Accounting as A System of Information

The meaning of AccountingAccounting is a science that is sistematic and

learnable concerning the identification, recording,summarizing, and reporting of information about company’s activities that can be used by the parties in need.

Accounting is a process identifying, measuring, commuicating economics information, action, judgement and decision by users of information.

The parties in need includes government, investors, publics, and the company.

Step to prepare information of accountingTransaction

Making reserving journal making general journal based on transactions

Making post closing trial balance post the account in the general ledger

Making closing journal arrange the trial balance

Making financial report making worksheet making financial report

making ajusted trial balance

Areas of Accouting

• Financial accounting Discusses the preparation of financial report

periodically• Cost accountingTalks about planning, determining, controlling the

production costs.• Government accountingConcern about reporting and recording if transaction• Management accountingThis area of accounting specifically deals with

information that is useful for the management of organization

• Auditing

Area of accounting relates to an independent inspection of financial reports.

• Tax Accounting

• International Accounting

• Non-profit accounting

• Accounting System

• Budgetary Accounting

Profession in Accounting

• Internal accountant

• Public accountant

• Government accountant

• Educational Accountant

Requirements of Accounting Information

• Understandable

• Relevant, it suits what the users need

• It is reliable

• It is punctual

• It is material

• It is consistent with the standart and comparable

• It can be concluded and give feedback to the company that reports information

• It should give benefits more than the cost pay to process the information

Using Accounting Information• Internal parties : company’s management

• External parties : company owner, creditors, labour, the government and suppliers.

Basic Structure of Accounting

Definition of Financial Transaction

• Financial transactions mean all activities involving unit of an organization which are measureable in money and effect the wealth of the organization (company, firm,etc).

Types of Financial Transactions

• Based on the scope : internal financial transactions, external financial transactions.

• Based on the affected area : a capital transaction, a business transaction

Accounting Equation

Is the basic formula in accounting which indicates the financial condition of a company that becomes the basic of the next accounting process until the production of a financial report.

• An accounting equation shows that wealth and assets are the same as an owner’s capital.

Asset = Capital

• When the company involves a third party as a creditor, or when it borrows some money, either from a bank or a suppliers, it creates a liability or debt for the company and accordingly the formula change into:

Asset = Debt + Capital

• When the company has done business activities, some income and cost will appear, so the accounting equation becomes :

Asset = Debt+Capital+Income+Cost-Draw

Draw is withdrawal or use of company money that reduce the owner’s capital in the company.

Writing Financial Transactions in an Accounting Equation

• Paying in of capital by the owner

• Purchase of tools and equipment : in cash and credit, use of the equipment for a period of one month

• Paying expenses

• Receiving incomes from business activities and non business activities.

• Owner’s use of company’s money (draw)

Making a Financial Report from Accounting Equation

• A financial statement may be viewed as a reflection of the company’s assets or financial condition at the end of a period. The final sums of accounts will be written in the balance as assets, debts, and incoming capital. Income and expenses will be written in a statement of profit/loss. Initial capital and additional capital from the period/year will be written in the statement of capital change.

Types of Financial Statement • Statement of Profit/Loss

• Balance

• Statement of Capital Change

• Statement of Cash Flow

• Notification of Financial Report (we will talk about it if you take accounting major)

Cycle of Accounting Record in Service Companies

Grouping of Companies

1. Service Companies

The characteristic of Service Company :

• The main activities are giving information and selling services to other parties

• The company never run out of stock, because the characteristics of service is if the owner wants to sell it, it’s always available

• It’s difficult to make standard price

2. Trading Companies

3. Manufacturing Companies

Transaction Proofs

• Receipts

• Notes

• Invoices

• Internal Memos

• Debit Memos

• Credit Memos

Journal

• Journal is the record of financial transactions that includes the names of account and ammounts of money which are written on the debit & credit sides

• Types Of Journal : General journal and special journal

Recording Transactions in A general journal

Account Increase Decrease

Assets Debit Credit

Debt Credit Debit

Capital Credit Debit

Cost Debit Credit

Income Credit Debit

Draw Debit Credit

• Let’s Try this exercise… (on word file)

General Ledger

• General ledger is a book to make a group of similar accounts in the journals.

• There are 3 types of it : Two column format; three column format; four column format; T format.

• Look the word file…

Summarization Steps in Service Company

Trial Balance • Trial balance is a scale showing the balance

between debit and credit sides and balance of all accounts in the general ledger.

• Let’s make it from word file…

• This is an example…

Account Number

Account Name Debit Kredit

Adjustment Journal • Is the place to write the accounts which are

known as internal transactions, so the trial balance fully accords with the balance of account in reality.

Arranging the Adjustment Journal

• Prepaid Expense

1. if it is recorded as an expense

Prepaid Rent (D)

Rent Expense (C)

2. if it is recorded as an asset

Rent Expense (D)

Prepaid Rent (C)

• Income Received in Advance

1. it is written as follows

cash (D)

prepaid income (C)

So, it will be adjusted into :

Prepaid Income (D)

Service income (C)

2. it is written as follows

cash (D)

service income (C)

in the adjustment,will be:

service income (D)

income received in advance (C)

• Income Receivable

interest income (D)

interest receivable (C)

• Some accounts in the group of expense payables

example :

salary expense (D)

salary payable (C)

• Assets Depreciation

assets depreciation expense (D)

accumulation of assets depreciation(C)

• The use of equipment

equipment expense (D)

equipment (C)

The nominal value in the adjustment journal is the quantity of equipment which has been really used in the period.

Work Sheet

• Work Sheet is a list of columns which consist of some parts, they are a summary of trial balance, adjustment journal, income statement and balance.

• Format of worksheet : 6 columns, 8columns, 10columns, 12columns.

• Look at your textbook, let’s try to make it...

The Stage of Reporting&

Closing of Service Companies’ Accounting Cycle

Financial Statement• Profit / Loss Statement

CV. Indah

profit/loss statement

Par 31 December 2008

Incomes xxx

Expenses xxx -

Profit / Loss xxx

• Capital Change Statement

CV. Indah

Statement of Capital Change

Par 31 December 2008

Initial capital xxx

Profit/(Loss) xxx

Draw xxx -/(+)

Capital add up/ loss xxx +/(-)

Final Capital xxx

• Balance

CV. Indah

Balance

Par 31 December 2008

Assets Payables & Capital

1.Total current assets 1. Total Paybles

2.Total Fixed assets + 2. Total Capital +

Assets Payables & Capital

Closing Journal

• There are many types of account that must closed, here they are :

1.Closing all of the incomes account

2.Closing all of expenses

3.Closing all of income summary

4.Closing a drawing account

Making post closing trial balance

• Making post closing trial balance has the similar method with technic to make trial balance.

• The differences between trial balance with post closing trial balance are making post closing trial balance adjusted the transaction that happen in one accounting period.

Reversing Journal

• Accounts that need reversing jurnal are :

1. Expenses payables

2. Income receivables

3. Prepaid expense that recorded as an expense

4. Income received in advance that recorded as an income

Thank You Very Much…

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