ADVANCED ACCOUNTING

Group 2
 Time - Period Assumption
The total life of the business will be divided into several
periods so that its operating performance for that
particular period can be measured reliably.
For example:
The 80-year life of the business can be divided into 80
equal annual periods, or into equal 160 semi-annual
periods.
 Different Accounting Periods or Time Period
1. MONTHLY - financial statements are prepared at the end of every
month.
2. QUARTERLY - financial statements are prepared at the end of every
three (3) months.

3. SEMI-ANNUALLY - financial statements are prepared at the end of

every six (6) months.

4. ANNUALLY - financial statements are prepared at the end of every

twelve (12) months.
“Interim financial
statements”
CALENDAR YEAR - begins on JANUARY 1 and ends on DECEMBER 31 of
the same year.

FISCAL YEAR - begins on the first day of any month of the year except
JANUARY and ends on the last day of twelfth month completing
a one-year period.
 UNIT OF MEASURE ASSUMPTION

• Quantifiability aspect

• Stability aspect of peso

 QUANTIFIABILITY ASPECT

Suggests that business transaction and

accounting elements shall be expressed in the
financial statement using one common
denominator, and that is the Philippine Peso.
• Other implication of the quantifiability aspect is that only
business transactions and events that are measurable in
peso and at the same time affect the accounting
elements (assets, liabilities and capital) shall be
recognized and included in the preparation of the
financial statements.
 STABILITY ASPECT

• Assumes that the Philippine peso has a stable monetary

value. Meaning the purchasing power of the peso is
constant regardless of change in money values.

• In this regard, the function of accounting is to account for

peso only and not for changes in its purchasing power.
• Example: If the $1 US is equivalent to Php50, the
purchasing power of peso is Php0.05 or 5 cents.

(Meaning a one peso has only 5 centavos real value in the

world market using US dollar as the standard exchange in
benchmark.)
• Everyday, the value of peso in relation to the US dollar fluctuates
or changes. Yet, under the stability aspect of peso, the fluctuation
is not given accounting recognition in recording business
transactions.

• The monetary unit Assumption is also known as “STABLE

MONETARY UNIT OR MONETARY CONVENTION”
 What causes the value of the dollar to fluctuate?

• Most of the worlds currencies are brought and sold based on

flexible exchange rates, meaning their prices fluctuate based on
the supply and demand in the foreign exchange market. A
high demand for a currency or a shortage in its supply will cause
an increase in price.
 ACCRUAL BASIS
Two ways of recording the financial performance of a
business entity:

• Cash basis
• Accrual basis
Cash basis Accrual basis
Transaction are Transaction are recorded
recorded when cash whenever they happen,
is involved. notwithstanding the inflow or
outflow of cash.

A recording Neither the date of

procedure that highly collection nor the date of
emphasizes the payment is important in
date of cash accrual concept.
receipts or cash
payment.
 ACCRUAL BASIS

• Business transactions and events are

recognized when they occur, and not as when
cash or its equivalent is received or paid.
 EXAMPLE
On June 18, 2015, Jiv rendered various electrical services on account to
repair the motor vehicle of Ryan. The services rendered amount to Php
12,000.

Query: In the situation, did Jiv realize an income on June 18, 2015?
Similarly, did Ryan incur repair expense on the same date?

Answer: In both queries, the answer is yes. Under the accrual basis, the
service provider, Jiv, has realized an income already although cash has not
been received yet. On the part of the customer, Ryan, he has incurred
already an expense, though he has not yet paid the service provider.
 Conclusion

• The point of collection and the point if payment are not

necessary in recognizing income and expense under the
accrual basis. The most important concept for an accrual
assumption is that - there exist already the incurrence
of expense and recognition of income.
 QUALITATIVE CHARACTERISTICS OF
FINANCIALSTATEMENTS
Qualitative Characteristics are broadly classified into

1. Fundamental Qualitative Characteristics

1.1 Relevance

1.2 Faithful Representation

2. Enhancing Qualitative Characteristics

2.1 Comparability

2.2 Understandability

2.3 Verifiability

2.4 Timeless
 Relevance

• Accounting information on the face of the financial

statement has the quality of relevance when it influences
the economic decisions of users by helping them
evaluate the past, the present, or the future events or
confirming, or correcting their past evaluations.
• Thus, information like the economic profile, the
programs of the government affecting the business,
and other similar information are not considered
relevant, and should not be included in the general
financial statement
 Faithful Representation
• To be reliable, information must represent faithfully the transactions and the
other events it either purports to represent or could reasonably be expected
to represent.

• Simply stated, accounting information that is supposed to be reported and

should be included in the financial statements. The management should not
withhold any information that will mislead the uses of the financial
statements.
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