Each business should have an accounting system best suited to its
particular needs. The method used must provide the most effective means of
recording, summarizing, and presenting appropriate accounting data for
management and for others who have an
interest in the business. The accountant is responsible for the design and
implementation of the accounting forms, the records, and the procedures. The
accountant must also consider the present structure of the business as well as
its likely course in the future. Modern accounting machines and data-processing
equipment have substantially increased the speed with which information can be
made available to management.
When
a business is being established, a system must be introduced that records all
transactions in monetary terms. Transactions are either internal, that is,
within the company, or external, outside the company. Typical business
transactions include the following;
1.
Purchase of merchandise, supplies, and service;
2.
Sale of merchandise;
3.
Receipt and disbursement of cash;
4.
Receipt and issue of negotiable instruments,
such as checks or notes;
5.
Acquisition of property;
6.
Incurring and paying debts;
7.
Transfer of merchandise from warehouse to store;
and
8.
Use of supplies and services in the operation of
the business.
The dollar, of
course, is the basic unit of measurement in accounting in the United States,
and it is also widely used as a unit of measurement in international
transactions the dollar amount of each transaction is entered in the accounting
journals of the business. Information about the
nature of a transaction and the dollar amount that is involved generally
appears first on a business document, such as a sales invoice. Such documents
are essential references in accounting because they reflect alterations in
the company’s financial position and
operating performance.
Two basic
financial statements are the balance sheet and the operations statement. The
balance sheet shows the firm’s condition on the last day of the accounting
period. It shows what the business owns and what it owes to its creditors or its owners. A business is
always in a state of equilibrium. In other words, what it owns is equal to what
it owes. This is expressed in the following accounting formula: Assets =
Liabilities + Owners’ Equity
A statement of
owners’ equity shows what changes have oocured in regard to equity since the
previous balance sheet was compiled. It shows, for example, the money the
owners have put in (investment) or taken out (disinvestement) of the business,
as well as profits and losses from its operations.
The operations
statement is also referred to as profit and loss statement or an income and
expense statement. It shows how much profit or loss was generated by the
operations of the company during the accounting period. In this case, operations
my be considered as sales of goods or
services. The profit from sales after the direct cost for producing the goods or services have
been deducted is called gross income or gross profit. While income is produced,
however, the business has certain other expenses-indirect cost related to the
production of that income, such as general or selling expenses. The balance
that is left when these further expenses are deducted is called net income or
net profit.
A third basic
financial statement is the statement of changes in financial position, which
shows an crease or decrease in working capital for the year and how this change
arose. In some cases, this statement will show the change in the cash position
rather than the change in working capital.
The three basic
types of businesses in terms of operations are service, merchandising, and
manufacturing. A service business gives advice or service exclusively. An accounting
firm, for example, offers services, as does a television repair shop. The giant
travel and tourist industry, one of the largest industries in the world, sells
services rather than goods. A merchandising business acquires goods for sale to
its customers. A neighborhood grocery store may be considered a merchandising
enterprise, and so may a huge mail-order
and retail-outlet company like Sears-Roebuck. A manufacturing business changes
the form of hoods by analyses, as in an oil or a sugar refinery; by synthesis,
as in a steel mill; or by assembly, as in an automobile assembly plant or an
electronics factory that assembles consumer product like television sets.
Copies of the
various statements described above, together with the financial and operating data
in the accounting records, are sent to owners, management personnel, labor
unions, appropriate government bureaus, creditors, and the general public. Reports
intended only for used and distribution within the company on parts or phases
of the business are also prepared periodically from the financial records. A cash
reports, for example, may be required daily by some companies, but only weekly
or montly by others.
A body of
principles and concepts underlies the practice of accounting. These concepts
together form a general guide to the accounting profession. First, an
accounting system must provide consistency in the accumulation and recording of financial data. A mixture of different
systems does not give a true picture of the financial affairs of an
organization. Second, an accounting system must make it possible to compare the
data issued to management, government, and the public. This concept is called
comparability, and without it there would be no firm basis on which to tax a company, to incvest in it, or even
to manage it. Each of the groups interested in a company would otherwise
receive a different picture of its
financial affairs. Third , an accounting system must provide the basis for
arriving at decisions and solutions in handling the operational and financial
problems of the organization. Whitout this decision-making base, most
companies would be unmanageable. There would,
for instance, be no way of pinpointing trouble
areas whitin the company.
Certain assumptions
underlie all accounting activity. Although accountants may disagree over the
value of many rules of practice and procedure in their filed, there are some
assumptions on which they almost universally agree. One of them is the idea of
the business as an accounting entity, independent of a legal entity that is
embodied in incorporation. A corporation has some of the legal rights and
obligations of a single individual. Another common assumption is that money
serves as the unit of measure to be used for recording and reporting
transactions. This provides a common denominator for past, present, and future
transactions. The concept is similar to the one that make mathematics the
common language of science. Still another commonly held assumption is that
there is a basic accounting period, that is, an interval of time for which an
income statement is prepared. Whitout using specific intervals, there would be
no basic for illustrating the rate of change in the company. The accounting
period is, in other words, a kind of business calendar.
Another standard
that is generally accepted in the profession is that of objective evidence. Accountants
need verifiable evidence just as scientist di. In the case of accountants, the
evidence consists of business papers or other records for any transaction. This
standard cannot always be universally applied, however, because there are
situations in the practice of accounting when objective evidence is not
available. Accounting for depreciation, for example, must be compiled on the
basis of the accountant’s judgment, but whithin the guidelines specified in
applicable tax codes.
post by : Rony Sutiyanto
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