Chapter 1- Overview of CF

• The conceptual framework is the foundation upon which accounting standards are built.
• Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information (American Accounting Association).
• It is analyzing events and transactions to determine whether or not they will be recognized

  Identifying
• It involves including the effects of an accountable event through journal entry

  Recognition
• This type of event affects economic activities.

  Accountable Events
• This type of event is not recognized but disclosed in the notes or a memorandum entry if it has accounting relevance.

  Non-Accountable Events
• Disclosure only in the notes is not an application of the recognition of process.
• The types of events and transactions are

  1. External Events
  2. Internal Events
• Types of External Events

  1. Exchange or Reciprocal Transfer - give and receive.
• What are examples of Exchange

  Sale, purchase, payment of liabilities, receipt of notes receivable
• Non-reciprocal transfer – one party gives or receives while the other party does not.
• What are examples of non-reciprocal transfer

  Donations, payment of taxes, imposition of fines.
• A distribution to owners are considered as non-reciprocal transfer because they are an external party that gives but does not receive from the entity in this situation.
• Capital Provisions by owners are considered non-reciprocal transfer.
• External event other than transfer- changes in economic resources or obligations but no transfer of resources or obligations happened (e.g., price levels, technological changes)
• This is an event that does not involve an external party but only occurs within the entity itself.

  Internal Events
• It is an internal event wherein resources are transformed into finished goods.

  Production
• It is an internal event wherein there is unanticipated loss from disasters, calamities or other similar events such as earthquakes and fires.

  Casualty
• Is an important activity in accounting wherein there is an assignment of numbers in monetary termsand is the technical component

  Measuring