CONCEPTUAL FRAMEWORK

AND
ACCOUNTING STANDARDS
ACCTG 016

MODULE 1
OVERVIEW OF
ACCOUNTING
Intended Learning Outcomes
At the end of the session, the students should be able
to:
 discuss the definition of accounting
 Discuss the components of accounting
 cite the overall objective of accounting
 ACCOUNTING
 ACCOUNTING STANDARDS COUNCIL
(ASC)

Accounting is a service activity.

The accounting function is to provide:

 Quantitative information.
 that is Financial in nature and
 Useful in decision making
 ACCOUNTING
 COMMITTEE ON ACCOUNTING TERMINOLOGY OF
THE INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS( AICPA)

ACCOUNTING is the art of :

 Recording,
 Classifying and
 Summarizing in a significant manner
 In terms of Money
 Transactions and events w/c are Financial
in nature
 And Interpreting the results, thereof.
 ACCOUNTING

 AMERICAN ACCOUNTING ASSOC. ( AAA)

ACCOUNTING is the process of :

 identifying,
 measuring and
 communicating economic information
 to permit informed judgements and
decisions
 by users of the information
COMPONENTS OF ACCOUNTING
(IMC)
1. Identifying (Analytical )

2. Measuring (Technical )

3. Communicating (Formal)
 IDENTIFYING
 Process of analyzing events or
transactions whether or not they will be
recognized.
A business activity is recognized , if it is
an “ accountable event”
 An accountable event or “economic”
activity
1. has an effect on the Assets, Liabilities &
Equity
2. Can be measured and expressed in a
unit of measure
 IDENTIFYING
 Accountable events
 Can be “journalized” (Journal Entry)

 Non-accountable events with accounting

relevance should be
 Disclosed in the Notes to the FS
 Recorded thru a Memorandum entry
 2 TYPES OF EVENTS
(TRANSACTIONS)
1.EXTERNAL EVENTS
-events that involve an entity and another
external party

2.INTERNAL EVENTS
-events that do not involve an external
party
 EXTERNAL EVENTS
(Entity and External party)
1. Exchange or Reciprocal Transfer
 giving & receiving of economic
resources
 Discharging of economic obligations
Examples:
 Sale, purchase
 Payment of liabilities
 Receipt of Notes Receivable in exchange
of Accounts receivable
 EXTERNAL EVENTS
(Entity and External party)
2.Non-Reciprocal Transfer
 one way transaction
 party giving something does not receive
anything and vice versa.
Examples:
 Donations, gifts , charitable contributions
 Payment of taxes and fines
 Theft
 Provision of capital by owners
 Distribution of profits, dividends
 EXTERNAL EVENTS
(Entity and External party)
3. Other than Transfer
 involves change in the economic
resources or obligations of an entity
 caused by an external party or source but
does not involve transfer of resources or
obligations.
Examples:
 Change in fair values and price levels
 Obsolescence, technological changes
 Vandalism
 INTERNAL EVENTS
(Entity ONLY)

1. PRODUCTION
 process by which resources are
transformed into finished goods
Examples:
 Conversion of raw materials into finished
products
 Production of farm products
 INTERNAL EVENTS
(Entity ONLY)

1. CASUALTY
 Unanticipated loss from disasters or other
similar events
Examples:
 Loss from fire
 Loss from flood, and other catastrophes
 MEASURING
 Assigning numbers, normally in
monetary terms (Peso amounts)
 Expressed in terms of a common
financial denominator
 Measurement bases (HCRP)
 Historical cost (commonly used)
 Current cost
 Realizable value
 Present value
 Fair value
 Inflation-adjusted cost
 Valuation by

FACT OR OPINION
 BY FACT
- When the measurement is unaffected by
estimates

Examples:
 Ordinary share capital at par value
 Land stated at acquisition cost
 Cash measured at face amount
 Valuation by

FACT OR OPINION
 BY OPINION
- When the measurement is affected by
estimates
Examples:
 Depreciation and amortization expenses
(estimates of useful life and residual values)
 Provisions(estimated liabilities)
 Retained Earnings ( affected by estimates
on income and expenses
 COMMUNICATING
Process of :
 Preparing and
 Disseminating financial statements and
accounting reports to users .

“Accounting is the universal language of

business”

 Interpreting the significance of the

financial statements and reports
 COMMUNICATING
 Communication Processes:

1.Recording – Journalizing (Journal Entry)

2.Classifying – Posting in the Ledger
3.Summarizing – Preparation of Financial
Statements and Reports

Interpreting – involves the computation of

financial ratios (disclosed in
the notes to FS)
 OVERALL OBJECTIVE
 Supply financial information
 That would aid statement users to make
informed judgement and better decisions

 Essence of accounting is “decision

usefulness”
 ECONOMIC ENTITIES
 Use accounting to record economic
activities, process the data, disseminate
information intended to be useful in
making economic decisions.
 Types of Economic Entities:
a.Not for profit entity – whose activities are
not for profit but for the good of
the society as a whole.
b.Business entity – primarily operates for
profit.
 TYPES OF ACCOUNTING INFO
1.Quantitative – expresses in numbers,
quantities, or units
2.Qualitative – expressed in words or
descriptive forms ( found in
the notes or face of the
financial statements)
3.Financial Information- expressed in
money (quantitative at the
same time)
Classification of Accounting Info
as to Users Needs
1.General Purpose
 Meet the common needs of most
statement users.
 Info is provided under financial
accounting
 Governed by GAAP represented by the
PFRS.
Classification of Accounting Info
as to Users Needs
2. Special Purpose
 Designed to meet the specific needs of
particular statement users.
 Info is provided by other types of
accounting ex. Tax accounting and
Managerial Accounting
ACCOUNTING

IS IT A SCIENCE ?

OR

IS IT AN ART?
 Accounting as a Social Science
 It is a body of knowledge which has been
systematically gathered, classified and
organized.

Accounting as a Practical Art

 It requires creative skills and knowledge.
 ACCOUNTING
AS AN INFORMATION SYSTEM

 Measures business activities

 Processes information to reports
 Communicates the reports to decision
makers.
 Product – Set of financial statements

Financial reports tells the financial

performance and condition of an entity.
 “ACCOUNTING”
AS A LANGUAGE OF BUSINESS

 Fundamental to the communication of

financial information
 THANK YOU
AND
GOOD DAY!!!
By: F.G.Gatan, CPA,MBA