CONCEPTUAL FRAMEWORK

&
ACCOUNTING STANDARDS

Lecture Aid
2019 Edition
LENNIE JUNE CUTIYOG
 GRADING SYSTEM

Midterm Grade = x Class Standing + X Midterm Exam

Tentative FG = x Class Standing + X Final Exam
Final Grade = x TFG + x MG
 Midterm

CS = (((40/50) x 50) + 50) x 2/3

= 60%

ME = (((40/50) x 50) + 50) x 1/3

= 30%

Midterm Grade= 60 + 30

= 90%
 Tentative Final

CS = (((35/50) x 50) + 50) x 2/3

= 56.67%

FE = (((40/50) x 50) + 50) x 1/3

= 30%

Tentative Final Grade= 56.67 + 30

= 86.67%
 Tentative Final

Midterm Grade= 90 x 1/3

=30%

T-Final Grade= 86.67 x 2/3

=57.78%
 Final Grade

87.78 or
88 (PE)
2 (NE)
 Overview of Accounting

Learning Objectives
• Define accounting and state its basic purpose.
• Explain the basic concepts applied in accounting.
• State the branches of accounting and the sectors
in the practice of accountancy.
• Explain the importance of a uniform set of
financial reporting standards.
 Definition of Accounting

• Accounting is “the process of identifying,

measuring, and communicating economic
information to permit informed judgment and of
information.”
(American Association of decisions by users Accountants)
 Three important activities

D
E
C
Communicating I
Measuring S
I
Identifying O
N
Identifying: Types of Events

External
Events

Internal
Events
Measurement

1.Historical cost

Fair value

Present value

Current cost

Sometimes inflation-adjusted cost

Valuation by:

Opinion Fact
Communicating

Recording

Classifying

Summarizing
 Customers

Government
Employees
Agencies

DECISION

Individuals
Vendors and
Financial
 Suppliers
Customers
Potential Labor
investors unions

Governmen
Creditors
t agencies

Trade
Stockholders
associations

Owners
External Public
Users
 Vice
Chief presidents Business
financial unit
officers managers

Chief
Plant
executive
managers
officers

Board of Internal Supervisor

directors
Users s
Basic purpose of accounting

Economic Economic
Information
activities decisions
 Economic Activities

Production Exchange Consumption

Income
Savings Investment
Distribution
Types of Information provided
by accounting

Quantitative Information

Qualitative Information

Financial Information
Types of accounting information classified as to
users’ needs

General Special
Purpose Purpose
 Accounting as Science and Art

Practical
Social Science
Art
Creative skills
Body of knowledge

Systematically Judgment
gathered, classified
and organized
 Accounting as an
information system
Accounting as a
language of
business
Creativ •Use of imagination and
insight to solve problems

e by finding new
relationships (ideas) among
items of information
Thinkin •Most
identifying
important in
alternative

g solutions
Critical
•Involves logical analysis of
issues, using inductive or
deductive reasoning to test

Thinkin new
determine
relationships

effectiveness
to
their

g •Most important in evaluating

alternative solutions
Steps in problem solving

1. •Recognizing a problem

2. •Identifying alternative solutions

3. •Evaluating the alternatives

4. •Selecting a solution from among the alternatives

5. •Implementing the solution

Accounting Concepts
Accounting Assumptions (Postulates)

Accounting Theory
Basic Accounting Concepts

Double-entry system

Going concern

Separate entity
Basic Accounting Concepts

Stable Monetary Unit

Time Period

Materiality Concept

Cost-benefit Relationship
Basic Accounting Concepts

Accrual Basis of Accounting

Historical Cost Concept

Concept of articulation
Basic Accounting Concepts - Continuation

Full Disclosure
Principle
Consistency Concept

Matching

Entity theory
Basic Accounting Concepts

Proprietary Theory
ASSETS-LIABILITIES=CAPITAL

Residual Equity Theory

ASSETS-LIABILITIES-PS=OS

Fund Theory
Basic Accounting Concepts

Realization

Prudence (Conservatism)
Expense Recognition Principles

Matching Concept

Systematic and rational allocation

Immediate Recognition
Financial Statements Financial Report
 Financial Reporting
The provision of financial
information about an entity
that is useful to external
users, primarily the
investors, lenders and other
creditors, in making
investment and credit
decisions
 the entity’s
those resources

manageme
nt
stewardship

Secondar
Primary
y
Objective
Objective
 Financial
accounting
overnment Management
accounting accounting
Common Branches of
Accounting

x accounting Cost accounting

Auditing
 Common
Branches of
Accounting
Bookkeepin
Accounting
g

VS
ACCOUNTANCY

• Profession or practice of accounting

Four sectors in the practice of accountancy

Public
Accounta
ncy

Commerc
Governme
e and
nt
Industry

Education
/Academe
Accounting standards in the
Philippines
• Philippine Financial Reporting Standards (PFRSs) are
Standards and Interpretations adopted by the Financial
Reporting Standards Council (FRSC). They comprise:

Philippine Financial Reporting Standards

Philippine Accounting Standards

Interpretation
The need for reporting standards

• Entities should follow a uniform

set of generally acceptable
reporting standards when
preparing and presenting
financial statements; otherwise,
financial statements would be
misleading.
 The need for reporting standards

• The term “generally acceptable” means

that either:
a. the standard has been established by
an authoritative accounting rule-
making body; or
b.the principle has gained general
acceptance due to practice over time
and has been proven to be most useful.
The need for reporting standards

• The process of establishing

financial accounting standards is
a democratic process in that a
majority of practicing
accountants must agree with a
standard before it becomes
implemented.
Hierarchy of Reporting
Standards

PFRS
Judgment
•PFRSs dealing with
similar and related issues
•Conceptual Framework
Standard
setting
bodies
OPEN FORUM
QUESTIONS????

REACTIONS!!!!!
END