ISH3F3 Accounting System and Finance Management

Accounting
in Action

Muhardi Saputra,
Information System Department
2019
Learning Objective

1 Identify the activities and users associated with accounting.

Explain the building blocks of accounting: ethics, principles, and

2 assumptions.

3 State the accounting equation, and define its components.

Three Activities Of Accounting

Identifies Records Communication

Three Activities Of Accounting

The accounting process includes

the bookkeeping function.
Who Uses Accounting Data?

INTERNAL USERS of accounting information

are managers who plan, organize, and run
the business. These include marketing
managers, production supervisors, finance
directors, and company officers

EXTERNAL USERS are individuals and

organizations outside a company who want
financial information about the company.
The two most common types of external
users are investors and creditors.

Investors (owners) use accounting information to decide whether to buy, hold, or sell ownership shares
of a company.
Creditors (such as suppliers and bankers) use accounting information to evaluate the risks of granting
credit or lending money.
Ethics in Financial Reporting

 Recent financial scandals include: Enron, WorldCom,

HealthSouth, AIG, and other companies.

 Regulators and lawmakers concerned that economy would suffer if

investors lost confidence in corporate accounting. In response,

► Congress passed Sarbanes-Oxley Act (SOX).

 Effective financial reporting depends on sound ethical behavior.

 Dewan Standar Akuntansi Keuangan release

 Pernyataan Standar Akuntansi Keuangan

 Interpretasi Standar Akuntansi Keuangan

Fraud in Accounting
Company Fraud
Citibank (Indonesia) Menggelapkan uang dari rekening
nasabah dan kecurangan perbankan
PT. Kimia Farma Memanipulasi laba nettonya dari
Indonesia Rp132,16 Milyar menjadi Rp 99,56
Milyar atau 24,7% lebih rendah dari
seharusnya
PT Adhi Karya Penggunaan uang perusahaan untuk
(Persero) kepentingan pribadi
Enron (USA) Menggelembungkan hasil kinerja
keuangan
Xerox Corp (USA) Mengakui pendapatan $3 Milyar yang
seharusnya belum dicatat
Effect
• Tuntutan pidana terhadap seorang mantan
eksekutif
• Bank dilarang menjual jasa manajemen
kekayaan kepada nasabah dalam waktu 1
tahun (2011)
• Penalti administrative sebesar 500 juta
• Manajemen diwajibkan membayar denda 1
Milyar rupiah
• Auditor dikenai denda 100 juta
• Pembatalan divestasi saham milik pemerintah
(2002)
Pemecatan kepala divisi Konstruksi VII (2014)
Pailit. Tuntutan pidana terhadap para eksekutif
senior dan lebih dari $60 Miliar kerugian pada
psaar saham
• Denda $10 juta oleh SEC
• Enam eksekutif harus membayar denda $22
juta (2002)
Generally Accepted Accounting
Principles
Financial Statements
Various users need  Balance Sheet
financial  Income Statement
 Statement of Owner's Equity
information  Statement of Cash Flows
 Note Disclosure

The accounting profession has

developed standards that are Generally Accepted Accounting
generally accepted and Principles (GAAP)
universally practiced.
Generally Accepted Accounting
Principles
Generally Accepted Accounting Principles (GAAP) – Standards that are
generally accepted and universally practiced. These standards indicate
how to report economic events.

Standard-setting bodies:

► Financial Accounting Standards Board

(FASB)

► Securities and Exchange Commission

(SEC)

► International Accounting Standards

Board (IASB)
IFRS vs GAAP

Key Points

Similarities
 The three most common forms of business organizations,
proprietorships, partnerships, and corporations, are also found in
countries that use international accounting standards.

Differences
 International standards are referred to as International Financial
Reporting Standards (IFRS), developed by the International Accounting
Standards Board. Accounting standards in the United States are referred
to as generally accepted accounting principles (GAAP) and are
developed by the Financial Accounting Standards Board.
IFRS vs GAAP

Key Points

Differences
 IFRS tends to be simpler in its accounting and disclosure requirements;
some people say it is more “principles-based.” GAAP is more detailed;
some people say it is more “rules-based.”
 The internal control standards applicable to Sarbanes-Oxley (SOX) apply
only to large public companies listed on U.S. exchanges. There is
continuing debate as to whether non-U.S. companies should have to
comply with this extra layer of regulation.
Assumptions

MONETARY UNIT ASSUMPTION requires that companies include in

the accounting records only transaction data that can be expressed in
terms of money.

ECONOMIC ENTITY ASSUMPTION requires that activities of the

entity be kept separate and distinct from the activities of its owner and
all other economic entities.

 Proprietorship
Forms of Business
 Partnership
Ownership
 Corporation
Forms of Business Ownership

Proprietorship Partnership Corporation

 Owned by one  Owned by two or  Ownership divided

person more persons into shares of stock
 Owner is often  Often retail and  Separate legal
manager/operator service-type entity organized
 Owner receives any businesses under state
profits, suffers any corporation law
 Generally unlimited
losses, and is personal liability  Limited liability
personally liable for
 Partnership
all debts
agreement
Basic Accounting Equation

Assets = Liabilities + Owner's Equity

Basic Accounting Equation

 Provides the underlying framework for recording and summarizing
economic events.

 Assets are claimed by either creditors or owners.

 If a business is liquidated, claims of creditors must be paid before

ownership claims.
Basic Accounting Equation

Assets = Liabilities + Owner's Equity

Assets
 Resources a business owns.
 Provide future services or benefits.
 Cash, Supplies, Equipment, etc.
Basic Accounting Equation

Assets = Liabilities + Owner's Equity

Liabilities
 Claims against assets (debts and obligations).

 Creditors (party to whom money is owed).

 Accounts Payable, Notes Payable, Salaries and Wages Payable,

etc.
Basic Accounting Equation

Assets = Liabilities + Owner's Equity

Owner's Equity
 Ownership claim on total assets.

 Referred to as residual equity.

 Investment by owners and revenues (+)
 Drawings and expenses (-).
Owner’s Equity

Increases in Owner’s Equity

 Investments by owner are the assets the owner puts into the
business.

 Revenues result from business activities entered into for the purpose
of earning income.

► Common sources of revenue are: sales, fees, services, commissions,

interest, dividends, royalties, and rent.
Owner’s Equity

Decreases in Owner’s Equity

 Drawings An owner may withdraw cash or other assets for personal
use.
 Expenses are the cost of assets consumed or services used in the
process of earning revenue.

► Common expenses are: salaries expense, rent expense, utilities

expense, tax expense, etc.
Business Transaction

Transactions are a business’s economic events recorded by

accountants.
 May be external or internal.

 Not all activities represent transactions.

 Each transaction has a dual effect on the accounting

equation.
 FINANCE OUTPUT
Balance Sheet
which shows what assets the
company owns and who has claims
on those assets as of a given date—
for example, December 31, 2008.
Statement of
stockholders’ equity
which shows the amount of equity
the stockholders had at the start of
the year, the items that increased or
decreased equity, and the equity at
the end of the year.
Income Statement
which shows the firm’s sales and
costs (and thus profits) during some
past period—for example, 2008.
. did to increase or decrease its cash.
Free Cash Flow (FCF)
the amount of cash that could be
withdrawn from a firm without
harming its ability to operate and to
produce future cash flows.
Statement of cash
flows
which shows how much cash the
firm began the year with, how much
cash it ended up with, and what it
Income Taxes
individuals and corporations pay out
a significant portion of their income
as taxes, so taxes are important in
both personal and corporate
decisions.
Career Opportunities in Accounting

Public Accounting Private Accounting

Careers in auditing, taxation, and Careers in industry working in cost
management consulting serving accounting, budgeting, accounting
the general public. information systems, and taxation.

Governmental Accounting Forensic Accounting

Careers with the IRS, the FBI, the Uses accounting, auditing, and
SEC, public colleges and investigative skills to conduct
universities, and in state and local investigations into theft and fraud.
governments.
“Show Me the Money”
“Show Me the Money”
Merci bien
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