Basic Accounting and Basic Concepts of Accounting – A business or business is certainly closely related to the basic concepts of accounting. Why is that? This is because the basic concepts of accounting are the foundation or main foundation in carrying out the process of recording, summarizing, clarifying, displaying and processing data.
This is what makes the basic concept of accounting inseparable from every business or business activity. A company that uses basic accounting concepts in running its business will certainly get convenience in every matter related to company finances.
If you have a business entity or business, it is very important for you to understand every financial record. By knowing the amount of debits and credits in the company, the company’s financial reports become easier to do. However, the process of such financial records is certainly not easy. You need basic and mature accounting concepts first.
1. Basic Concepts of Accounting
The basic concept of accounting itself is defined as a formula or concept that applies in general to obtain a unified analysis, views and opinions from parties providing financial information to other parties.
This concept needs to be understood carefully and carefully. A mature understanding will help companies avoid mistakes in making financial records. If this risk occurs, it can cause a lot of losses or lead to bankruptcy for the company. Overall, these basic accounting concepts serve as guidelines in preparing various types of financial issues, especially for accounting practices.
In understanding accounting concepts and related topics such as the accounting cycle, trading company accounting, cash and control, and many more, Sinaumed’s can learn the Essentials of Basic Concepts of Accounting.
2. Formulation of the Basic Concepts of Accounting
The opinion of Paton and Littleton quoted from Suwardjono in 2005 states that the basic concept of accounting consists of the concept of business entity or entity theory , business continuity or going concern , award agreement, effort and results or effort and accomplishment, attached price or cost attached, assumptions and the last consists of verified evidence.
Then, Anthony, Hawkins, and Merchants also added details about this basic accounting concept. Quoted by Suwardjono in 2005, they explained
if the basic concept of accounting has several points such as the concept of measurement with units of money, the entity concept, the concept of business continuity, multiple aspects, conservatism, the concept of cost, accounting period, realization, matching, materiality and consistency.
Also find an explanation of the basics of accounting that you should know before going further through the book Basics of Accounting by Lili M.
To better understand the formulation of the basic accounting concepts that have been mentioned. The following are some of the basic accounting formulas in more detail.
2.1 Accounting Unit
The accounting entity is the data and information provided in the financial statements. The data and information must clearly state the unit or company being reported. Clear financial data and information from a company will make it easier for companies to carry out financial reporting.
2.2 Corporate Continuity
Company continuity in the basic concept of accounting is very necessary. With the continuity of the company, the company’s financial information can also be monitored. If a business entity only runs for a few weeks or only in a matter of months, of course the accounting information obtained is just in vain.
Therefore, a company must continue to exist or continue to run continuously. Thus, various information or company financial data can be continuously monitored.
2.3 Accounting Period
The existence of an accounting period is needed by a company in monitoring its financial position. This accounting period is also closely related to the reporting of financial information within the company where a sustainable company can be divided into periods in the form of financial reports.
A certain period in the company can be used as a benchmark for the financial condition of the company. Thus, company management can use financial reports as a strong foundation in making further company decisions.
2.4 Measurement in the Value of Money
Accounting information in a business must also have language uniformity which is called the value of money. Language uniformity with money is important in presenting company information or data.
If the units of measurement are different, of course it will be difficult to compare any available information. Overall, the monetary value and financial position or results of operations of a company form the basis of unity in the language of accounting.
2.5 Basic Accounting Acquisition Price
Any assets acquired must be recorded in the financial statements. Any value paid in obtaining these assets is the value that will be recorded in the financial statements. Furthermore, this value will be presented in the company’s financial statements.
Various information related to basic accounting that is also needed by the community in everyday life is also discussed in Basic Accounting: A Smart Book for Beginners.
2.6 Determination of Income and Expenses
For the problem of determining income and costs, the company must clearly indicate the reporting period. Reporting of income and expenses is also closely related to the assets and debts of the company or related parties. Basically, the determination of income and costs requires that transparent records also require consistent recording every year.
2.7 Consistency of the Basic Concepts of Accounting
The principle of consistency in the basic concepts of accounting is also important for a company. A company that consistently applies this principle from one period to the next will make it easier for them to obtain financial data and information presented in financial reports. Accurate financial reports can be the basis for making important decisions in the company.
2.8 Objectivity and Materiality
Objectivity can be defined as data and financial information presented without considering one or certain parties. The notion of materiality can be interpreted as data or financial information arising from transactions with small amounts. This materiality can be said to have no effect on the company’s financial statements, so it can be ignored.
2.9 Conservatism and Realization
The concept of conservatism and realization should be emphasized in the basis and concept of accounting. The concept of conservatism itself focuses on presenting financial information where those who record and receive fees must be more careful.
By emphasizing the principle of conservatism, the financial information that will be presented will be accurate. Then, the notion of realization is that the financial data and information presented must be transparent. The financial statements must display the basis for recognizing revenue that already exists in the profit and loss summary.
2.10 Open Statement
An open statement relates to various known information or data as well as information that has the potential or could occur. All of this information should be presented in the financial statements. The form of the statement can be in the form of a footnote or in the form of a note in the financial statements.
3. Accrual Basic
The accrual basis is also known as the accrual basis and accrual basis. This accrual basis is the basis of accounting where economic transactions or financial transactions are recognized, recorded and presented in the financial statements. The financial statements are based on the effects of transactions when these transactions occur without regard to when cash is received or when it is paid.
4. Basic Cash ( Cash Basic )
In contrast to the accrual basis, the cash basis or cash basis is a recording model on the basic accounting concept in which the process of recording transactions is carried out when cash is received or disbursed.
So, if there is a transaction in the form of payables and receivables, but there is no incoming or outgoing cash, then this type of transaction cannot be included in the financial records with the basic cash model.
For example, if your company gets income from a company but the money will be given at a later time then this transaction event will not be recorded. This is because there is no incoming cash so it is not considered as company income.
5. Concept of Business Unity
The concept of a business entity can be interpreted as the presentation of data or financial information about the company that provides information on the company’s own financial problems. Basically the company’s financial concept is separate from anyone, including the owner of the company.
The company’s finances must also be separated from the finances of its employees and so is the case with the finances of the company’s directors. Therefore, the company is considered as a body or organization that stands alone without the interference of any party.
In addition, the principle of business unity is also considered important in the world of accounting because all types of transactions recorded by accounting must be viewed from the perspective of a business entity. Thus, accounting displays performance results, financial condition and other financial information about the company as an independent entity and separate from its owners.
In simple terms, it can be said that although most of the company’s assets come from company owners, these assets must still be under the auspices of the company and not the company owner.
You can find various basic accounting information which is a combination of conceptual and procedural in the Accounting Fundamentals book, With Simple Examples for a More Concrete Picture.
6. Continuity ( Going Concern )
A productive company will certainly carry out various activities so that its business can run continuously at any time. During the period when the company is running, it takes the name of the company’s financial statements.
The company’s financial reports that are made every period or at a certain time will be very useful to be used as a comparison of the company’s progress from time to time. With these financial reports, accurate data and information will be obtained regarding the ebb and flow of income and expenses in a company.
Thus, the company can make new decisions or stick to the old strategy in developing its business through data from the financial statements.
Basically, most accounting principles are based on the going concern assumption. A business company will still have a long life, this is what underlies the concept of the assumption of survival in accounting.
Experience indicates that some companies even though they have experienced many failures, they still survive and experience a long viability.
7. Determination of Expenses and Income ( Matching Concept )
Determination of expenses and income or known as the matching concept can only be recognized in a certain period so that the company’s expenses or income that have actually been incurred have been realized.
As for the process of calculating company profits and losses, it must be reported with an overview that is in accordance with the circumstances that occur and for a certain period of time within a certain period. Small-scale business entities can use the concept of cash basis because they only have a few trade receivables and payables. However, for large companies, they are required to use the accrual basis concept.
8. Acquisition Price ( Cost )
Every transaction with a business entity or company when purchasing goods must be recorded in the financial statements. For example, if a company buys equipment for 10 million rupiah and then the tool is charged an installation fee of 2 million rupiah, the acquisition price will be 12 million rupiah.
The burden or cost of installation must be added up with the price of the tool so that the total is 12 million rupiah. This value is then entered in the company’s accounting records. Thus, the acquisition price is the amount of money spent when obtaining goods or services.
Some experts also have their own views regarding this acquisition price. According to Haryono Jusup, the acquisition cost is the total amount of expenses sacrificed by a person.
Meanwhile, according to Wit and Erhans, the acquisition cost is the purchase price plus all the costs used. Overall, fixed assets and acquisition costs are a very important component in every company.
Therefore, these two elements cannot be separated from one another. This is because, both assets and acquisition costs are a single entity that supports the success of a business entity. If the two do not go hand in hand then the risk of loss can occur within the company.
To answer questions related to basic accounting concepts, book 225 Basic Accounting Questions and Answers is here to help you answer all the questions.
9. Accounting Period
The accounting period plays a major role in the principles of a company’s financial statements. Therefore any financial data or information must be reported periodically. The reporting period can be calculated monthly, quarterly, every six months, or once a year. Reporting of this type of financial information is referred to as the accounting period. With this accounting period system, the company will also find it easier to determine the next company strategy or policy.
In Indonesia, the most frequently used accounting periods are monthly, quarterly and annually. From a big company to even the smallest business entity, if you want to develop into a bigger company, then of course you need periodic reports. This periodic report will support the development of the company from time to time.
10. Measurement of the Value of Money
Every type of transaction that exists in a company must be measured using a certain unit of money. The same is true for matters of assets, debts and capital in a business entity. With this measurement using the value of money, the value of all the company’s wealth or income can be calculated.
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11. Examples of Basic Books and Accounting Concepts
One of the books that can be used as a guidebook in studying the basics and concepts of accounting is a book entitled Digest of Basic Concepts of Accounting. This book was written by one of the Indonesian accounting experts or experts, namely Mr. Hery, Se, M.si., Crp., Rsa., Cfrm.
This book, entitled Digest of Basic Accounting Concepts, was created to help readers, especially novice accountants, to become proficient in mastering accounting principles independently. At the beginning of this book, you will be presented with topics that address the accounting cycle. Then readers will also find other accounting topics such as Accounting for Trading Companies, Cash and Control, Accounts Receivable Accounting, Inventory, Fixed Assets, Bonds Payable, to Bond investments and also Stocks. As for the second part of this book, it will also invite readers to better understand accounting concepts using the accounting dictionary format.
Examples of other basic accounting introductory books