CONCEPTUAL

FRAMEWORK AND
ACCOUNTING STAN-
DARDS
 CHAPTER 1
Overview of Accounting

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 accounting.
4. Explain the importance of a uniform set of financial reporting standards.
 Definition of Accounting
Accounting is the process of IDENTIFYING, MEASURING, and COMMU-
NICATING economic information to permit informed judgements and deci-
sions by users of the information.
(American Association of Accountants)

Three important activities included in the definition of accounting

1. Identifying
2. Measuring
3. Communicating
 IDENTIFYING
Process of analyzing events and transactions to determine whether or not they will be recognized.
 Exchange
(Reciprocal Trans-
Exter- fer)
nal Non-reciprocal Transfer
Events
External event other than
TYPES OF transfer
EVENTS OR
TRANSAC-
TIONS
Inter- Production
nal
Events
Casualty
 MEASURING
Involves assigning numbers, normally in monetary terms, to the economic transactions and events.
 COMMUNICATING
Process of transforming economic data into useful accounting information, such as financial statements and
other accounting reports, for dissemination to users. It also involves interpreting the significance of the processed
information.
 BASIC PURPOSE OF ACCOUNTING`
To provide information that is useful in making economic decisions.
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