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ACC 124 - Assignment 2 - Tabanao

The conceptual framework provides the foundational concepts and principles for financial reporting and the preparation of financial statements. It establishes the objectives of financial reporting, the qualitative characteristics of useful financial information, and defines the key elements - assets, liabilities, equity, income and expenses - that are used to construct financial statements. The conceptual framework also outlines recognition principles for assets, liabilities, income and expenses to guide when these elements should be included in financial statements. The conceptual framework is intended to assist various stakeholders, including standard setters, preparers, users and auditors of financial statements.

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44 views3 pages

ACC 124 - Assignment 2 - Tabanao

The conceptual framework provides the foundational concepts and principles for financial reporting and the preparation of financial statements. It establishes the objectives of financial reporting, the qualitative characteristics of useful financial information, and defines the key elements - assets, liabilities, equity, income and expenses - that are used to construct financial statements. The conceptual framework also outlines recognition principles for assets, liabilities, income and expenses to guide when these elements should be included in financial statements. The conceptual framework is intended to assist various stakeholders, including standard setters, preparers, users and auditors of financial statements.

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Name: Louise Justin S.

Tabanao Subject and Code: ACC 124 – 8716

Conceptual Framework
- It is a summary of the terms and concepts that underlie the preparation
and presentation of financial statements for external users. The conceptual
framework holds authoritative status in the development of
accounting standards, providing a foundational basis for consistent and
coherent principles.

Purpose of Conceptual Framework


▪ To assist the FRSC in developing accounting standards that represent
Philippine GAAP.
▪ To assist preparers of financial statements in applying accounting
standards and dealing with issues not yet covered by GAAP.
▪ To assist the FRSC in its review and adoption of IAS.
▪ To assist users of financial statements in interpreting the information
contained in the financial statements.
▪ To assist auditors in forming an opinion as to whether financial
statements conform with Philippine GAAP.
▪ To provide information to those interested in the work of the FRSC in
the formulation of PFRS.

Scope of Conceptual Framework

• Objective of financial reporting


• Qualitative characteristics of useful financial information
• Definition, recognition, and measurement of the elements from which
financial statements are constructed
• Concepts of capital and capital maintenance
Users of Financial Information

1. Primary users – investors, lenders, other creditors


2. Other users - employees, customers, governments, the public

Elements of Financial Statements

Assets – are resources controlled by the entity as a result of past


transactions or events and from which future economic benefits are
expected to flow to the entity.

Liabilities – these are present obligations of the entity arising from


past transactions or events the settlement of which is expected to
result in an outflow of resources embodying economic benefits.

Equity – this is the residual interest in the asset of the entity after
deducting all of its liabilities.

Income – this is an increase in economic benefit during the


accounting period in the form of an inflow or increase of assets or
decrease of liability that increases equity, other than contribution from
equity participants.

Expenses – this is a decrease in economic benefits during the


accounting period in the form of an outflow or decrease in an asset or
increase in liability that results in a decrease in equity, other than
distribution to equity participants.
The 4 Recognition Principles

Asset Recognition Principle

An asset is recognized when;

1. It is probable that future economic benefits will flow to the entity.


2. The cost or value of the asset can be measured reliably.

Liability Recognition Principle

A liability is recognized when;

1. It is probable that an outflow of resources embodying economic


benefits will be required for the settlement of a present obligation.
2. The amount of the obligation can be measured reliably.

Income Recognition Principle

An income is recognized when;

1. It is probable that future economic benefits will flow to the entity as


a result of an increase in an asset or a decrease in a liability.
2. The economic benefits can be measured reliably.

Expense Recognition Principle

An expense is recognized when;

1. It is probable that a decrease in future economic benefits has


occurred.
2. The decrease in economic benefits can be measured reliably

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