ACCOUNTING

BASIC

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 Learning Objectives

1. Explain what accounting is.

2. Identify the users and uses of accounting.
3. Understand why ethics is a fundamental business
concept.
4. Explain accounting standards and the measurement
principles.
5. Explain the monetary unit assumption and the economic
entity assumption.
6. State the accounting equation, and define its components.
7. Analyze the effects of business transactions on the
accounting equation.
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 What is Accounting?

Accounting consists of three basic activities - it

 identifies,

 records, and

 communicates

the economic events of an organization to interested users.

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 What is Accounting?
Illustration 1-1

Three Activities The activities of the

accounting process

The accounting process includes

the bookkeeping function.

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 Who Uses Accounting Data

External
Internal Users
Human Taxing
Users
Resources Authorities
Labor
Unions
Finance
Management Customers

Creditors
Marketing Regulatory
Agencies
Investors

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 Who Uses Accounting Data

Common Questions Asked User

1. Can we afford to give our
employees a pay raise? Human Resources
2. Did the company earn a
satisfactory income? Investors
3. Should any product lines be
eliminated? Management
4. Is cash sufficient to pay dividends
to shareholders? Finance
5. What price for our product will
maximize net income? Marketing
6. Will the company be able to pay
its debts? Creditors
1-6 LO 2 Identify the users and uses of accounting.
 Ethics In Financial Reporting

Standards of conduct by which one’s actions are judged as

right or wrong, honest or dishonest, fair or not fair, are
ethics.

 Recent financial scandals include: Enron (USA),

Parmalat (ITA), Satyam Computer Services (IND), AIG
(USA), and others.

 Effective financial reporting depends on sound ethical

behavior.

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 The Building Blocks of Accounting

Ethics In Financial Reporting

Illustration 1-4
Steps in analyzing ethics cases
and situations

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 Ethics in Financial Reporting

Question
Ethics are the standards of conduct by which one's actions are
judged as:

a. right or wrong.

b. honest or dishonest.

c. fair or not fair.

d. all of these options.

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 Accounting Standards

International Accounting Standards Board (IASB)

http://www.iasb.org/

International Financial Reporting Standards (IFRS)

Financial Accounting Standards Board (FASB)

http://www.fasb.org/

Generally Accepted Accounting Principles (GAAP)

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 Standar Akuntansi Keuangan di Indonesia

1. PSAK-IFRS. Pernyataan Standar Akuntansi Keuangan-

International Financial Report Standard (PSAK) adalah
nama lain sari SAK (Standar Akuntansi Keuangan) yang
diterapkan Ikatan Akuntansi Indonesia (IAI) pada Tahun
2012 lalu. Standar ini digunakan untuk badan atau bisnis
yang memiliki akuntabilitas publik

2. SAK-ETAP. Standar Akuntansi Keuangan untuk Entitas

Tanpa Akuntansi Publik (SAK-ETAP) digunakan untuk
entitas yang akuntabilitas publiknya tidak signifikan dan
laporan keuangannya hanya untuk tujuan umum bagi
pengguna eksternal.

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 Standar Akuntansi Keuangan di Indonesia

3. PSAK- Syariah. PSAK-Syariah merupakan pedoman

yang dapat digunakan untuk lembaga-lembaga
kebijakan syariah seperti bank syariah, pegadaian
syariah, badan zakat, dan sebagainya. Mengacu pada
Fatwa MUI.

4. SAP. Standar Akuntansi Pemerintah (SAP),

ditetapkan sebagai peraturan pemerintah yang
diterapkan untuk entitas pemerintah dalam menyusun
Laporan Keuangan Pemerintah Pusat (LKPP) dan
Laporan Keuangan Pemerintah Daerah (LKPD)

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 Measurement Principles

Cost Principle – or historical cost principle, dictates that

companies record assets at their cost.

Fair Value Principle – states that assets and liabilities

should be reported at fair value (the price received to sell an
asset or settle a liability).

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 Assumptions

Monetary Unit – include in the accounting records only

transaction data that can be expressed in money terms.

Economic Entity – requires that activities of the entity be

kept separate and distinct from the activities of its owner and
all other economic entities.
 Proprietorship.
 Partnership. Forms of Business
Ownership
 Corporation.

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 Forms of Business Ownership

Proprietorship Partnership Corporation

 Generally owned  Owned by two or  Ownership

by one person more persons divided into
 Often small shares
 Often retail and
service-type service-type  Separate legal
businesses businesses entity organized
 Owner receives under corporation
 Generally
any profits, law
unlimited
suffers any personal liability  Limited liability
losses, and is
 Partnership
personally liable
agreement
for all debts

LO 5 Explain the monetary unit assumption

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and the economic entity assumption.
 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Applies to all economic entities regardless of size.

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 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Assets
 Resources a business owns.
 Provide future services or benefits.
 Cash, Inventory, Equipment, etc.

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 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Liabilities
 Claims against assets (debts and obligations).
 Creditors - party to whom money is owed.
 Accounts payable, Notes payable, etc.

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 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Equity
 Ownership claim on total assets.
 Referred to as residual equity.
 Share capital-ordinary and retained earnings.

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 The Basic Accounting Equation
Illustration 1-7

Revenues result from business activities entered into for the purpose
of earning income.
Generally results from selling merchandise, performing services,
renting property, and lending money.

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 The Basic Accounting Equation
Illustration 1-7

Expenses are the cost of assets consumed or services used in the

process of earning revenue.
Common expenses are salaries expense, rent expense, interest
expense, property tax expense, etc.

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 The Basic Accounting Equation
Illustration 1-7

Dividends are the distribution of cash or other assets to shareholders.

 Reduce retained earnings
 Not an expense

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 Using the Accounting Equation

Transactions are a business’s economic events recorded

by accountants.

 May be external or internal.

 Not all activities represent transactions.

 Each transaction has a dual effect on the accounting

equation.

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 Using the Accounting Equation

Illustration: Are the following events recorded in the accounting

records?
Illustration 1-8
Discuss
Purchase product
Event Pay rent.
computer. design with
customer.

Criterion Is the financial position (assets, liabilities, or equity)

of the company changed?

Record/
Don’t Record

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 Using the Accounting Equation

Transaction Analysis
Illustration 1-9
Expanded accounting equation

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 Transaction Analysis
Transaction (1). Investment by Shareholders. Ray and Barbara Neal
decides to open a computer programming service which he names
Softbyte. On September 1, 2014, they invest €15,000 cash in exchange for
€15,000 of ordinary shares.
Illustration 1-10

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 Transaction Analysis
Transaction (2). Purchase of Equipment for Cash. Softbyte purchases
computer equipment for €7,000 cash.

Illustration 1-10

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 Transaction Analysis
Transaction (3). Purchase of Supplies on Credit. Softbyte purchases
for €1,600 from Acme Supply Company computer paper and other supplies
expected to last several months. The purchase is on account.

Illustration 1-10

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 Transaction Analysis
Transaction (4). Services Provided for Cash. Softbyte receives €1,200
cash from customers for programming services it has provided.

Illustration 1-10

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 Transaction Analysis
Transaction (5). Purchase of Advertising on Credit. Softbyte receives a
bill for €250 from the Daily News for advertising but postpones payment
until a later date.

Illustration 1-10

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 Transaction Analysis
Transaction (6). Services Provided for Cash and Credit. Softbyte
provides €3,500 of programming services for customers. The company
receives cash of €1,500 from customers, and it bills the balance of €2,000
on account.
Illustration 1-10

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 Transaction Analysis
Transaction (7). Payment of Expenses. Softbyte pays the following
expenses in cash for September: store rent €600, salaries and wages of
employees €900, and utilities €200.

Illustration 1-10

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 Transaction Analysis
Transaction (8). Payment of Accounts Payable. Softbyte pays its €250
Daily News bill in cash.

Illustration 1-10

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 Transaction Analysis
Transaction (9). Receipt of Cash on Account. Softbyte receives €600 in
cash from customers who had been billed for services [in Transaction (6)].

Illustration 1-10

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 Transaction Analysis
Transaction (10). Dividends. The corporation pays a dividend of €1,300
in cash.

Illustration 1-10

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