BOOKKEEPPING
Is the process of recording business transactions. Since bookkeeping traditionally assumes the responsibility of recording functions it runs short of classifying and summarizing.
FINANCIAL STATEMENT
Objective: to provide information about financial position, performance and cash flows of an enterprise that is vital in making sound economic decisions.
Statement of Financial Position (Balance Sheet)
“shows the Financial position of an enterprise as of a particular date.”
Elements
a. Assets
“are business resources that have probable future economic
economic benefits and are under management’s control that are results
of past transactions.
b. Liabilities
“are business’ present obligations that are result of past transactions.
c. Owner’s Equity
“the residual interest of the owner in the assets of the business
entity.”
Statement of Comprehensive Income (Income Statement)
“shows the performance of the enterprise”
Elements
a. Revenues- are inflows from services rendered and other activities.
b. Expenses- are outflows of assets or incurrence of liabilities.
Results
Gains- “increase to equity”
“R>E”
Loss- “decrease to equity”
“R Statement of Changes in Owner’s Equity
“summarizes the changes in equity for a period of time”
Elements
1. Investment by the owners
2. Distribution to owners
3. Capital Maintenance Adjustment
Statement of Cash Flows
“provides information about cash inflows (receipts) and outflows (payments)”
1. Operating Cash Flows
2. Investing Cash Flows
3. Financing Cash Flows
Notes that Accompany Financial Statements
“adequate disclosures is perhaps the most important accounting principles to the
users of financial statements.”
Qualities of Financial Statement
1. Understandability- FS should be prepared and represented in a way that
should be prepared and represented in a way that it can be understood by the users.
2. Reliability- FS should carry the degree of confidence when used by
interested parties.
“to be reliable, it must be “free” from material misstatement and from bias”
2.1 Faithful Representation- the FS must be adequate and shows what it
purports to show
2.2 Neutrality- “FS must be free from bias”
- “It is not good to give favor to one party in detriment to
the other”
2.3 Conservatism- Alternative which has the least effect on Owner’s
equity should be chosen.
2.4 Completeness- FS is said to be complete if it contains full disclosure
of significant information.
2.5 Substance over Form- emphasizes the economic substance of events
3. Relevance- “information must be relevant to the decision-making needs of the
users.”
1.1 Materiality- determining whether an item is material or not.
1.2 Predictive Value- FS’s information enables the users to
forecast and make predictions about the outcome.
1.3 Feedback Value
1.4 Timeliness- Financial informations must be available at the
time of need.
4. Comparability-Financial Statement must be worth comparing for with
other companies’.
5. Consistency- method does not only maintain comparability but also
reliability.
Is the process of recording business transactions. Since bookkeeping traditionally assumes the responsibility of recording functions it runs short of classifying and summarizing.
FINANCIAL STATEMENT
Objective: to provide information about financial position, performance and cash flows of an enterprise that is vital in making sound economic decisions.
Statement of Financial Position (Balance Sheet)
“shows the Financial position of an enterprise as of a particular date.”
Elements
a. Assets
“are business resources that have probable future economic
economic benefits and are under management’s control that are results
of past transactions.
b. Liabilities
“are business’ present obligations that are result of past transactions.
c. Owner’s Equity
“the residual interest of the owner in the assets of the business
entity.”
Statement of Comprehensive Income (Income Statement)
“shows the performance of the enterprise”
Elements
a. Revenues- are inflows from services rendered and other activities.
b. Expenses- are outflows of assets or incurrence of liabilities.
Results
Gains- “increase to equity”
“R>E”
Loss- “decrease to equity”
“R
“summarizes the changes in equity for a period of time”
Elements
1. Investment by the owners
2. Distribution to owners
3. Capital Maintenance Adjustment
Statement of Cash Flows
“provides information about cash inflows (receipts) and outflows (payments)”
1. Operating Cash Flows
2. Investing Cash Flows
3. Financing Cash Flows
Notes that Accompany Financial Statements
“adequate disclosures is perhaps the most important accounting principles to the
users of financial statements.”
Qualities of Financial Statement
1. Understandability- FS should be prepared and represented in a way that
should be prepared and represented in a way that it can be understood by the users.
2. Reliability- FS should carry the degree of confidence when used by
interested parties.
“to be reliable, it must be “free” from material misstatement and from bias”
2.1 Faithful Representation- the FS must be adequate and shows what it
purports to show
2.2 Neutrality- “FS must be free from bias”
- “It is not good to give favor to one party in detriment to
the other”
2.3 Conservatism- Alternative which has the least effect on Owner’s
equity should be chosen.
2.4 Completeness- FS is said to be complete if it contains full disclosure
of significant information.
2.5 Substance over Form- emphasizes the economic substance of events
3. Relevance- “information must be relevant to the decision-making needs of the
users.”
1.1 Materiality- determining whether an item is material or not.
1.2 Predictive Value- FS’s information enables the users to
forecast and make predictions about the outcome.
1.3 Feedback Value
1.4 Timeliness- Financial informations must be available at the
time of need.
4. Comparability-Financial Statement must be worth comparing for with
other companies’.
5. Consistency- method does not only maintain comparability but also
reliability.
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