Basic Accounting & Basic Accounting Concepts

Basic Accounting & Basic Accounting Concepts – 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 become the foundation or main basis in the process of recording, summarizing, clarifying, displaying up to the data processing process.

This is what makes the basic concept of accounting inseparable from every business activity or business. A company that uses the basic concepts of accounting in running its business will certainly get convenience in everything related to company finances.

If you own a business entity or business, it is very important for you to understand every financial record. By knowing the number of debits and credits in the company, the company’s financial statements become easier to do. However, such a financial recording process is certainly not easy. You need mature accounting basics and concepts first.

1. Basic Accounting Concepts

Basic Accounting & Basic Accounting Concepts

Basically, every business actor, both large and small, cannot be separated from the basic concept of accounting. A company that has implemented this basic accounting concept correctly and effectively will find it easier to develop its business.

The basic concept of accounting itself is defined as a formula or concept that applies generally to obtain a unified analysis, views and opinions from the financial information provider to other parties.

This concept needs to be understood carefully and carefully. A thorough 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 its control, and much more, Grameds can learn the book Digest Basic Accounting Concepts.

2. Formulation of Basic Accounting Concepts

The opinion of Paton and Littleton quoted from Suwardjono in 2005 states that the basic concepts of accounting consist of the concept of a business unit or entity theory, business continuity or going concern, agreed awards, efforts and results or effort and accomplishment, attached price or cost attach, assumptions and the last one consists of verified evidence.

Then, Anthony, Hawkins, and Merchant also added in detail about this basic accounting concept. Quoted by Suwardjono in 2005, they explain

if the basic concept of accounting has several points such as the concept of measurement with units of money, the concept of entity, the concept of going concern, multiple aspects, conservatism, the concept of cost, accounting period, realization, comparison, 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 aforementioned basic accounting concepts. The following are some of the basic accounting formulations in more detail.

2.1 Accounting Unit

The accounting unit is the data and information provided in the financial statements. The data and information must be clear in mentioning the reported unit or company. Clear financial data and information from a company will make it easier for companies to carry out financial reporting.

2.2 Company Continuity

The continuity of the company in the basic concepts of accounting is very necessary. With the continuity of the company, the company’s financial information can 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. Thus, various information or company financial data can be monitored continuously.

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 statements.

A certain period in the company can be a benchmark for the financial condition in the company. Thus, the company’s management can use the financial statements as a strong foundation in making further company decisions.

2.4 Measurement in Value for Money

Accounting information in a business must also have a uniform language called the value of money. Uniform language with money is important in presenting information or company data.

If the units of measurement are different, it will be difficult to compare any available information. Overall, the monetary value and financial position or results of a company’s operations are the basis of unity in accounting language.

2.5 Cost of Accounting Basis

Any assets acquired must be recorded in the financial statements. Each 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 daily life is also discussed in the book Basic Accounting: Smart Books for Beginners.

2.6 Revenue and Cost Determination

For the problem of determining revenues and costs, the company must clearly show the reporting period. Reporting of income and expenses is also closely related to the assets and liabilities of the company or related parties. Determination of revenue and costs, in addition to requiring transparent records, also requires consistent records every year.

2.7 Consistency of Basic Accounting Concepts

The principle of consistency in the basic concepts of accounting is also important in 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 the financial statements. 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 that is presented without considering one or certain parties. The notion of materiality can be interpreted as financial data and information that arises from transactions with small amounts. This materiality can be said to have no effect on the company’s financial statements so that it can be ignored.

2.9 Conservatism and Realization

The concepts of conservatism and realization should be emphasized in the basics and concepts of accounting. The concept of conservatism itself focuses on the presentation of financial information in which the party doing the recording and revenue costs 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 data and financial information presented must be transparent. The financial statements must show the basis of revenue recognition that already exists in the profit and loss summary.

2.10 Open Statement

An open statement relates to various information or data that is known as well as information that has the potential or may 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 (Accrual Basic)

The accrual basis is also known as the accrual basis and the accrual principle. 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 effect of the transaction when the transaction occurs, regardless of when cash is received or when it is paid.

4. Cash Basic

In contrast to the accrual basis, the cash basis or cash basis is a recording model on the basic concept of accounting in which the process of recording transactions is carried out if there is cash receipt or disbursement.

So, if there is a transaction in the form of payables and receivables, but there is no cash coming in or going out, then this type of transaction cannot be entered into the financial records with the cash basis model.

For example, if your company gets revenue 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. Business Unit Concept

The concept of a business unit can be interpreted as the presentation of company financial data or information that provides information on the company’s financial problems. Basically, the concept of corporate finance 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 must the finances of the company’s directors. Therefore, the company is considered as an independent body or organization without the intervention of any party.

In addition, the principle of business entity 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 the results of performance, 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 the owner of the company, these assets must still be under the auspices of the company and not the owner of the company.

You can find various basic accounting information which is a combination of conceptual and procedural in the book Basics of Accounting, With Simple Examples For A More Concrete Picture.

6. Sustainability (Going Concern)

A productive company will certainly carry out various activities so that its business can run continuously at any time. In the period of the company’s running required the name of the company’s financial statements.

The company’s financial statements that are made every period or at a certain time will be very useful to be used as material for comparing the company’s progress from time to time. With these financial reports, accurate data and information will be obtained about the ups and downs 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 of the 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 survival assumption in accounting science.

Experience indicates that even though some companies experience many failures, they still survive and have a long life.

7. Determination of Expense and Revenue (Matching Concept)

Determination of expenses and income or known as the matching concept can only be recognized in a certain period so that the expenses or income of the company that occur have actually been realized.

The process of calculating the company’s profit and loss must be reported with a description that is in accordance with the circumstances that occurred and at a certain time within a certain period. For groups of small-scale business entities, they can use the cash basis concept because they only have a few accounts receivable and accounts payable. However, for large companies, they are required to use the accrual basis concept.

8. Cost (Cost)

Every transaction in a business entity or company when purchasing goods must be recorded in the financial statements. For example, if a company purchases equipment for 10 million rupiah and then the equipment is charged an installation fee of 2 million rupiah, the acquisition price becomes 12 million rupiah.

The cost or installation costs must be added up with the price of the equipment 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 on 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, acquisition cost is the purchase price plus all the costs used. Overall, fixed assets and acquisition costs are very important components in every company.

Therefore, these two elements should not be separated from one another. This is because both assets and acquisition costs are a unit 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, the 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 the 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 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. A large company to the smallest business entity, if you want to develop into a bigger company, it certainly requires a periodic report. This periodic report will support the development of the company from time to time.

10. Measuring the Value of Money

Every type of transaction that exists in a company must be measured using a certain unit of money. Likewise for the affairs of assets, debts and capital in a business entity. With this measurement using the value of money, the entire wealth or income of the company can be calculated in value.

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11. Examples of Basic Books and Accounting Concepts

One of the books that can be used as a guidebook in learning the basics and concepts of accounting is a book entitled Essence of Basic Accounting Concepts. This book was written by an Indonesian accounting expert, namely Mr. Hery, S.e.,, Crp., Rsa., Cfrm.

The book, entitled Essence 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 cover the accounting cycle. Then readers will also find other accounting topics such as Accounting for Trading Companies, Cash and Control, Accounting for Accounts Receivable, Inventories, Fixed Assets, Bonds Payable, to Bond investment and also Stocks. The second part of this book will also invite readers to better understand accounting concepts using an accounting dictionary format.

Examples of other basic accounting introductory books

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