Conceptual Framework and Accounting Standards (Valix, Measuring Technical component

2019 edition) Communicating Formal component

Chapter 1
Identifying Recognition or non
Definition of Accounting recognition
Measuring Assigning of peso amounts
Communicating Preparing and Distributing
 Accounting is a service
activity
Identifying
Accounting Standards  The accounting function ⌂ Not all business activities are accountable
Council is to provide
quantitative  e.g. hiring of employees, death of the entity
information, primarily president and entering into contract are all
financial in nature,
about economic entities business activities but such events are not
that is intended to be accountable bc they cannot be quantified or
useful in making
economic decision. expressed in terms of unit of measure.
⌂ An event is accountable or quantifiable wn it has an

 Accounting is the art of effects on assets, liabilities and equity.

recording, classifying ⌂ The subject of matter of accounting is economic activity
Committee on Accounting and summarizing in a
Terminology of the American significant manner and or the measurement of economic resources and
Institute of Certified Public in terms of money, economic obligations.
Accountants transactions and events
which are in part at ⌂ Only economic activities are emphasized and recognized
least of a financial in accounting.
character and
interpreting the results ⌂ Sociological and psychological matters are beyond the
thereof. parlance of accounting.
External and Internal Transactions
 Art is the process of Transactions is an economic activity of an entity wc may
American Accounting identifying, measuring
Association and communicating be classified as external and internal.
economic information External transactions or exchange transactions are those
to permit informed economic events involving one entity and another entity such
judgement and decision as;
by users of the 1. Purchase of goods from supplier
information. 2. Borrowing money from a bank
3. Sale of goods to a customer
4. Payment of salaries to employees
three important points 5. Payment of taxes to the government
1. Accounting is about quantitative information
Internal Transactions are economic events involving the
2. The information is likely to be financial in nature
entity only.
3. The information should be useful in decision
making
e.g. production and casualty loss

the definition given by aaa has stood the test of time

and this definition states that the very purpose of
accounting is to provide quantitative Process by wc resources are Any sudden, unanticipated
information to be useful in making economic transformed into products loss from fire, flood, eq, and
decision. In addition, it states that; other event ordinarily
termed as an act of god

Identifying Analytical component

 activities, processes information - > reports and
communicates the reports to decision makers.
Measuring
⌂ If acctg info is to be useful, it must be expressed in
*key product of IS - set of FS-- the docs that report financial
terms of common financial denominator
info about an entity to decision makers
⌂ FS w/o monetary amounts would be largely
unintelligible or incomprehensible.
Financial reports tell us how well an entity is performing in
⌂ The Philippine peso is the unit of measuring accountable
terms of profit and loss and where it stands in financial
economic transactions.
terms.
⌂ The measurement bases are historical cost and current
value.
Overall objective of Accounting
Historical Cost most common measure of
- is to provide quantitative financial information about a
financial transactions.
Current Value Includes fair value, value in business that is useful to statement users particularly owners

use, fulfillment value and and creditors in making economic decisions.

current cost. - an accountants task is to supply financial transaction

Communicating
⌂ Identifying and measuring are pointless if cannot be
communicated to potential users.
⌂ Accounting has been called “ Universal Language of
Business: because of communicating process.
⌂ Implicit in the com.p are recording, classifying and
summarizing

 Recording or Journalizing - process of

systematically record of all eco business
transactions.
 Classifying - sorting or grouping of similar and
interrelated eco transactions. It is accomplished by
posting to the ledger.
 Ledger - group of accounts wc are
systematically group into
A,L,E,Ex,In
 Summarizing - presentation of financial statements
1. Statement of Financial Position
2. Income Statement
3. Statement of Comprehensive Income
4. Statement of Changes in Equity
5. Statement of Cash Flows

Accounting is an information system that measures business