Accounting is often associated with financial reporting practices, both in companies and countries. Apart from that, when talking about accounting, it cannot be separated from everything related to numbers as a form of recording transactions.
So actually, what is the purpose of accounting? Is it only to record transactions carried out in the economic cycle? If you don’t understand it yet, let’s look at the explanation of the objectives and basics of accounting!
Purpose of Accounting
Based on the Trueblood Committee, there are 12 objectives of accounting or financial reports, namely as follows:
- To provide basic information in the decision-making process in the economic field.
- To serve general users who have the authority, ability or resources to obtain information and believe that the financial reports are the main information relating to their company’s activities.
- To provide information for investors and creditors in their efforts to predict, compare and assess potential cash flows based on amount, time, and taking into account other uncertainties.
- To provide information to users of financial reports in forecasting, comparing and assessing ” earning power ” or the ability to earn profits within the company.
- To provide information in an effort to assess management’s ability to use company resources effectively to achieve the company’s main goals.
- To provide factual information so that transactions and other events can be interpreted which can be useful for predicting, comparing and assessing the earning power of a company.
- To provide a financial position report that is useful in predicting, comparing and assessing the earning power of a company.
- To provide reports on periodic profits that are useful in predicting, comparing and assessing the earning power of a company.
- To provide activity reports that are useful in predicting, comparing and assessing the earning power of a company.
- To provide useful information in the forecasting process. The financial forecast must be presented in order to increase the usefulness of the report for its users.
- For government agencies and other institutions, accounting aims to make a profit by providing useful information in an effort to assess the effectiveness of management and sources of wealth in achieving company goals.
- To present company activities that affect society.
Read Also : What is Balance? Definition and Types
Understanding Accounting According to Experts
1. Menurut AICPA (American Institute of Certified Public Accountants)
In 1941, the AICPA revealed the definition of accounting, namely:
“The art of recording, classifying and summarizing transactions and events of a financial nature in a certain way and in terms of monetary units, and interpreting the results.”
Based on this definition, it can be determined that there are 3 important aspects of accounting, namely:
- Accounting is a process, namely the process of recording, classifying and summarizing transactions.
- Accounting processes financial transactions in a certain pattern (not haphazardly) and uses units of money as a measuring tool.
- Accounting is not just a mere process of recording, classifying and summarizing; but also interpret the results of these processes.
2. According to Abu Bakar A and Wibowo (Indonesian Accounting Experts)
“Accounting has the meaning of a procedure for recognizing, recording and correspondence of financial exchanges from an element or organization”
What this means is that accounting is an information system that recognizes and records financial transactions, which are then presented in financial reports. These financial reports can be useful as a means of correspondence or reports for interested parties in an organization or company in the field of business or financial activities.
3. According to Nur Zeina Mayasari, SE, MM.,
“Accounting is an activity or process of identifying, recording, classifying, processing and presenting data related to finance or transactions so that it is easy to understand in making appropriate decisions.”
4. According to George A. Mac Farland
“Accounting is the art of recording, classifying, presenting and interpreting systematically the financial data of companies or individuals.”
Based on this definition, it can be determined from the existence of 3 concepts, namely:
- The procedures used in accounting activities are recording, classifying, presenting and interpreting.
- The target of accounting activities is financial data or events of a financial nature.
- Procedures for recording, classifying and presenting financial data must be prepared systematically. This is so that it can be interpreted and analyzed into a proper report.
5. According to the American Accounting Association (AAA)
“Accounting is the process of identifying, measuring and reporting economic information to enable clear and firm assessments and decisions for users of that information.”
In this definition, accounting functions as an analysis of financial data or transactions that can be used for the decision-making process for its users.
Accounting Branch
1. Financial Accounting
In this branch of financial accounting, it produces financial reports for extreme parties. For example, investors, creditors, and Bapepam-LK (Capital Market and Financial Institutions Supervisory Agency) or now OJK (Financial Services Authority).
2. Management Accounting
In this branch of management accounting, it produces financial reports that are useful for internal parties in the organization or management.
3. Government Accounting
In this branch of accounting, it will process government financial transactions which produce financial reports such as APBN (State Revenue and Expenditure Budget) or APBD (Regional Revenue and Expenditure Budget) to the people through legislative institutions and the interests of other related parties.
Accounting cycle
- Recording data into source documents or proof of transactions.
- Journaling, the activity of analyzing and recording transactions in the form of a journal or diary.
- Providing files to the General Ledger in the form of transferring debits and credits from the journal to the General Ledger account.
- Prepare a Trial Balance to check the balance of the General Ledger.
- Adjust journal entries and enter amounts on the Trial Balance.
- Make a cover for a journal or diary and make it into book form.
- Prepare Financial Reports containing Profit and Loss Reports, Capital Changes Reports, and Balance Sheets.
Read Also : What is Debit and Credit in Accounting and Banking? Definition and Differences
Accounting Field
Reporting from Belajarakuntansi.web.id regarding the fields of accounting , there are several types of fields of accounting, including:
1. General and Financial Accounting ( General Accounting/Financial Accounting )
This field of accounting includes the functions of recording transactions and compiling financial reports from these records.
2. Cost Accounting ( Cost Accounting )
This field of accounting is specifically for recording, calculating, analyzing, supervising and reporting to management regarding issues related to costs and production.
In the field of cost accounting, we not only analyze matters related to costs and production, but also others related to financial reports.
3. Government Accounting ( Governmental Accounting)
In the field of accounting, it is often used by government institutions. In other words, in this field it can be used as a tool for the government to maintain regular records regarding the receipt and expenditure of budget funds.
4. Management Accounting (Management Accounting)
The activity carried out in accounting in this field is a free examination of the company’s financial reports.
In accounting, this field will provide an assessment and opinion regarding the appropriateness and fairness of the financial statements. To determine whether it is appropriate or not is based on accounting principles.
5. Accounting for Non-Profit Institutions ( Non-Profit Motive Organization )
Accounting has specialized in issues related to recording and reporting transactions from government units and other non-profit organizations, for example foundations, religious institutions, charitable institutions, educational institutions, or social institutions.
In this field of accounting, an important element is an accounting system that ensures that management is in compliance with the limitations and other requirements set by law.
Accounting Principles
1. Historical Cost Principle
The principle that requires the use of acquisition price in recording assets, liabilities and costs.
2. Principles of Revenue Recognition
The principle used to measure the amount of income is the amount of cash received from sales transactions.
3. The Principle of Meeting
The principle used to reconcile costs with income, which arises from these costs.
4. Principle of Consistency
The principles used in determining the same methods and procedures in the accounting process consistently from year to year.
5. Full Disclosure Principle
Principles used in presenting the information reported in the financial statements.
Read Also : What is Bilyet Giro? Definition, Terms, Functions, Properties, and Rules
Accounting Process
The process of accounting activities will be carried out repeatedly in each period. Starting from financial transaction activities to preparing financial reports. These activities are often referred to as the accounting cycle .
Stages of the accounting process:
1. Recording and Classification
- Compile proof of transactions, for example receipts, notes, invoices, etc.
- Record evidence of these transactions sequentially according to the time of occurrence in a general journal or special journal.
- Upload each forecast account to the general ledger and subsidiary ledger.
2. Without Overview or Summarization
- Prepare a trial balance. The data in the trial balance comes from the balance of each general ledger account that has been previously created.
- Prepare adjusting journals and working papers (work sheet). This aims to facilitate the preparation of financial reports.
- Prepare closing journals.
- Make a trial balance.
3. Level of Reporting and Analysis
- Prepare financial reports containing profit or loss reports, capital changes reports, and balance sheets.
- Analyze the results of financial reports for use in the economic decision making process.