Definition of accumulation – Accumulation is a periodic addition, for example returns or deposit interest . Have you heard the term accumulation? You may often encounter the word accrual when saving or buying items with rewards and points that can be accumulated. However, you still don’t know what accumulation is. Check out the following explanation.
Definition of Accumulation
According to the Big Indonesian Dictionary, accumulation is defined as collecting, hoarding, accumulating; as capital. In another sense, in general, accumulation is the activity of accumulating something for the purpose of generating higher returns in the future.
In economics, accumulation is the periodic addition of capital from interest or other sources to principal to create more output or income in the future. In general, accumulation refers to the acquisition or getting of something with the same goal, i.e. greater success in the future.
A simple example of accumulation practice is when buying an item. Usually when you shop, there will be offers to buy by collecting points and rewards . Later it will be accumulated and exchanged for a number of products with certain achievements.
Types of Accumulation
1. Capital Accumulation
Capital accumulation is an activity that aims to achieve greater income or production in the future by saving part of the income and then reinvesting it.
The profits can be in the form of interest, profits, rent, capital gains , royalties or other types of benefits.
Capital accumulation focuses on increasing existing wealth through profitable investments and savings. This investment is concentrated in various ways throughout the economy. One method of capital growth is the purchase of tangible goods that stimulate production.
This activity is the basis of the capitalist economic system, in which all economic activities are planned and prepared to raise capital. In other words, all investments are made to achieve financial gain.
Capital accumulation can include physical assets such as machinery, labour, research and development which can increase production. In financial assets, capital accumulation can include stocks and bonds. Another important factor in capital accumulation is price appreciation.
Measure capital accumulation
Measurement of capital accumulation is done by calculating or measuring changes in asset values. For businesses, they will consider reinvesting profits back into the business.
Depending on the type of business, this could be investing in tangible assets or human capital, and then determining the added value of that reinvestment. The capital structure and capital strength of a company can be determined by analyzing its financial statements.
In Marxist economics and accounting, capital accumulation is often seen as an investment in the form of income or savings. This is especially true for the real means of production. The result of capital accumulation is centralization and centralization.
For economic growth, it is often necessary to accumulate capital, both financial and non-financial, because more capital is required for additional production to increase the scale of production.
More productive and wiser organizations can even increase their output without spending more capital. Capital creation does not always require additional investment. This can be done by improving the organization or by inventions that increase productivity, increase real estate sales, etc.
As an example :
companies that want to increase production capacity to boost economic growth in the short term. The method used is to increase physical capital to produce goods and services through bank loans or by issuing capital as a source of funding.
The relationship between capital accumulation and the economy
In the Harrod-Domar model of economic growth , an increase in the saving rate allows for more investment. This ultimately leads to higher rates of economic growth in the short and medium term.
The answer is still controversial. Some economists, such as Solow, argue that increasing capital does not lead to long-term sustainable growth, as the Solow growth model proves.
Instead, the rate of growth is determined by the rate of population growth and the rate of technical (technological) progress. Indeed, the ratio of capital to labor is assumed to experience a marginal downward trend.
When the ratio of capital to labor is high (as in developed countries), the contribution of additional capital to economic growth is relatively small compared to when the ratio of capital to labor is low, as in developing countries.
One example of capital accumulation
The Government of the Republic of Indonesia intends to increase domestic food production by increasing farmers’ vegetable production. First, the Indonesian government is investing in infrastructure in the form of road construction.
In addition, the government is investing again by providing new tractors to farmers. Investing in road construction and buying new tractors for farmers is to accumulate capital for the Indonesian government so that future vegetable production will be abundant and national food production will increase. This is in accordance with the accumulation goal to achieve great results in the future.
2. Parking Accumulation
Parking accumulation is the total number of vehicles at a given location. This parking space accumulation information is needed to control and plan parking space requirements in an area.
Parking accumulation information surveys should be carried out to obtain a history of vehicles parked at any given time. Parking varies depending on the location of the business with parking/buildings, such as offices, shopping centers and apartments.
Parking accumulation survey
To obtain parking accumulation information, it is necessary to conduct a survey to obtain the history of parked vehicles in a day, the highest achievement level of the number of parked vehicles is called the highest parking accumulation.
This amount varies depending on the event with parking/building. Offices peaked during the day, while the accumulation of shops/malls during the week was lower than the weekend accumulation in the afternoon, and the accumulation of housing/apartments at night.
The amount of accumulated parking is given by the following formula:
AP is accumulated parking
Ei is the number of vehicles that enter the parking lot
Ex is a lot of vehicles leaving the parking lot
If there were cars previously parked in the lot, then there are lots of cars so the cumulative number present is added to the parking lot.
The vehicles that are inside are occasionally there. Because the vehicle arrived before the inspection or there was a damaged vehicle that was left overnight by the owner.
N = the number of vehicles that existed before
When carrying out the survey
When conducting a survey, it depends on the type of event where the survey is implemented, such as in the office, the event is dominated during working hours, at the market in the morning, schools at the entrance and after school, lodging/apartments at night.
3. Accumulated Fees
Cost accumulation is a method used to determine the total cost of a service or product. There are two types of accrued expenses, namely:
Order Cost Accumulation
Order costing is a method used to aggregate the cost of a product in which costs are aggregated for each separate order or contract or service and each order or contract can be segregated on the basis of its identity.
This cumulative ordering cost can be applied to companies using discontinuous manufacturing processes such as; construction work, workshops, printing, catering, furniture , etc.
Process Cost Accumulation
Process cost accumulation is a method for aggregating product costs by aggregating costs for each specific unit of time. This process cost accumulation can be applied to companies that use continuous production processes, such as; auto assembly companies, pharmaceuticals, airlines, hospitals, etc.
Both an actual costing system and a predetermined costing system can be used in order and process costing.
4. Accumulated Depreciation
Accumulated depreciation is an accounting term that refers to the decline in value of an asset due to its use over a period of time. Examples include buildings, mining equipment, and office electronics such as laptops and printers.
In the financial statements there are two values of depreciation, namely depreciation expense and accumulated depreciation. Depreciation costs are the calculated use or benefits of capital assets.
Meanwhile, accumulated depreciation is a collection of periodic depreciation expenses. The two are also different in financial recording, where the depreciation expense must be recognized in the income statement and the accumulated depreciation must be recorded in the balance sheet.
The accumulated depreciation in the first year of use of fixed assets is the same as the depreciation in the first year of use of fixed assets. Then, in the second year of use, the accumulated depreciation is the result of the total depreciation of fixed assets in the first and second years. The same goes for the third year and so on.
In financial statements, the essence of accumulated depreciation is to reduce the value of fixed assets. Use automated accounting applications to support real-time and efficient business financial reporting.
Variables in Accumulated Depreciation Calculations
costs incurred by the company to purchase fixed assets, including the purchase price plus various other costs, such as transportation, installation, assembly, etc.
Estimated or residual value of fixed assets after use. This residual value is not fixed, so fixed assets have no residual value. This is because when the withdrawal deadline arrives, it is not always possible for the asset to be sold and left alone.
This is of course not recommended. It would be better if idle assets were sold or recycled, to extend their value function.
Book price or historical value:
The price at the time of acquisition of the asset, is the acquisition cost by deducting the accumulated depreciation of fixed assets over the economic life of the fixed assets.
Estimated useful life of fixed assets or useful life of fixed assets. It is divided into two, namely physical age and functional age.
Age indicates that the condition still looks good even though its function has decreased. Meanwhile, functional age is related to the usefulness of an asset. Assets serve a lifetime if they are still active and able to contribute to the business.
Depreciation is a widely used method and is similar to the straight-line method in terms of depreciation. The trick is to do a systematic sum and then divide the useful life of the asset.
Usually, this depreciation is applied to assets that have different physical forms, such as computers, laptops, cars, motorbikes, furniture, printers, production machines, machines, copiers, and many other assets.
Unlike depreciation, the amortization method can be applied to a variety of intangible assets, such as patents, trademarks, franchises for goodwill.
Based on the Reporting of Financial Accounting Standards (PSAK), the useful lives of various assets affected by amortization may not exceed 20 years. The reason is simple, because 20 years is a very long time, there is a possibility that assets valued during that period will no longer have economic value after 20 years.
If in the previous explanation we have understood the explanation between tangible and intangible assets. So, in this type of amortization, assets experience a real decrease that consumes benefits and materials.
A simple example of a depleted asset is a company’s natural resources. In accounting, assets that are natural resources decline in value, and during the same period, these assets continue to experience a decrease in physical value.
How to calculate accumulated depreciation
There are several ways to calculate this accrual, including the straight-line method and the declining balance method. Based on the accumulated depreciation from the EMBA journal, the following is the accumulated depreciation formula:
Straight line method
Depreciation expense is calculated on a straight-line basis, using the assumption that each asset can provide a reasonable contribution or benefit, without fluctuations over its useful life.
The rate of decline in these assets will be the same every year, so the value of these assets will be deducted from their value in use. For this reason, this method is suitable when used to calculate the depreciation of fixed assets where wear and tear will not be affected by the finished product.
The formula for calculating it is as follows:
D = (AC – SV)/LT
D = depreciation
AC = acquisition price
SV = residual value
LT = economic life
Declining balance method
The declining balance method is based on the assumption that each fixed asset has the potential to make a significant contribution at the outset of its use. As the economic life decreases, the degree of decline in asset function will also increase.
This method is suitable for asset classes where usage will be affected by the volume of product produced. The formula for calculating this decreasing balance is as follows:
D = d% x BV
d% = 1 – n√SV/AC
D = depreciation
d% = depreciation rate
BV = previous book price
SV = residual value
AC = acquisition price
Should be used in cost calculations and also for accumulated depreciation if it can be adjusted to the type of assets used in the calculation.
In addition, the consistency of using this method will also make depreciation expense easier to measure and record in financial reports, both income statements and balance sheets, using mathematics will be more accurate.
The difference between depreciation expense and accumulated depreciation
After we know the depreciation expense together, the method is different, do you know the difference between depreciation expense and accumulated depreciation?
Basically, the difference between the two is the time period. Accumulated depreciation is the total accumulated depreciation expense for one period or one year. This account has a deduction that in the first year the accumulated depreciation will equal the depreciation expense of business property in one year.
However, for the second year or so, you can get the accumulated depreciation from the first year by adding up the accumulated depreciation of the second year. You just need to credit it to a reconciliation account, whether it’s office equipment, transportation, or other assets that are in a depreciable condition.
Accumulating Wealth By Investment
There are several advantages of investing over saving a certain amount, where the investment can always grow in the future. A simple example, when depositing 1 million in a savings bank, there won’t be much addition. In contrast to investment, with 1 million it will grow by about 20% per year. This proves that investing can be an option to accumulate wealth quickly.