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Financial Accounting Notes
Financial Accounting Notes
CONCEPTUAL FRAMEWORK
INTRODUCTIO
N TO
CONCEPTUAL
FRAMEWORK
SAC 1: THE REPORTING ENTITY
Objective of GPFR – provide financial information about the reporting entity to the
resource providers (equity, debts) in making their decisions.
3. INTERNAL USERS
- Managers e.g. production supervisors, directors
- Don’t rely on GPFR since they can obtain information internally
COST PRINCIPLE
- Assets are initially recorded in the accounts at purchase price / cost
- However entities sometimes deviate from the cost principle e.g. revaluation of
NCA
REVENUE
o Increase in economic
benefit from ordinary
activities
o E.g. sales revenue, rent,
dividends
GAINS
o Increase in economic
benefit that are not from
ordinary activities
o E.g. gains from sale of NCA
EXPENSES Decreases in economic Decrease in future economic
benefits benefits related to a
Outflows or depletions of decrease in an asset or an
assets or incurrences of increase of a liability become
liabilities probable that can be
Other than those relating measured reliably
to distributions to equity Matching principle: when
participants resulting directly or jointly
3 criteria: from the same transaction as
- Decreases in economic revenues, expenses should be
benefits recognised on the basis of a
- Outflow of assets / direct association with
increase of liabilities revenues.
- Not contributed by Recognise expenses when it is
equity holder incurred
EQUITY The residual interest in the
assets of the entity after
deducting all its liabilities
Equity = Assets –
Liabilities
Transactions/events that
affect equity:
- gains/losses
- owner’s activities
(capital investments,
drawings, dividends)