BFAR NOTES

Chapter 1 6. Insurance
↪ pooling premiums of many to meet claims of few.
Accounting is the process of identifying, measuring, ↪ collecting cash from many customers > invest the
and communicating economic information to money to pay the losses experienced by other
permit informed judgments and decisions by users customers (insurance)
of the information. (AAA - American Accounting Association)
↪ the art of recording, classifying, and summarizing FORMS OF BUSINESS ORGANIZATION
in a significant manner and in terms of money, 1. Sole Proprietorship
transactions, and events which are, in part at least, ↪ owned by a single individual called the “proprietor”
of a financial character, and interpreting the results who receives all profits, absorbs all losses, and is
thereof (AICPA - American Institute of Certified Public solely responsible for all debts of the business.
Accountants) ↪ distinct from the proprietor (has separate
↪ is a service activity accounting records from the proprietor’s personal
↪ is an information system that measures, processes financial records).
and communicates financial information about an 2. Partnership
economic entity. ↪ owned or operated by two or more persons who
◉ Identifying - analyzing events & transactions to bind themselves to contribute money, property, or
determine whether or not they will be industry to a common fund, with the intention of
recognized/journalized dividing profits among themselves.
↪ accountable event is an economic activity ↪ distinct from personal affairs of “partners.”
↪ recognition is the process of including actble 3. Corporation
events thru journal entries ↪ owned by “stockholders”
↪ 1. External events - involve an entity & another ↪ an artificial being created by law, having the rights
external party of succession & the powers, attributes, & properties
↪ 2. Internal events - do not involve an external expressly authorized by law or incident to its
party existence.
◉ Measuring - assigning numbers, normally in ↪ a separate legal entity
monetary terms, to the economic transactions ↪ “stockholders” are not personally liable for the
↪ historical cost most commonly used measurement corporation’s debts.
↪ financial statements are prepared using mixture
of costs (historical & current) while values include ACTIVITIES IN BUSINESS ORGANIZATION
other measurement bases 1. Financing Activities
◉ Communicating - transforming economic data ↪ activities related to getting money to run the
into useful actg infos, such as financial statements business. It involves borrowing money, paying back
& other actg reports, for dissemination to users loans, and giving money back to investors
3 aspects of communicating: ↪ primary sources are owners & creditors: banks
1. Recording - systematically writing identified and suppliers
accountable events in the journal thru 2. Investing Activities
journal entries ↪ activities where the business spends money to
2. Classifying - grouping of similar & buy things it will use to make more money in the
interrelated items into their respective future. It involves buying and selling long-term
classes thru postings in the ledger assets.
3. Summarizing - expressing in condensed ↪ acquisition and disposal of long-term assets and
form the recorded & classified transactions other investments that are not considered cash
& events: preparation of financial equivalents
statements & other actg reports ↪ involve the selection & management including
↪ Interpreting computation of financial disposal & replacement of long-term resources that
statements ratios from the processed infos will be used to develop, produce, & sell goods &
services
TYPES OF BUSINESSES ↪ buying land, equipment, buildings, & other
1. Services resources that are need in the operation of
↪ selling people’s time and skills business then selling these resources when no
2. Trader longer needed
↪ buying and selling of products 3. Operating Activities
3. Manufacture ↪ these are the day-to-day activities of running the
↪ processing of raw materials or parts into finished business. It involves things like selling products,
goods paying employees, and buying supplies
4. Infrastructure ↪ involves the use of resources to design, produce,
↪ selling the utilization of infrastructure distribute, & market goods & services
↪ buying & operating assets (large assets); selling ↪ includes research & developments, design &
occupancy often in combination with services engineering, purchasing, human resources,
5. Financial production, distribution, market & sell, & servicing
↪ receiving deposits, lending, and investing money
↺ efficient business is one that provides goods & ↪ the value of an asset is recorded at its acquisition
services at low costs relative to the selling price cost & not at what mngmt thinks they are worth as
↺ effective business is one that is successful in at reporting date
providing goods & services demanded by the 3. Revenue Recognition Principle
customers. 4. Expense Recognition Principle
↪ Accrual Basis of Accounting
Accounting Concept/Principles basis of accounting ↪ Matching Principle
that are commonly derived from Conceptual 5. Full/Adequate Disclosure
Framework & the PFRS Actg Standards. ↪ requires disclosure in the financial statements of
Interchangeable terms: all relevant informations that would affect the user’s
↪ Actg Assumptions/Postulates understanding & assessment of the actg entity
↪ Actg Theory 6. Consistency Principle
↪ the entity should use the same actg method from
FUNDAMENTAL ACCOUNTING CONCEPTS period to period to achieve comparability over time
1. Entity Concept/Separate Entity within a single enterprise
↪ the entity is viewed separately from its owners ↪ change is permitted if justifiable & disclosed in
2. Periodicity Concept/Time Period financial statements
↪ entity’s life is divided into a series of reporting 7. Matching
periods: ↪ record of expenses at the same time to record the
⇴ calendar year - 12 months starting from income that those expenses helped to generate
january & ending in december of the same year 8. Realization
⇴ fiscal year - 12 months period that starts ↪ the process of converting non-cash assets into
on a date other than january (i.e. july 2023, beg - july cash or claim of cash
2024, end) ↪ ex. occurs in sale of goods (non-cash) > sold in
⇴ monthly, quarterly, semi-annual, or cash or accounts receivable (claim of cash)
annual periods 9. Prudence/Conservatism
3. Stable Monetary Unit ↪ use of caution when making estimates under
↪ ALE(IE) are stated in terms of a common unit of uncertain conditions: no overstatement of
measure, Philippine peso assets/income & understatement of
↪ the purchasing power of peso is regarded as liabilities/expenses
stable or constant & that instability (inflation) is ↪ an option that has the least effect on equity is
insignificant & therefore ignored chosen
4. Going Concern 10. Immediate Recognition
↪ the entity is assumed to carry on its operations ↪ costs that do not/cease to meet the definition of
for an indefinite period of time an asset are expensed immediately (ex. casualty &
↪ expects no end or sara of entity’s operation impairment losses)
5. Double-entry system
↪ each accountable event is recorded in debit & ACCOUNTANCY ACT OF 2004
credit RA No. 9298, The Philippine Accountancy Act of
6. Materiality Concept 2004.
↪ information is material only if its omission or its Scope of Practice:
misstatement can influence economic decisions 1. Practice of Public Accountancy
7. Cost-benefit/Cost-constraint/Reasonable 2. Practice in Commerce & Industry
Assurance 3. Practice in Education/Academe
↪ the cost of processing & communicating of 4. Practice in Government
information should not exceed the benefits derived PROFESSIONAL ORGANIZATION
from it Philippine Institute of Certified Public Accountants
8. Accrual Basis of Accounting (PICPA)
↪ effects of transactions and other events are ↪ integrated national professional organizations of
recognized when they occur (not as cash received CPA in the Philippines accredited by Board of
or paid) & recorded in the actg records & reported Accountancy (BOA)
in the financial statements of the periods which ↪ created the Accounting Standards Council
they relate ACCOUNTING STANDARDS IN PH
↪ income is recognized when earned rather than 1. Accounting Standards Council (ASC)
when cash is collected & expenses when incurred ↪ created to establish & improve accounting
rather than when cash is paid standards that will be generally accepted in the
Philippines
BASIC PRINCIPLES 2. Financial & Sustainability Reporting
1. Objectivity Principle Standards Council (FSRSC)
↪ actg records & statements are based on the most ↪ the new actg standard setting body
reliable data available so that they will be accurate
& useful as possible A professional accountant is “an individual who
2. Historical Cost holds a valid certificate issued by BOA, whether
she/he be in public practice, industry, commerce, ↪ incorporates cost actg data & adapts them for
the public sector, or education.” specific decisions which management may be called
upon to make
Fundamental Principles to be followed by ↪ incorporates all types of financial & non-f
professional accountants: informations from a wide range of resources
1. Integrity 7. Taxation/Tax Actg
↪ straightforwardness & honesty, fair dealing & ↪ preparation of tax returns & the consideration of
truthfulness, should not be associated with false, the tax consequences of proposed business
reckless, & obscure infos transactions or alternative courses of action
2. Objectivity 8. Government Actg
↪ should not allow bias, conflict of interest, or undue ↪ concerned with the identification of the sources
influence of others to override professional or & uses of resources consistent with the provisions
business judgments of city, municipal, provincial, & national laws.
3. Professional Competence & Due Care
↪ should act diligently & in accordance with Chapter 2
applicable technical & professional standards when The Accounting Equation & Double-Entry System
providing professional services
4. Confidentiality ACCOUNTING INFORMATION SYSTEM (AIS)
↪ should not disclose any information to third ↪ combination of personnel, records, & procedures
parties without proper & specific authority unless that a business uses to meet its need for financial
there is a legal or professional right or duty to information
disclose ↪ accounting manual specifies the policies &
5. Professional Behavior procedures to be followed in accumulating infos
↪ should comply with relevant laws & regulations & within the accounting information system
should avoid any action that discredits the 3 types of AIS:
profession 1. Manual systems
↪ utilized paper-based journals (general & special) &
BRANCHES OF ACCOUNTING ledgers (general & subsidiary)
1. Auditing 2. Computer-based transaction systems
↪ most significant service to the public ↪ replace paper records to computer records
↪ external audit is the independent examination 3. Database systems
that ensures fairness & reliability of the reports that ↪ embed actg data within the business event data
management submits to users outside the business which they are based
entity (outside of the entity auditors that ensures to
protect the interests of fs users) ELEMENTS OF FINANCIAL STATEMENTS
↪ internal audit ensures the accuracy of business (Statement of Financial Position)
records, uncover internal control problems, & 1. Asset - a present economic resource (has
identify operational difficulties (employees of the the right to produce economic benefits)
entity) controlled by the entity as a result of past
2. Bookkeeping events
↪ a routine operation or mechanical task involving 2. Liability - present obligations of an entity to
the collection of basic financial data that ends transfer economic resources as a result of
when the basic data have been entered in the book past events
of account & the accuracy of each entry has been 3. Equity - residual interest in the assets of an
tested entity after deducting all its liabilities
3. Cost bookkeeping/Costing/Cost Actg 𝐴𝑠𝑠𝑒𝑡 = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 + 𝐸𝑞𝑢𝑖𝑡𝑦
↪ similar to bookkeeping but records data in very (Statement of Financial Performance)
much greater detail 4. Income - increases in assets, decreases in
↪ makes use of the recorded data in the book of liabilities, that result in increases in equity
accounts in providing infos for managerial ↪ profit of a company less all relevant expenses from
planning & control earned sales revenue
4. Financial Actg 5. Expenses - decreases in assets, or increases
↪ recording of business transactions & the periodic in liabilities, that result in decreases in
preparation of reports on financial position & equity
results of operations ↪ cost of company’s operations incurred to
↪ accord importance to generally accepted actg generate revenue
principles NORMAL BALANCE OF ACCOUNTS
5. Financial Management
DEBIT CREDIT
↪ setting financial objectives, making plans based
on objectives, obtaining the finance needed to ASSET
EXPENSES
LIABILITY
EQUITY
achieve plans, & generally safeguarding all the DIVIDEND INCOME/REVENUE

financial resources of an entity. ACCOUNTING EVENTS & TRANSACTIONS

6. Management Actg
Accounting event is an economic occurrence that ↪ to show the inflows and outflows of cash over a
changes an entity’s assets, liability, and/or owner’s specific period, categorized by operating, investing,
equity and financing activities
Transaction is a kind of event that involves the
transfer of something of value between two entities
Types & Effects of Transactions
1. Source of Assets (SA) - asset account
increased, either L or E account increases
2. Exchange of Assets (EA) - an asset account
increases, another asset account decreases
3. Use of Assets (UA) - asset acc decreases,
either L or E decreases
4. Exchange of Claims (EC) - either L or E
increases, then a corresponding L or E
decreases

Financial Statement is the basic summary device of

accounting. It contains the summary of financial
performance & position of an entity. The
components of FS are:
1. Statement of Financial Performance
↪ aka Profit/Loss Statement or Income Statement 4. Statement of Changes in Equity
↪ to show the company's revenues and expenses ↪ shows how the equity section of a company's
over a specific period, resulting in net income or balance sheet has changed over a specific period
loss of time

5. Notes
↪ provide additional details and context to the
financial statements. Contains:
↪ Accounting Policies: Methods used in preparing
the financial statements.
↪ Additional Information: Details about specific
items in the financial statements (e.g., breakdown of
fixed assets, explanation of significant
transactions).
2. Statement of Financial Position ↪ Together, these components provide a
↪ aka Balance Sheet comprehensive summary of a company's financial
↪ shows what a company owns and what it owes at a health, performance, and changes in financial
specific point in time. It provides a snapshot of the position over time.
company's financial health. ↪ “Notes to the financial statements” heading
↪ only statement that uses “as of (date)”, the rest
statements uses “for the period/month/year ended”

3. Statement of Cash Flows