Understanding the Conceptual Framework for Financial Statements:
School: University of New England - Course: ACCOUNTING AFM301 - Subject: Accounting
Conceptual Framework Is a set of broad principles that provide the basis for guiding actions or decisions. They are designed when people decide they need the theories of something to be integrated into a single structure, usually because they are inconsistencies, anomalies or represent tradition or habit without any explicit rationale. Almost all countries adhere to the international standards. Australian standards are the same as the international ones; they are just translated for Australian local standards. We can judge whether a framework is any good by its ability to generate consistent accounting standards. Meaning, it has no contradiction with any other standard. The conceptual framework says that it is concerned with general purpose financial statements, so it doesn't concede that regular accounting reports are aimed wholly and exclusively at investors. It says that other people might find them useful. The purpose is to meet the decision making needs of the users. The information you need to make an effective decision. Matching principle Sales are related to costs of sales and associated overheads. Therefore, expenses can get accrued at the end of the year, and we are interested in when the contract is valid, not when the cash is paid from the point of view of deciding whether to record a transaction or not. If it wasn't an accrual basis, it would be a bash basis. If it was a cash basis, you just have a cash flow book inside the firm and the cash flow statement coming out of the firm. An accrual basis is used generally because it is thought to be a good practice to have the
matching principle apply so that we can work out a gross profit on sales. Going concern- this means that the firm is valued on the basis that its going to stay in business not the breakup value of all of its assets. FOUR PRINCIPLES Understandability -Accounts have to be capable of being understood by somebody who takes care to read the accounts and someone who has had training in accounting. Relevance- information of accounts should be directly useful to making a decision whether to buy or sell or hold shares. REliability -Theaccounts can be trusted because they are compiled on a consistent basis over time. Comparability- they conform to the standards or other guidelines so that your accounts can be compared with accounts prepared by competitors. FIVE ELEMENTS Assets - Liabilities Equity Income Expenses
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Related Assignment Questions
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