that productive assets be measured at current cost, rather than historical cost

          -            are the financial statements intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs

          -            directed to all common users and not to specific users

          -            asset is cash or cash equivalent unless the asset is restricted to settle a liability for more than twelve months after the reporting period

          -            holds the asset primarily for the purpose of trading

          -            the entity expects to realize the asset within twelve months after the reporting period

The entity expects to realize the asset or intends to sell or consume it within the entity's normal operating cycle

          -            all other assets not classified as current as ___________

          -            what is not included in the definition of current assets is deemed excluded

          -            tangible assets which are held by an entity for use in production or supply of goods and services, for rental to others, or for administrative purposes, and are expected to be used during more than one period

          -            land building, machinery, equipment, furniture, fixtures, patterng molds, dies and tools

          -            except land, are presented at cost less accumulated depreciation

          -            an identifiable nonmonetary asset without physical substance

          -            assets that do not fit into the definition of noncurrent assets

long-term advances to officers, directors, shareholders and employees,or abandoned property and long-term refundable deposit

goodwill

 patent, franchise, copyright, lease right, trademark and computer software

          -            expects to settle the liability within the entity's normal operating cycle

          -            holds the liability primarily for the purpose of trading

          -            the liability is due to be settled within twelve months after the reporting period

          -            does not have a right to defer settlement of the liability for at least twelve months after the reporting period

all liabilities not classified as current are classified as

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

          -            means"net assets"or total assets minus liabilities

          -            are often attached to borrowing agreements which represent undertakings by the borrower

          -            restrictions on the borrower as to undertaking further borrowings, paying dividends, maintaining specified level of working capital and so forth

          -            if an entity has already complied with the _________ at the reporting date, the liability is classified as noncurrent

          -            is the residual interest of owners in the net assets of a corporation measured by the excess of assets over liabilities

          -            provide narrative description or disaggregation of items presented in the financial statements and information about items that do not qualify for recognition

          -            provide the necessary disclosures required by Philippine Financial Reporting Standards

          -            report information that does not fit into the body of the financial statements in order to enhance the understandability

sets forth the three major sections in a downward sequence of assets, liabilities and equity

the assets are shown on the left side and the liabilities and equity on the right side of the statement of financial position

          -            showing the financial performance of an entity for a given period of time

primarily measured in terms of the level of income earned by the entity through the effective and efficient utilization of its resources; also known as the results of operations

Sales returns, allowances and discounts shall be deducted from gross sales to arrive at net sales

includes professional fees, media advertising commissions admission fees for artistic performance and tuition fees

includes interest, rent, royalty and dividend income

include gain on sale of investments and gain on sale of property, plant and equipment

directly related to selling, advertising and delivery of goods to customers

cost of administering the business

are those expenses which are not directly related to the selling and administrative function

-            classifies expenses according to their function as part of cost of goods sold, distribution costs, administrative expenses and other expenses

-            also known as the cost of goods sold method

-            disclose additional information on the nature of expenses, including depreciation, amortization and employee benefit costs

-            referred to as the nature of expense method

-            expenses are no longer classified as cost of goods sold, distribution costs, administrative expenses and other expenses

-            The expenses which are of the same nature are grouped or aggregated and presented as one item

-            is the change in equity during a period resulting from transactions and other events, other than changes resulting from transactions with owners in  their capacity as owners

-            components of profit or loss or income and expenses affecting net income

-            Components of other comprehensive income

-            is the total of income less expenses, excluding the components of other comprehensive income

-            the bottom line in the traditional income statement

-            net income or net loss

-            comprises items of income and expense that are not recognized in profit or loss or not shown in the traditional income statement

-            unrealized gain or loss on equity investment measured at fair value through other comprehensive income

-            unrealized gain or loss on debt investment measured at fair value through other comprehensive income

-            gain or loss from translation of the financial statement of a foreign operation

-            revaluation surplus during the year

-            unrealized gain or loss from derivative contracts designated as cash flow hedge

-            remeasurements of defined benefit plan, including actuarial gain or loss

-            Change in fair value attributable to credit risk of a financial liability designated at fair value through profit or loss

-            is prepared in order to show the total comprehensive income

-            starts with the net income or net loss as shown in the income statement plus or minus the components of other comprehensive

-            to provide a more comprehensive information on financial performance measured more broadly than the income as traditionaly computed

          -            summarizing the operating, investing an financing activities of an entity

          -            provides information about the cash receipts and cash payments of an entity during a period

          -            comprises cash on hand and demand deposits

          -            short-term highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risk of change in value

investment normaly qualifies as a ___________ only when it has a short maturity of three months or less from date of acquisition

which are repayable on demand form an integral part of cash management. In these circumstances, _____________ are included as component of cash and cash equivalents

          -            cash flows derived primarily from the principal revenue producing activities of the entity

generally result from transactions and other events that enter into the determination of net income or loss

          -            cash flows derived from the acquisition and disposal of long-term assets and other investments not included in cash equivalent

          -            include cash flows from transactions involving nonoperating assets

          -            are the cash flows derived from the equity capital and borrowings of the entity

          -            include the cash flow from transactions involving nontrade liabilities and equity of an entity

          -            shall be disclosed only either in the notes to financial statements or in a separate schedule or in a way that provides all relevant information about these transactions

Between the entity and the owners

Between the entity and the creditors

classified as operating cash flows (such items enter into the determination of net income or loss); alternatively, classified as financing cash flow (it is a cost of obtaining financial resources)

classified as operating cash flows (such items enter into the determination of net income or loss); alternatively, classified as investing cash flow (it is a return on investment)

classified as financing cash flow (it is a cost of obtaining financial resources); alternatively, classified as operating cash flow (in order to assist users to determine the ability of the entity to pay dividends out of operating cash flows)