1. BASIC CONCEPT of ACCOUNTING
and
FINANCIAL REPORTING

2. 1 ACCOUNTING and BUSINESS OPERATIONS
CHAPTER
ACCOUNTING and
BUSINESS OPERATIONS 1
A. The Definition of Accounting and Its Purposes
Accounting can be defined from at least two point of views:
It can emphasize the uses in which accounting information is put.
It can emphasize the activities of accountants or accounting process.

3. Emphasis on use a discipline which provides …..
Accounting has been defined as:
a discipline which provides …..
essential information to the efficient conducting and evaluation of the activities of any organization or financial transaction.

4. What is Accounting?
The central of accounting is the organization (business firm).
Accounting information is vital to a business firm’s activity. It is used for decision making by inside (management) and outside (investors, creditors, etc) of the organization.

5. Emphasis on activity
In the second definition the work of the accountants is emphasized
In accounting ….. the effects of the economic activities of an enterprise are accumulated, analyzed, quantified, classified, recorded, summarized, and reported as information.

6. Accountant Must be
Identifying data are relevant to the decision to be made.
Processing or analyzing the relevant data.
Transforming data into information that can be used in making better decision.

7. B. The Role and Users of Accounting Information
Accounting information is used as source of information for decision making.
Financial accounting information usually is directed toward the common needs of a wide variety of users.

8. The Users of Accounting Information
Managers. Accounting information is used by managers to help them for making a plan of company’s activities, evaluating, and making correction.
Investors or owners. They need the accounting information for decision making to decide whether to keep or give up their ownership interests.

9. Creditors. Accounting information will help them decide whether to extend credit to the firm (let the firm obtains goods, services, or cash with postponed payment).
Governmental bodies. They need an accounting information for evaluating tax returns and checking whether the firms are following governmental rules, regulations, and laws.

10. Non profit organizations
Non profit organizations. They need accounting information to help them make a plan, budget and pay many expenses, like salaries, utilities expenses, etc.
Others (labor unions, customers of the firm, etc). An accounting information is needed to help them negotiate (discuss arrange) labor contracts, follow the development of the company or make a wide variety decision and make decisions about possible future relationship.

11. C. The Accounting Profession
There are two broad fields in which a professionally trained accountant can employ his services:
Public accounting
Internal accounting

12. Public Accounting
It concerned to accounting services for public society
Licensed professionals engaged in the practice of public accounting are called Certified Public Accountant (CPA)
The most important service performed by public accountants is auditing of company’s financial statement

13. Others activities of public accountants are handling tax, accounting information system, etc
All CPAs are not necessarily engaged in the practice of public accounting
Some of CPAs can be employees of firms or teachers or working for governmental bodies or other profession.

14. Internal Accounting
Accountants employed by individual business firms are engaged in private accounting. They are called internal accountant or private accountant
A number of different services that private accountants perform are controller, bookkeeper, cost accountants, internal auditor, tax specialist, and budget former

15. D. The Fields of Accounting Specialization
1. Financial/ general accounting
It produces financial information which is prepared in the financial statement
Users of these information are external decision maker. They are company’s owners, creditors, government, employees, and customers of the company

16. 2. Cost accounting
This field generate the information of various costs in the manufacture and sale of the firm’s goods
The main category of information needed by management is to be a plan and control for daily company activities
These information will be used to make both long term and short term plan and

17. 3. Management accounting
There are three function in management accounting activities, that are:
To choose and plan data
To analysis data
To prepare report for management
A product of management accounting is management report

18. 4. Auditing
Auditing is the field of accounting related by audit activities to notes of financial accounting product
An audit is simply an investigation and study of the financial statement and reports prepared by a firm to determine if these reports are prepared according to generally accepted accounting principles (GAAP)

19. 5. Tax accounting
It’s concerned with determining tax expense of the company. It can help the company to choose their activities by management’s judgment

20. It describes and explains to collect and process:
6. Budgetary accounting
It describes and explains to collect and process:
data of financial operation in the past time
the predicted of data in the future time
Determined the planning of company’s financial operation (budget) in the certain time or one year

21. 7. Governmental accounting
Some government in the world employed accountants help administer the monetary of the country.

22. E. Description of Business Firms
In terms of what they produce for society, business firms can be divided into 2 (two) main types of the firms.
Those that goods  merchandising firms and manufacturing firms
Those that produce services  service companies

23. a. 1. Merchandising firms
A Merchandising firm buys goods which are already in salable form and sell them to their customers to make profit.
For example: grocery stores (Carrefour, Alfamart, Hero, etc)

24. a. 2. Manufacturing firms
A manufacturing company obtains raw materials and supplies of various kinds and then turns these raw materials into a different finished product
For example: cigarette enterprise, like Gudang Garam, Ltd, Co.

25. b. Service Firms
The service firms produce services and sell them to their customers to make a profit.
They don’t produce tangible goods
For example: hotel, travel bureau, etc

26. F. The Form of Company Organization
Most businesses can be classified by their legal form of organization into 3 (three) group:
The proprietorship
The partnership
The corporation

27. a. The proprietorship
It is the simplest kind of organization and usually the smallest
This is a business organization with just one owner
It is not difficult and not necessary too much money to manage them
It has limited sources of fund. It comes from an individual owner

28. b. The partnership
It is a form of organization that is only slightly more complex than a proprietorship
The owners – the partners – are simply two or more individuals who combine their efforts to meet common goals
The sources of fund in this company come from some owners

29. c. The corporation
The formers of the corporation have to attend a government regulation
The corporation issues stock certificates which are written evidence of the owners’ (stockholders’) investment
This company can has a large number of investors – owners to invest their money in the corporation and thereby raise capital for it