Fundamentals Of Financial Accounting: Conceptual Frameworks

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

There are grouped as Fundamental Qualitative Characteristics and Enhancing Qualitative Characteristics. Fundamental Qualitative Characteristics includes relevance and faithful representation. According to Conceptual Framework, the information is relevant if it is capable of making a difference to the decisions made by the users. To be relevant, information typically has predictive value and confirmatory value or both. Information has predictive value if it can be used to assist users to evaluate or assess past, present or future value. To have predictive value, the information is not necessary in the form of an explicit forecast or prediction. If it helps users to confirm or change their past evaluations and assessments, the information has confirmatory value. (Ward,

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) https://www.thebalance.com/what-is-financial-capital-3305825 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