Conceptual Framework In Accounting

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Conceptual Framework The conceptual framework set out the concepts that underlie the preparation and presentation of general purpose financial statements. It provides guidance on the fundamental accounting. General purpose statements are statements about an economic entity’s financial performance, which can be used by a wide range of users: both internal and external users but more on external users such as investors, lenders, creditors, government agencies and the general public. As we know, a complete set of financial statements consist of a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows. The conceptual framework was introduced…show more content…
In order to properly assess the entity’s relative financial position, performance and changes in financial position, users must be able to compare items within the financial statements of an entity within one time period, over time and relative to other entities. There are several attributes of information are considered to be related to comparability including consistency, uniformity, accounting policies and comparative disclosures. When the information is verifiable, it does not mean that different knowledgeable and independent observers will agree with the exact amount being depicted in the financial statements. However, it mean that they should be able to reach a consensus that the information provided faithfully represent the underlying transaction/phenomenon. Timeliness is particular to the information being depicted. In some instances, the older the information the less relevant it becomes, in other instances older information becomes more relevant as it enables the user to better assess trends and improves the verifiability and hence faithful representation of the information. (Ward, Introduction to Financial Accounting, 2015) Understandability includes user’s abilities and aggregation and classification. Financial information is aggregated and classified according to standard disclosure to aid understandability. (Ward, Introducton to Financial Accounting,…show more content…
Profit is the maximum amount that an entity can consume during a period and yet as well off at the end as at the beginning of the period according to Professor Hicks. Therefore, profit is excess after the original position has been maintained. There is a question on how do we measure and maintain the original position. Conceptual Framework states 2 ways of measuring and maintaining the original position. It can be maintained whether in term of financial capital or physical capital. Financial capital is defined as the money, credit or any forms of funding that company use to invest in their businesses. They should stop using the funds to pay themselves, increase dividends or lower prices to produce greater gains in future. Financial capital is used to transform the existing business into something better and more profitable. (Amadeo, 2016) If the profit measurement is done by maintaining the financial capital, the profit is the excess amount after deducting the cash amount used in acquiring the item from cash amount obtained from selling the

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