Conceptual Framework
its operations for an indefinite period of
Accounting:
 Accounting is the process of identifying, measuring,
and communicating economic information to permit
informed judgments and decisions by users of the
information.
 American Association of Accountants
Activities:
1. Identifying- 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- involves transforming economic data into
useful accounting information, such that financial statements
and other accounting reports, for dissemination to users. It
also involves interpreting the significance of the processed
information.
Accounting Concepts:
 Accounting concepts refer to the principles upon
which the process of accounting is based.
 Accounting assumptions (Accounting postulates)- are
the fundamental concepts or principles and basic
notions that provide the foundation of the
accounting process.
 Accounting theory- is logical reasoning in the form of
a set of broad principles that (1) provide a general
frame of reference by which accounting practice.
 Accounting theory- is logical reasoning in the form of
a set of broad principles that (1) provide a general
frame of reference by which accounting practice can
be evaluated and (2) guide the development of new
practices and procedures.
 It is the organized set of concepts and related
principles that explain and guide accountant’s action
in identifying, measuring, communicating accounting
information.  
1. Double-entry system
 each accountable event is recorded in
two parts-debit and credit
2. Going concern assumption 
 the entity is assumed to carry on
time. The entity does not expect to end its
operation in the foreseeable future.
3. Separate Entity (accounting entity/ business
entity/entity concept)
 the entity is viewed separately from its
owners.
4. Stable monetary unit
 all accounting elements are stated in
common unit of measure (i.e. PHP). The
purchasing power of the currency is
regarded as stable or constant and that is
instability is insignificant, hence, ignored.
5. Periodicity (Time Period/Accounting Period)
 the life of the entity is divided into series of
reporting periods.
6. Materiality
 information is material if its omission or
misstatement could influence economic
decisions. It is matter of
professional judment and based on size and
nature of item being judged.
7. Cost-benefit (cost constraint/reasonable assurance)
 the cost of processing and communicating
information should not exceed the benefits
to be derived from it.
8. Accrual Basis of Accounting
 income is recognized when earned rather
than when cash is collected and expenses
are recognized when incurred rather
than when cash is paid.
9. Historical Cost Concept 
 the value of an asset is determined on the
basis of acquisition cost. 
10. Concept of Articulation
 This recognizes that the financial
statements are fundamentally interrelated
and interact with each other. 
11. Full Disclosure Principle
 this principle recognizes that the nature
and amount of information included in the
financial statements reflect a series
of judgment trade-offs.
12. Consistency Concept   costs that are not directly related to
 the financial statements are prepared on
the basis of accounting principles that are
applied consistently from one period to
the next.
13. Matching   costs that do not meet the definition of
 costs are recognized as expenses when the
related revenue is recognized.
14. Entity Theory
 the accounting objective is geared towards
proper income determination- proper
matching of costs against revenues. (ASSETS
= LIABILITIES + EQUITY)
15. Proprietory Theory  
 the accounting objective is geared
towards proper valuation of assets. (ASSETS
- LIABILITIES = EQUITY)
16. Residual Equity Theory
 applicable when there are two classes
of shares issued. (ASSETS - LIABILITIES -
PREFERRED SHAREHOLDERS’ EQUITY =
ORDINARY SHAREHOLDERS’ EQUITY)
17. Fund Theory
 the accounting objective is proper custody
and administration of funds. (FUNDS =CASH
INFLOW - CASH OUTFLOW)
18. Realization
 the process of converting non-cash assets
into cash or claims for cash.
19. Prudence (Conservatism)
 use of caution when making
estimates under conditions of uncertainty
to avoid overstated assets or income and/or
understated expense/liability.
Expense Recognition Principles:
20. Matching concept (Direct Association of costs and
revenues)
 costs that are directly related to the earning
of revenue are recognized as expense in
the same period the related revenue is
recognized.
21. Systematic and rational allocation
the earning of revenue are initially
recognized as assets and recognized as
expenses over the periods their economic
benefits are consumed, using some method
of allocation.
22. Immediate recognition principle
an asset, or ceases to meet the definition of
an asset, are expensed immediately.
Common Branches of Accounting:
1. Financial Accounting
 the branch of accounting that focuses
on general purpose financial statements
2. Management Accounting 
 refers to the accumulation
and communication of information for use
by internal users or management.
3. Cost Accounting
 the systematic recording and analysis of the
costs of materials, labor and overhead
incident to production.
4.  Auditing
 the process of evaluating the
correspondence of certain assetions with
established criteria and expressing an
opinion thereon.
5. Tax Accounting
 the preparation of tax returns and
rendering of tax advice, such as the
determination of the tax consequences of
certain proposed business endeavors.
6. Government Accounting
 refers to the accounting for the
government ans instrumentalities, placing
emphasis on the custody of public funds,
the purposes of which those funds are
committed, and the responsibility
and accountability of the individuals
entrusted with those funds.
7. Fiduciary Accounting
 refers to the handling of accounts managed
by a person entrusted with the custody and
management of property for the benefit of
another.
 8. Estate Accounting  
 refers to the handling of accounts for
fiduciaries who wind up the affairs of a
deceased person.

9. Social Accounting 
 (social and environmental accounting or
social responsibility reporting)
 the process of communicating the social
The Philippines is fully compliant with IFRS since January
and environmental effects of an entity’s
2005
economic actions to the society.
10.  Institutional Accounting
 the accounting for non-profit entities other Philippine Financial Reporting Standards (PFRS)
than the government.
1. Philippine Financial Reporting Standards which
11. Accounting Systems correspond to the International Financial Reporting
 the installation of accounting procedures Standards.
for the accumulation of financial data and 2. Philippine Accounting Standards (PAS) which
designing of accounting forms to be used in correspond to the International Accounting
data gathering. Standards (IAS).
Accounting Research 3. Philippine Interpretations which correspond to
12.
Interpretations of the IFRIC and the Standing
 pertains to the careful analysis of Interpretations Committee and Interpretations
economic events and other variables to developed by the Philippine Interpretations
understand their impact on decisions. Committee.
Bookkeeping and Accounting

 Bookkeeping ends with the preparation of trial International Financial Reporting Standards (IFRS)
balance while accounting requires preparation of
financial reports for interpretations and decision-
making.
 
Global Scale

GAAP 
 is a common set of accepted accounting principles,
standards, and procedures that companies and their
accountants must follow when they compile their
financial statements. 

IFRS 
 is a set of international accounting standards, which
state how particular types of transactions and other
events should be reported in financial statements.

Philippine Setting

Conceptual Framework
 1. Income/Revenue - Income is increases in assets, or
Conceptual Framework  decreases in liabilities, that result in increases in equity, other
 is a summary of the terms and concepts that than those relating to contributions from holders of
underlie the preparation and presentation of equity claims.
financial statements for external users. 
 It provides an overall theoretical foundation for 2. Expense - Expenses are decreases in assets, or increases in
accounting which will guide standard-setters, liabilities, that result in decreases inequity, other than those
preparers and users of finacial information in the relating to distributions to holders of equity claims.
preparation and presentation of statements.
 It is concerned with general
purpose finanial statements, including the T-Account
consolidated financial statements.

Notes: 
 Special purpose financial statements are
outside the scope of Conceptual Framework.
 Conceptual Framework is not an IFRS.
 In case there is conflict, the requirements of  
IFRS shall prevail over the Conceptual Framework.

Journal Entry

 
 

Elements of Accounting:

Financial Position / Balance Sheet (Real or Permanent

Accounts)
1. Asset - A resource controlled by the entity as a result of
past events and from which future economic benefits are
expected to flow to the entity.

2. Liability - A present obligation of the entity arising from

past events, the settlement of which is expected to result in
an outflow from the entity of resources embodying economic
benefits.

3. Equity - Equity is the residual interest in the assets of the

entity after deducting all its liabilities.

Elements of Accounting:

Financial Performance / Income Statement (Nominal or

Temporary Accounts)