REVIEWER IN CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARD:

 ACCOUNTING
 Is a service activity. (ACCOUNTING STANDARDS COUNCIL)
 The art of recording, classifying and summarizing in a significant manner and in terms of
money, transactions, and events which are in parts at least of a financial character and
interpreting the results thereof. (COMMITTEE ON ACCOUNTING TERMINOLOGY)
 The process of identifying, measuring, and communicating economic information to permit
informed judgment and decision by users of the information. (AMERICAN ACCOUNTING
AND ASSOCIATION)
 The very purpose of is to provide quantitative information to be useful in economical
decision. (AMERICAN ACCOUNTING AND ASSOCIATION) (the definition the stood the test of
time).
IMPORTANT POINTS:
(1) Accounting is about quantitative information
(2) The information is likely to be financial in nature.
(3) The information should be useful decision making.
COMPONENTS OF THE DEFINITION FROM AAA:
(A) IDENTIFYING- Analytical component
 The recognition or non-recognition of business activities as “accountable” events.
 Not all business activities are accountable.
 An event is accountable or quantifiable when it has an effect on assets, liabilities,
and equity.
 The subject matter of accounting is economic activity or the measurement of
economic resources and economic obligations.
 Only economic activities are emphasized and recognized in accounting.
 Sociological and psychological matters are beyond the province of accounting.
EXTERNAL AND INTERNAL TRANSACTIONS
 Economic activities of an entity are referred to as transactions which may
classified as EXTERNAL AND INTERNAL.
 EXTERNAL TRANSACTIONS (or Exchange Transactions)- Economic events
involving one entity and another entity.
Examples:
(a) Purchase of goods from a supplier
(b) Borrowing money from a bank
(c) Sale of goods from a customer
(d) Payment of salaries to employee
(e) Payment of taxes to the government
 Internal Transactions- are the economic activities that take place entirely
within the entity only. No other parties are involved.
Examples:
(a) Production- The process by which resources are transformed
into products.
 (b) Casualty loss- any sudden and unanticipated loss from fire,
flood, earthquake, and other event ordinarily termed as an act
of God.
(B) MEASURING- Technical component
 Process of assigning of peso amounts to the accountable economic transactions.
 The measurement bases are historical cost and current value
 Historical cost is the original acquisition cost and the most common
measure of financial transactions.
 Current value includes fair value, value in use, fulfillment values and
current values.
(C) COMMUNICATING- Formal component
 Communicating is the process of preparing and distributing accounting reports to
potential users of accounting information
 Identifying and measuring are pointless if the information contained in the
accounting records cannot be communicated in some form to potential users.
 The communicating process is the reason why accounting has been called
the “Universal language of business.”
 Implicit in the communication process are the recording, classifying, and
summarizing aspects of accounting.
 Recording or journalizing is the process of systematically maintaining a record of all
economic business transactions after they have been identified and measured.
 Classifying is the sorting or grouping and similar and interrelated economic
transactions into their respective classes.
 Classifying is accomplished by posting to the ledger.
 Ledger- group of accounts which are systematically categorized into asset,
liabilities, equity, revenue, and expense accounts.
 Summarizing is the preparation of financial statements (Financial position, Income
statement, Statement of comprehensive income, statement of changes equity, and
statement of cash flows)
 Overall objective of accounting to provide quantitative financial information about business
useful to statement users particularly owners and creditors in making economic decision.
 Accounting- an information system that measures business activities, processes information
into financial reports and communicates the reports to decision makers.
 Accountant’s task- To supply financial information so that the statement users could make
informed judgment and better decision.
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