On this occasion we will discuss the accounting cycle and its concepts and limitations, congratulations on reading, hopefully it will be easier to understand this discussion….
Table of contents :
Accounting cycle
1). Analysis of Accounting Transactions
2). Journal Making (Recording in a Journal)
3). Transfer of Notes (Posts) to Ledgers
4). Making a trial balance
5). Record (Posting) in an adjusting journal
6). Prepare a trial balance after adjustment
7). Making financial reporting
8). Making notes and posting in closing journals
9). Make trial balance after closing
Accounting Balance
Accounting Purposes
Accounting Standards
1). PSAK-IFRS
2). SAK-ETAP
3). PSAK-Sharia
4). SAP
Accounting assumptions
1). Business Units especially for (Separate Entity or Economic Entity)
2). Business Continuity (Going Concern / Continuity)
3). Use of Monetary Units in Records
4). On Time (Time Period / Periodicity)
Accounting Concepts
1). Accounting unit
2). Continuity
3). Accounting period
4). Measurement in value for money
5). Exchange price
Accounting Limitations
1). Cost Benefit Relationship
2). Materiality (Materiality)
3). Accounting Practices According to Industry Types
4). Conservatism (Conservatism)
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Accounting cycle
The accounting cycle is a series of processes in preparing a company financial (financial) report that can be accepted and accounted for.
Below are some stages of the accounting cycle.
Accounting Cycles, Balance Sheet, Objectives, Standards, Assumptions, Concepts and Limitations
1). Analysis of Accounting Transactions
Transaction Analysis is looking for information related to what types of transactions have occurred in one period. can include sales, returns (returns) and ordering goods from suppliers for business activities.
2). Journal Making (Recording in a Journal)
Take notes in a journal. The recording is based on official documents in the form of purchase and sales invoices obtained as valid evidence.
3). Transfer of Notes (Posts) to Ledgers
Transfer of notes (overbooking) from the journal to the general ledger. What is a ledger? what is meant by general ledger is an accounting notebook used to record and store accounting transactions that affect the company’s equity, assets and liabilities etc.
4). Making a trial balance
What is a trial balance? Trial balance is a complete account description with balance data for a certain period. its use is for data validity and checking the similarity of debit and credit data after posting in journals and ledgers. So it can be seen if there are writing errors in the journal.
5). Record (Posting) in an adjusting journal
This adjusting journal has a function, namely to recognize income at any given period when the income is legal to the company.
Generally, this acquisition is the absolute right of the company at the time the goods are delivered. Apart from that, the adjusting journal aims to record expenses.
Also Read: General Journal
It can be said that this journal is useful to ensure that the Accounting Cycle is actually accurate.
6). Prepare a trial balance after adjustment
The trial balance after this adjustment is to include the amount of the debit and credit balance at least. The trial balance after adjustment can be said to be the main reference in preparing financial statements.
7). Making financial reporting
Making financial reports is the most important stage in the flow cycle or accounting cycle. An accountant must vary the financial statements by referring to the existing transaction evidence. And without having to go through the stages of the Accounting Cycle described above.
8). Making notes and posting in closing journals
closing journal is the most recent journal compiled in the flow of the accounting cycle Its function is to create a nominal account balance that includes income,
the burden and dividend will be zero (0). So that in the next period, all nominal accounts will be restarted with a balance (0) zero.
9). Make trial balance after closing
accounting cycle, understanding the accounting cycle, examples of accounting cycles and stages of the accounting cycle and accounting cycle charts The final stage in the accounting cycle is compiling a trial balance after all the contents of the closing journal have been posted in the ledger.
All nominal accounts have been closed, so the only trial balance after closing is the real account.
Accounting Balance
The balance sheet is a part of the financial statements of a company or business entity produced in an accounting period where it provides a position
on the company’s finances at the end of the accounting period which can be the basis for producing business decisions.
Accounting Purposes
To convey reliable information about a change in a firm’s net economic resources that arises from an activity in order to earn a profit.
To deliver reliable information regarding Assets, Liabilities and most recently, Capital.
To assist users in estimating a company’s potential to generate profits.
To convey data or other important information regarding a change in economic resources and obligations such as information on shopping activities.
Submit another information that is related to a financial report that is relevant to the needs of users of financial statements.
Accounting Standards
Below are the 4 pillars in the Financial Accounting Standards. The following is the explanation
1). PSAK-IFRS
Standard (PSAK) is another name for the essence of SAK (Financial Accounting Standards) which was established by the Indonesian Accounting Association (IAI) in 2012.
Also Read: Financial Ratio Analysis
This standard is used for entities or businesses that have public accountability, namely entities that are registered or still in the process of registering in the capital market such as public companies, insurance, banking and state-owned enterprises and pension fund companies.
2). SAK-ETAP
Financial Accounting Standards (SAK-ETAP) are used for entities whose public accountability is insignificant and whose financial statements are only for general purposes for external users.
3). PSAK-Sharia
The PSAK-Syariah standard is a guideline that can be used for sharia policy institutions such as sharia banks, sharia pawnshops and zakat bodies. This accounting standard development was formed based on the reference to the fatwa issued by the MUI.
4). SAP
Government Accounting Standards (SAP) have been applied as government regulations established for government entities in preparing Central Government Financial Statements (LKPP) and Regional Government Financial Reports (LKPD).
SAP was formed to become the admin of transparency, participation and accountability in the management of state finances for the realization of good and clean government.
Accounting assumptions
Below are 4 accounting assumptions
1). Business Units especially for (Separate Entity or Economic Entity)
This concept focuses on the company as a business unit that stands alone, separate from its owner. Or it can be called a company is considered a separate accounting unit from its owner.
Basic accounting assumptions-business units For accounting purposes, the company is separated from its shareholders or owners.
2). Business Continuity (Going Concern / Continuity)
is a business continuity. This concept assumes that a company will survive, in the hope that there will be no liquidation in the future.
Basic Accounting Assumptions – Business Continuity The emphasis of this concept is on the assumption that there will be sufficient time for a company to complete business, contracts and agreements.
3). Use of Monetary Units in Records
is the use of monetary units in accounting records. Basic Assumptions of Accounting – Monetary Units Some transactions that occur within a company can be recorded using physical units or time measures.
However, not all transactions can use the same physical unit size so that it will cause difficulties in recording and preparing financial reports.
4). On Time (Time Period / Periodicity)
The company’s activities continue from one period to the next with different volumes and profits.
Basic Accounting Assumptions – Timely the problem that arises is the recognition and allocation of certain periods in which financial reports are prepared.
These financial reports must be made on time. To be useful for management, owners and creditors.
Also Read: Definition of Receipt
Accounting Concepts
Below are some of the accounting concepts
1). Accounting unit
Accounting information has a relationship with an entity that limits the scope of interest. In financial accounting, a company is considered as an economic entity that is separate from the parties with an interest in certain company resources.
2). Continuity
an economic entity is assumed to continue in business and will not be dissolved, unless there is evidence to the contrary.
This assumption provides strong support for the presentation of an asset based on its revenue price and not on the basis of the asset’s cash value or its realizable value at the time of liquidation.
3). Accounting period
a complete and precise picture of the success rate of a company can only be known when the company replaces its business and converts all of its assets into cash.
4). Measurement in value for money
Given the special role of the monetary unit as a measure or exchange in the economy. Financial accounting uses money as the general denominator in measuring the company’s assets and liabilities and their changes.
5). Exchange price
Financial transactions must be recorded at “Exchange Price”, namely the amount of money that must be received or paid for the transaction.
Accounting assumes that the price agreed upon when an exchange transaction occurs is objectively determined by the parties involved
and supported by evidence that can be checked for suitability by an independent party, therefore it is the most appropriate basis for accounting records.
Accounting Limitations
Following below are the accounting limitations
1). Cost Benefit Relationship
People often assume that the information produced does not cost money. The cost of conveying information must be carefully considered with the benefits of the information for the information users.
2). Materiality (Materiality)
All things are considered material if they affect the decisions of the users of the information.
3). Accounting Practices According to Industry Types
Agricultural companies report their agricultural products by measuring market prices, because it is very difficult to calculate the cost of producing agricultural products individually
4). Conservatism (Conservatism)
an unrealized gain cannot be recognized as gain, on the contrary, a loss even though it has not been realized must be recognized.
Examples such as: merchandise in the market has decreased in price, then it is reported as a loss due to a decrease in market price. if the market price rises, the profit cannot be recognized.
