CONCEPTUAL FRAMEWORK AND ACCOUNTING

STANDARDS
 ACCOUNTING OVERVIEW

Learning Objectives

1. Define accounting and state its basic purpose

2. Explain the basic concepts applied in accounting
3. State the branches of accounting and the sectors
in the practice of accountancy
4. Explain the importance of a uniform set of
financial reporting standards
ACCOUNTING - is the language of business.

ACCOUNTING - is the art of recording, classifying

and summarizing in a significant manner and
in terms of money, transaction and events which
are, in part at least, of a financial character, and
interpreting the result thereof (AICPA)
 ACCOUNTING AS SCIENCE, ART & INFO SYSTEM

1. As social science its is body of knowledge which

has systematically gathered, classified and
organized.
2. As a practical art, it requires the use of creative
skills and judgement
3. As information system, it identifies, measures
economic activities, process info into financial
reports and communicate to users.
 ASPECT OF COMMUNICATING PROCESS

1. Recording - systematically committing into

writing the identified and measured events
2. Classifying - the grouping of similar and
interelated items into classes thru journal
entries
3. Summarizing - putting together in condensed
form recorded events thru financial statements
or reports
ACCOUNTING - is the process of identifying,
measuring and communicating economic
information to permit informed judgements
and decision by users of the information (AAA)
 3 IMPORTANT ACTIVITIES

1. Identifying - is the process of analyzing events

and transactions to determine whether or not
they will be recognized.

2. Measuring - involves assigning numbers,

normally in monetary terms, to the economic
transactions and events.
3. Communicating - the process of transforming
economic data into useful informations, such
as financial statements and other accounting
reports, for dissemination to users.
 BASIC PURPOSE OF ACCOUNTING

To provide information (for economic entity) that is

useful in making economic decision.

Economic entity - is identifiable combination of

persons and property that uses or control
economic resources to achieve certain goals or
objectives.
Economic entities use accounting to record
economic activities, process data, and
disseminate information intended to be
useful in making economic decisions.
 TYPES OF ECONOMIC ENTITY

a. Not-for-profit entity-carries out some socially

desirable needs not directed towards making
profit

b. Business entity - one that operates primarily

for profit
Economic activities are those that affect the
economic resources (assets) and obligations
(liabilities) and the equity (capital) of an
economic entity.
 EXAMPLE OF ECONOMIC ACTIVITIES

1. Production
2. Exchange
3. Consumption
4. Income distribution
5. Savings
6. Investment
 TYPE OF INFORMATIONS PROVIDED BY ACCTG.

1. Quantitative information - are those expressed in

numbers, quantities or unit of measure
2. Qualitative information - are those expressed in
words or descriptive form.
3. Financial information - are those expressed in
money and therefore also quantitative in nature
 TYPE OF EVENTS OR TRANSACTION

1. External events - two parties are involved

a. exchange /reciprocal transfer - wherein
there is reciprocal giving and receiving
of economic resources or obligations
(ex. Sales,purchase,payment,receipt)
b. non-reciprocal transfer/1-way transaction
the party giving does not receive anything
in return while party receiving does not
give anything in exchange
(ex.donation,gifts,distribution to owners)
c. external event other than transfer events
that involves changes in the economic
resources or obligations of an entity caused
by an external party or external source but
does not involve transfer of resources or
obligations.
(ex.obsolence,fair value change,vandalism)
2. Internal events- does not involve an external
party

a. production - transforming resources into

finished goods

b. casualty - unanticipated loss from disaster

or other similar events
 EXAMPLE OF VALUATION BY OPINION

a. Estimate of uncollectibe receivables

b. Depreciation and amortization expenses
c. Estimated liabilities such as provision
d. Retained earnings w/c is affected by various
estimated income and expenses
 EXAMPLE OF VALUATION BY FACT

a. Ordinary share capital valued at par value

b. Land stated at acquisition cost
c. Cash measured at face amount
 TYPE OF INFORMATIONS AS TO USERS'

1. General purpose - designed to meet common

needs of most statement users.

2. Special purpose - designed to meet the

specific needs of particular users.
 SOURCES OF INFORMATIONS

1. Internal sources - mostly accounting records

2. External sources - from others ex. Fair value,

future lease payment, contractual
commitment
 CREATIVE VS. CRITICAL THINKING IN ACCTG.

1. Creative thinking use of imagination and

insight to solve problems by finding new ideas
or alternative solutions

2. Critical thinking use of logical analysis of

issues using inductive or deductive reasoning
to test new ideas to determine their
effectiveness
 STEPS IN PROBLEM SOLVING

1. Recognizing a problem
2. Identifying alternative solutions
3. Evaluating the alternatives
4. Selecting solution from among the alternatives
5. Implementing the solution
 ACCOUNTING CONCEPT

refer to the principles upon which the process

of accounting is based.

The term is used interchangeably with the ff.

Accounting assumptions - fundamental

concept or principles and basic notions that
provide the foundation of accounting process.
Accounting theory - is logical reasoning in the
form of a set of broad principles that:
(a) provide a general frame of reference to
evaluate accounting practice (b) guide the
development of new practice or procedures.
 SOME ACCOUNTING CONCEPTS/PRINCIPLES

1. Double entry system

2. Going concern assumption
3. Separate entity
4. Stable monetary unit
5. Time period/periodicity
6. Materiality concept
7. Cost-benefit
8. Accrual basis of accounting
9. Historical cost accounting
10. Concept of articulation
11. Full disclosure principle
12. Consistency concept
13. Matching
14. Entity theory
15. Proprietary theory
16. Residual equity theory
17. Fund theory
18. Realization
19. Prudence/conservatism
20. Matching concept
21. Systematic/rational allocation
22. Immediate recognition
 BRANCHES OF ACCOUNTING

1. Financial accounting
2. Management accounting
3. Cost accounting
4. Auditing
5. Tax accounting
6. Government accounting
7. Fiduciary accounting
8. Estate accounting
9. Social accounting
10. Institutional accounting
11. Accounting system
12. Accounting research
 BOOKKEEPING VS ACCOUNTING

Bookkeeping refers to the process of recording

the accounts or transaction of an entity.
Normally the work of bookkeeper ends with
trial balance.
It does not require the interpretation of the
signifance of the processed information.
Accountancy refers to the profession or practice
of accounting. The practice of accounting can be
classified into (1) Public or (2) Private practice

Public practice does not involve an employer-

employee relationship.
 FOUR SECTORS OF ACCOUNTING PRACTICE

1. Practice of Public Accountancy

2. Practice in Commerce and Industry
3. Practice in Education/Academe
4. Practice in the Government
The End