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ACCOUNTING: Its Nature and Concepts

This document provides an overview of key accounting concepts. It defines accounting as the process of recording, classifying, and summarizing financial transactions and events to provide quantitative information for economic decision making. The key steps in the accounting cycle and framework for preparing financial statements are described. Underlying assumptions around accrual accounting and going concern are discussed. Elements of reliable financial information and accounting constraints are outlined. The document concludes by describing the components of financial statements, principles for recognizing elements, and approaches for measuring assets and capital.

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54 views

ACCOUNTING: Its Nature and Concepts

This document provides an overview of key accounting concepts. It defines accounting as the process of recording, classifying, and summarizing financial transactions and events to provide quantitative information for economic decision making. The key steps in the accounting cycle and framework for preparing financial statements are described. Underlying assumptions around accrual accounting and going concern are discussed. Elements of reliable financial information and accounting constraints are outlined. The document concludes by describing the components of financial statements, principles for recognizing elements, and approaches for measuring assets and capital.

Uploaded by

dendenlibero
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ACCOUNTING: Its Nature and Concepts

Learning Objectives
At the end of the Chapter, the class shall be able to:
define accounting;
identify the steps in accounting
cycle;
describe the framework for
financial statement preparation;
describe the concept of underlying
assumptions;
state the qualitative characteristics
of the financial statements;

identify the accounting constraints;


discuss the elements of financial
statements;
describe the measurements
procedures of financial elements;
and
discuss the meaning of concept of
capital.

Definitions - AICPA
Accounting is the art of recording, classifying, and
summarizing in a significant manner and in terms of
money, transactions and events which are in part, at
least of a financial character and interpreting the
results thereof.

Definitions - FRSC
Accounting is a service activity. Its function is to
provide quantitative information, primarily financial
in nature, about economic entities, that is intended to
be useful in making economic decision.

Common Denominators
Accounting is a service activity.
The main objective is to provide quantitative
information.
The information is financial in character about the
economic entities.
The information is intended in making economic
decision.

Financial Statements
Statement of
Changes in
Equity
Statement of
Comprehensive
Income

Statement of
Financial
Position

Statement of
Cash Flows

Complete
Set of FS

Notes and
Disclosures

Underlying Assumption: Accrual


Accrual assumption means
that the effects of
transactions and other events
are recognized when they
occur and not as cash or its
equivalent is received or
paid.

Underlying Assumption: Going Concern


Going concern
assumption means the
financial statements are
prepared on the assumption
that an entity will continue in
operation for the foreseeable
future.

Elements of RELIABLE information


Faithful representation
Substance over form
Neutrality
Prudence
Completeness

Accounting Constraints
Timeliness
Cost-Benefit
Balance of
Qualitative
Objectives
Fair
Presentation

Constraints

Relevance
Reliability

Use of the
financial
Statement to
Users

Elements of Financial Statements

Recognition of Elements of FS
REQUISITES

Meets the definition of an


element, and
Satisfies the criteria for
recognition:
Future economic benefit
Cost/value measured with
reliability

PRINCIPLES

Asset recognition principle


Liability recognition
principle
Income recognition principle
Expense recognition
principle

Expense Recognition Procedures


Matching of cost with
revenues
Systematic and rational
allocation
Immediate recognition
Non-matching principle

Measurement of the Elements


Historical Cost
Current Cost
Realizable value

Concept of Capital
Capital Maintenance Approach
Financial Capital
Physical Capital

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