events.
Several measurement bases are used in
Overview of Accounting and the Conceptual Framework for accounting which include, but not limited to, historical
Financial Reporting cost, fair value, present value, realizable value,
current cost and sometimes inflation adjusted costs.
Definition of Accounting
Accounting Standards Council: 3. Communicating – the process of transforming
Accounting is a service activity. It provides economic data into useful accounting information,
quantitative information primarily financial in nature, about such as financial statements and other accounting
economic entities, that is intended to be useful in making reports, for dissemination to users. It also involves
economic decision. interpreting the significance of the processed
information.
Committee on Accounting Terminology of the American
Institute of CPA: Objective of General Purpose Financial Reporting
Accounting is the art of recording, classifying, and The objective of general purpose financial reporting is
summarizing in a significant manner and in terms of money, to provide financial information about the reporting entity that is
transactions and events which are in part at least of financial useful to existing and potential investors, lenders and other
character and interpreting results thereof. creditors in making decisions relating to providing resources to
the entity.
American Accounting Association (Basic Accounting Theory):
Accounting is the process of identifying, measuring, Changes in Economic Resources and Claims
and communicating economics information to permit informed Changes in a reporting entity’s economic resources
judgments and decisions by users of the information. and claims result from that entity’s financial performance and
from other events or transactions such as issuing debt or
Three Components of Accounting equity instruments.
1. Identifying – it is the process of including the effects
of an accountable event in the statements of financial Financial performance reflected by accrual accounting
position or the statement of comprehensive income Financial performance reflected by past cash flows
through a journal entry. Changes in economic resources and claims not resulting from
financial performance
Types of events or transactions
External events – events that involve an entity and another Fundamental qualitative characteristics
external party.
Exchange (reciprocal transfer) – an event RECOGNITION
wherein there is a reciprocal giving and It refers to the process of incorporating the effects of
receiving of economic resources or an accountable event in the statement of financial position or
discharging of economic obligations between the statement of profit or loss and other comprehensive
an entity and an external party income through a journal entry.
Non-reciprocal transfer – a one-way
transaction in that the party giving something PERIODICITY ASSUMPTION
does not receive anything in return while the During the lifetime of an entity, accountants produce
party receiving does not give anything in financial statements at arbitrary points in time in accordance
exchange with which basic accounting concept.
External events other than transfer – an
event that involves changes in the economic GOING CONCERN ASSUMPTION
resources or obligations of a entity caused What accounting concept justifies the use of accruals and
by an external party or external source but deferrals
does not involve transfers of resources or
obligations.
Internal events – events that do not involve an external party
Production – the process by which resources
are transformed into finished goods.
Casualty – an unanticipated loss from
disasters or other similar events.
2. Measuring – involves assigning numbers, normally in
a monetary terms, to the economic transactions and
