Accounting is widely known as the “language of business”. There are many quotes about the power and importance of accounting in everyday life, such as “The pen is mightier than the sword, but not the bookkeeper” by Jonathan Grancy.
This article will explain in detail what accounting is, its function in a company, the types of cycles and its principles. This is very important if we are going to become an entrepreneur.
Understanding Accounting
Some people think that accounting is something related to calculating systems, but in fact accounting is a work process that is not simple. This knowledge has quite a lot of use in everyday applications, especially related to business activities.
Correct and precise accounting allows company management to better understand its business finances. This is so they can plan future expenses strategically to maximize profits.
Things included in accounting itself such as making financial reports, adjusting journals, special journals, and many more are discussed in depth in the book Introduction to Accounting from Theory to Practice.
With this knowledge, business owners can control whether the business they run is running well. Your accountant will tell you if you are making a profit, what your cash flow is, what your business’s current assets and liabilities are, and what parts of your business you control.I will tell you
Understanding Accounting According to Experts
Of the many definitions and understandings, accounting represents different things. These differences occur because experts study different fields of science.
Following are several definitions of accounting according to several experts:
1. According to Weygandt, Kieso, and Kimmel
For them, accounting is a part of an information system that identifies records and communicates economic incidents in an organization to interested users.”
2. Sunyanto (1999)
For him, accounting is a stage in the process of collecting, identifying, recording, classifying, summarizing and presenting or reporting many financial transactions and interpreting the results for decision making.
3. Warren et al (2005:10)
In general, accounting is an information system that produces reports to parties who have economic activities and company conditions.
4. Suparwoto L (1990 : 2)
For him, accounting is a technique for measuring and managing financial transactions and providing management results in the form of information to internal and external parties of the company. External parties mean investors, government creditors, labor unions and others.
5. Soemarsono SR (2004)
According to him, the definition of accounting is a process of identifying, measuring and reporting economic information to enable clear and firm assessments and decisions for those who use the information.
6. S. Munawir (2005)
For him, accounting is the art of recording, classifying and summarizing events which are at least partly of a financial nature in the quickest way possible and expressed in terms of money, as well as the interpretations that arise from them.
7. Paul Grady
Accounting is a body of knowledge and organizational functions in a systematic, authentic & original manner in recording, classifying, processing, writing summaries, analyzing and interpreting all transactions, events and financial characteristics that occur in the operations of an accounting entity with the aim of providing meaningful information. management is required as a report and accountability for the trust it receives.
8. Winarno (2006)
Accounting is a process of recording financial transactions and processing transaction data and presenting information to entitled and interested parties.
9. Bastian and Suharjono (2006)
In their book, Committee on Terminology of the American Institute of Certified Public Accountants Bastian and Suharjono (2006), the definition of accounting is the art of recording, classifying and summarizing financial transactions and events in a meaningful way also in terms of money and investing the results.
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Purpose of Accounting
Basically, the purpose of accounting is to record, collect and report information related to finances, financial position and cash flow in a business.
A more in-depth discussion of various types of companies, who are the users of accounting information, the accounting profession, basic assumptions and other related matters can be found in the Introduction to Accounting book below.
If explained more fully, there are several objectives of accounting in a business system:
1. General accounting objectives
- Provide information regarding finances, especially company assets and liabilities.
- Prepare a set of information regarding changes in various economic sources (net) of the company.
- Presents information regarding changes in the company’s various economic resources, assets, debt and capital.
- Presents several other information related to financial reports to help users of the reports.
- Explaining the company’s financial information is expected to help create the company’s potential profits.
2. Specific accounting objectives
In particular, the purpose of accounting is to provide information in the form of reports containing financial position, business results and other changes in financial position in accordance with Generally Accepted Accounting Principles (GAAP).
3. Qualitative accounting objectives
- Provide relevant information.
- The information submitted is in accordance with Generally Accepted Accounting Principles (PABU) and can be compared. Convey information that has been tested for truth and validity.
- Presenting the information conveyed can be understood by interested parties.
- Providing financial reports for the benefit of parties related to company activities.
- Presenting transaction information in real time and as quickly as possible.
Processes in Accounting
As explained above, in accounting, it is a process related to whatever finances occur in a business or organization.
Accounting has a process, which consists of recording, summarizing, analyzing and reporting data. The following is an explanation of the process:
1. Take notes
The most important process in the accounting process is recording transactions that occur in the business. This process, commonly known as bookkeeping, involves recording and entering transactions into the books.
In an accounting process, accounting is usually carried out for detailed accounting purposes and is a report to present data in the form of a final financial report.
2. Summarizing
In general, raw data is the result of recording transactions and is considered not very important. This raw data does not have much influence on the decision-making process.
However, an accountant’s important role is to use raw data, group it into categories, and translate it. So, the usual process is to record transactions, then summarize them.
3. Report
All activities carried out within the company are the responsibility of management. Every entrepreneur needs to know the various activities the company carries out and how the company spends its money.
In this case, entrepreneurs usually receive company financial reports sent every month. At the same time, there is also an annual report that summarizes all the company’s activities.
4. Analyze
Finally, analyzing is an important final process in accounting. After recording and summarizing, of course we need to draw conclusions. This is where the important role of management is to check the points between positive and negative.
In analyzing all this, accounting introduces a concept of comparison. Where we can compare sales, profit and loss, and others to determine and also analyze work and make decisions.
Of the many definitions of accounting, all of them almost have the same goal, namely that each goal is to provide accurate reports of course related to the company’s financial problems.
The definition of accounting will be very helpful in presenting detailed reports regarding company expenses and income so that you can find out profits and losses. Apart from that, the application of accounting knowledge will also help companies find out employees who commit fraud.
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Accounting Functions in a Business
There are several functions of accounting in a business, namely:
1. Accounting helps you plan for growth
When you want to plan the growth of your company, it is very important to define goals. Like how should profits be made a year from now? What about in five years?
Financial reports help you assess exactly how fast a business is growing. Without an accurate financial report, it may be tempting to use easy metrics like “sales growth,” which don’t give you a complete financial picture.
Has the cost of goods sold increased? Is the profit margin less? Are growth objectives appropriate? Without a financial report, you will not have objective answers.
2. Accounting is important to secure loans
A recent financial report shows your company’s position. They are important if you want to fund your small business with a loan.
For example, you want to apply for a loan through a large bank. You will need to provide, on average, three years of financial statements, plus one year’s cash flow projections. It is almost impossible to send everything if you don’t have an accounting system.
3. You need accounting to get investors or sell your business
Maybe don’t plan to court investors or sell your business right now. But it’s a good idea to keep your options open. The best way to do this is by implementing a proper accounting system.
Potential investors or buyers will expect accounting records that prove the development of your business is profitable.
4. Accounting will help when getting paid
When one of your customers owes you money, it will appear as Accounts Receivable on your balance sheet. this is prepared by your accounting or accountant.
The balance sheet tells you how much business receivables you have accrued during the month, and how much is still owed.
By focusing on your balance sheet, you can track how effectively you are collecting payments. Then you can implement processes with harder payment deadlines, or better follow-up with clients to ensure you get the money you earn when you need it.
Benefits of Accounting
After we know about the function of accounting, we also need to know what the benefits of accounting are in everyday life
Some of the benefits of accounting are as follows:
1. As financial information to parties who need it
The financial information that we have compiled will definitely make things easier for us. If you have various financial transactions and don’t record them. It could be that you will forget where your money goes.
2. As material for financial evaluation
By taking notes, we can know what we should do in the future. For example, with accounting, when you realize that your finances are “dying” because they are often used to buy internet quota.
3. As financial proof that can be accounted for
There must be times when we have problems with other people regarding finances. Like debts that haven’t been paid, or something else. With accounting and financial records, you will be able to be accountable for your finances.
4. Help with family economic records
When you are an adult and married, financial problems are a problem that is quite taken into account in the household. So, accounting will be very necessary and useful.
Because after building a household, there are many needs that need to be taken into account. Of course, these expenses need to be calculated with our and our partner’s income.
Types of Accounting
1. Accounting System
The next type of accounting is the accounting system. The accounting system itself is a field of accounting that carries out activities by regulating the method of accounting records so that they are effective and efficient. Starting from arranging documents to compiling recording procedures.
2. Budgetary Accounting
Budget accounting is accounting which has activities related to collecting and processing data on financial operations that have occurred, as well as estimating the possibilities that will occur, of course for the purposes of determining the company’s financial operations plan (budget) in a certain period.
3. Government Accounting
The next type of accounting is government accounting. Government accounting is also considered a field of financial accounting that is applied in government institutions. Government accounting has the aim of presenting financial reports, regulating and supervising state finances.
Accounting in government is expected to be necessary to properly regulate financial administration in the country. This field is devoted to recording and reporting the number of transactions in government bodies.
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4. Banking Accounting
The last type of accounting is banking accounting. Refers to the definition of accounting for the process of recording, analyzing, classifying and interpreting financial data.
In general, we can see that banking accounting is a bank accounting method which includes recording, analyzing, classifying, interpreting data in bank finances which is carried out systematically, to meet the needs of interested parties, both internal and external.