INTRODUCTION
Accountancy is monetary record-keeping system which used in many economic
activity. Accountancy used in economics activity start from low class until the
high class, for the examples : small shop and big company. And each activity which used accounting system, it will determine
by complication of used accounting system, for example small shop only needing
simple accounting system and big company will needing more complex accounting system.
The users and uses of accounting information vary. The users include indivuduals, businesses,
investors and creditors, financial analysts, employees and labor unions, taxing
authorities, and other users. Business manager use the accounting information
to set the goals for their organizations, to evaluate their progress towards
these goals and take corective actions if necessary. Potential investor use the
financial statement to evaluate what return they can reasonably expect on their
investment. Potential lenders use the accounting information to determine the
borrower’s ability to meet the sceduled payments. Financial analyst use
accounting information to advise their clients or employers about various
investment alternatives. Employees and labor unions use the accounting
information to evaluate salary and fringe benefit packages.
There are some accountancy specialization that is management accounting,
financial accounting, and goverment accounting. Each accounting specialization
will yield different accounting information. This is because they are also used
accounting information in differen requirement.
DEFINITION
There are several kinds definitions of accounting.
·
Accounting is the systematic recording, reporting, and analysis of
financial transactions of a business.
·
Accounting is collecting, summarizing, analyzing and reporting in monetary terms,
information about the business.
·
Accounting is the
system of recording and summarizing business and financial transactions and
analyzing, verifying, and reporting the results.
·
Accounting
is a system that measures bussiness activities, processes information into
reports, and comunicates the findings to decision makers.
·
The
American Institute of Certified Public Accountants (AICPA)
defines accountancy as “the art of recording, classifying, and summarizing in a
significant manner and in terms of money, transactions and events which are, in
part at least, of financial character, and interpreting the results thereof.”
From definition
above we can take conclusion Accounting
is the art of recording, classifying, analyzing, summarizing of financial transactions of a business and
interpreting the results thereof to make decision or what else. Or we can take
another definition, Accounting is service
activity which give quantitative information of economic unity especially
having the character of worthwhile finance in decision making.
TYPES
OF ACCOUNTING
Accounting provides information to
several groups of people and for different purposes. As a result, there are several kinds of
accounting:
·
Financial
accounting provides information to external users. Such external users can be investors,
creditors, banks, regulatory bodies .
·
Managerial
accounting provides information to internal users. Such internal users include a company’s
managers and employees. The information
accumulated and presented by managerial accounting function includes sales
figures, gross margin analysis, cost information broken down by product line,
etc
·
Tax
accounting can be distinguished as another kind. Tax accounting deals mainly with calculation
of taxes .
ACCOUNTING
ELEMENT
There are several kinds of
accounting element :
·
Assets are resources owned by the business entity.
Parts of asset is Cash,
Supplies,
Prepaid expenses,
Buildings.
·
Liabilities are debts owed to outsiders (creditors).
Accounts payable,
Notes payable,
Wages payable
are parts of libilities
·
Owner’s equity is the owner’s right to the assets of the
business. A drawing account represents the amount
of withdrawals by the owner.
·
Revenues are increases in owner’s equity as a result of
selling services or products to customers. Parts of revenue is Fees earned, Commission revenue, and Rent revenue.
·
Expenses is The using up of assets or consuming services in the process of
generating revenues. Wages expense, Rent expense, Miscellaneous expense are parts of
expense.
BASIC OF ACCOUNTING SYSTEMS
·
Cash
or receipt basis
accounting
implies that any transaction should be recorded in accounting records when cash
movement takes place. Only when cash is
received from the customer, will the company record the sales transaction.
·
Accrual
or mercantile basis
accounting implies that any sales transaction,
the revenue will be recognized by the company when the goods are delivered to
the customer and not when the customer pays for the goods.
·
Hybrid or mixed basis is the
combination of both the basis i.e. cash as well as mercantile basis. Incomes
are recorded on cash basis but expenses are recorded on mercantile basis. The
following illustration will make the distinction clear between cash and
mercantile basis of accounting.
JOURNAL
Journal is the transaction which is initially entered in a record. The process of recording a transaction in the
journal is called journalizing.
Journalizing requires the following steps:
·
Record
the date. If this is the first entry on
the page, the year is inserted above the month.
As long as the month does not change, the rest of the journal entries on
the require on the day be recorded.
·
The
title of the account debited is listed in the Description column.
·
Enter
the amount in the Debit column.
·
Record
the credit account in the Description column.
·
Enter
the amount in the Credit column.
NATURE OF THE ADJUSTING PROCESS
Under the accrual
basis of accounting, revenues are reported in the income statement in the
period in which they are earned. The accounting concept that supports this approach to reporting of revenues is called the revenue recognition concept. The accounting concept that supports reporting
revenues and related expenses in the same period is called the matching concept,
or matching
principle.
Under
the cash
basis of accounting, revenues and expenses are reported in the income
statement in the period in which cash is received or paid.
The analysis and updating of
accounts at the end of the period before the financial statements are prepared
is called the adjusting
process. The
journal entries that bring the accounts up to date at the end of the accounting
period are called adjusting entries.
Prepaid expenses, sometimes referred to as deferred expenses, are items that have
been initially recorded as assets but are expected to become expenses over time
or through the normal operations of the business. Unearned revenues, sometimes referred to as deferred revenues,
are items that have been initially recorded as liabilities but are expected to
become revenues over time or through the normal operations of the
business.
Accrued revenues, sometimes referred to as accrued assets (accrued means unpaid),
are revenues that have been earned but have not been recorded in the
accounts. Accrued expenses, sometimes referred to
as accrued
liabilities, are expenses that have been incurred but have not been
recorded in the accounts.
FOUR BASIC
FINANCIAL STATEMENTS
There are four basic financial statements in financial accounting
·
Income
Statement shows the profit or loss for the period. It includes revenues and expenses, which
provide the net result for the period.
·
Equity
Statement shows the capital and other equity accounts of the
company and how such accounts changed during the period.
·
Balance
Sheet shows the company’s assets, liabilities and equity
as of the end of the period.
·
Cash
Flow Statement shows the cash movements during the
period. Such cash movements include all
cash receipts and expenditures.
SOURCES
Warren, Carl S, Reeve, Fess.2005. Accounting. South
Western : Thomson Learning
June 2, 2015 at 3:27 AM
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