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Accounting as A System of Information. The meaning of Accounting Accounting is a science that is sistematic and learnable concerning the identification,

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Presentation on theme: "Accounting as A System of Information. The meaning of Accounting Accounting is a science that is sistematic and learnable concerning the identification,"— Presentation transcript:

1 Accounting as A System of Information

2 The meaning of Accounting Accounting is a science that is sistematic and learnable concerning the identification, recording,summarizing, and reporting of information about company’s activities that can be used by the parties in need. Accounting is a process identifying, measuring, commuicating economics information, action, judgement and decision by users of information. The parties in need includes government, investors, publics, and the company.

3 Step to prepare information of accounting Transaction Making reserving journalmaking general journal based on transactions Making post closing trial balancepost the account in the general ledger Making closing journalarrange the trial balance Making financial reportmaking worksheetmaking financial report making ajusted trial balance

4 Areas of Accouting Financial accounting Discusses the preparation of financial report periodically Cost accounting Talks about planning, determining, controlling the production costs. Government accounting Concern about reporting and recording if transaction Management accounting This area of accounting specifically deals with information that is useful for the management of organization

5 Auditing Area of accounting relates to an independent inspection of financial reports. Tax Accounting International Accounting Non-profit accounting Accounting System Budgetary Accounting

6 Profession in Accounting Internal accountant Public accountant Government accountant Educational Accountant

7 Requirements of Accounting Information Understandable Relevant, it suits what the users need It is reliable It is punctual It is material It is consistent with the standart and comparable It can be concluded and give feedback to the company that reports information

8 It should give benefits more than the cost pay to process the information

9 Using Accounting Information Internal parties : company’s management External parties : company owner, creditors, labour, the government and suppliers.

10 Basic Structure of Accounting

11 Definition of Financial Transaction Financial transactions mean all activities involving unit of an organization which are measureable in money and effect the wealth of the organization (company, firm,etc).

12 Types of Financial Transactions Based on the scope : internal financial transactions, external financial transactions. Based on the affected area : a capital transaction, a business transaction

13 Accounting Equation Is the basic formula in accounting which indicates the financial condition of a company that becomes the basic of the next accounting process until the production of a financial report.

14 An accounting equation shows that wealth and assets are the same as an owner’s capital. Asset = Capital When the company involves a third party as a creditor, or when it borrows some money, either from a bank or a suppliers, it creates a liability or debt for the company and accordingly the formula change into: Asset = Debt + Capital

15 When the company has done business activities, some income and cost will appear, so the accounting equation becomes : Asset = Debt+Capital+Income+Cost-Draw Draw is withdrawal or use of company money that reduce the owner’s capital in the company.

16 Writing Financial Transactions in an Accounting Equation Paying in of capital by the owner Purchase of tools and equipment : in cash and credit, use of the equipment for a period of one month Paying expenses Receiving incomes from business activities and non business activities. Owner’s use of company’s money (draw)

17 Making a Financial Report from Accounting Equation A financial statement may be viewed as a reflection of the company’s assets or financial condition at the end of a period. The final sums of accounts will be written in the balance as assets, debts, and incoming capital. Income and expenses will be written in a statement of profit/loss. Initial capital and additional capital from the period/year will be written in the statement of capital change.

18 Types of Financial Statement Statement of Profit/Loss Balance Statement of Capital Change Statement of Cash Flow Notification of Financial Report (we will talk about it if you take accounting major)

19 Cycle of Accounting Record in Service Companies

20 Grouping of Companies 1.Service Companies The characteristic of Service Company : The main activities are giving information and selling services to other parties The company never run out of stock, because the characteristics of service is if the owner wants to sell it, it’s always available It’s difficult to make standard price

21 2.Trading Companies 3.Manufacturing Companies

22 Transaction Proofs Receipts Notes Invoices Internal Memos Debit Memos Credit Memos

23 Journal Journal is the record of financial transactions that includes the names of account and ammounts of money which are written on the debit & credit sides Types Of Journal : General journal and special journal

24 Recording Transactions in A general journal AccountIncreaseDecrease AssetsDebitCredit DebtCreditDebit CapitalCreditDebit CostDebitCredit IncomeCreditDebit DrawDebitCredit

25 Let’s Try this exercise… (on word file)

26 General Ledger General ledger is a book to make a group of similar accounts in the journals. There are 3 types of it : Two column format; three column format; four column format; T format. Look the word file…

27 Summarization Steps in Service Company

28 Trial Balance Trial balance is a scale showing the balance between debit and credit sides and balance of all accounts in the general ledger. Let’s make it from word file… This is an example… Account Number Account NameDebitKredit

29 Adjustment Journal Is the place to write the accounts which are known as internal transactions, so the trial balance fully accords with the balance of account in reality.

30 Arranging the Adjustment Journal Prepaid Expense 1. if it is recorded as an expense Prepaid Rent (D) Rent Expense (C) 2. if it is recorded as an asset Rent Expense (D) Prepaid Rent (C)

31 Income Received in Advance 1. it is written as follows cash (D) prepaid income (C) So, it will be adjusted into : Prepaid Income (D) Service income (C) 2. it is written as follows cash (D) service income (C)

32 in the adjustment,will be: service income (D) income received in advance (C) Income Receivable interest income (D) interest receivable (C) Some accounts in the group of expense payables example : salary expense (D) salary payable (C)

33 Assets Depreciation assets depreciation expense (D) accumulation of assets depreciation(C) The use of equipment equipment expense (D) equipment (C) The nominal value in the adjustment journal is the quantity of equipment which has been really used in the period.

34 Work Sheet Work Sheet is a list of columns which consist of some parts, they are a summary of trial balance, adjustment journal, income statement and balance. Format of worksheet : 6 columns, 8columns, 10columns, 12columns. Look at your textbook, let’s try to make it...

35 The Stage of Reporting & Closing of Service Companies’ Accounting Cycle

36 Financial Statement Profit / Loss Statement CV. Indah profit/loss statement Par 31 December 2008 Incomesxxx Expensesxxx- Profit / Lossxxx

37 Capital Change Statement CV. Indah Statement of Capital Change Par 31 December 2008 Initial capital xxx Profit/(Loss)xxx Drawxxx -/(+) Capital add up/ lossxxx +/(-) Final Capitalxxx

38 Balance CV. Indah Balance Par 31 December 2008 Assets Payables & Capital 1.Total current assets1. Total Paybles 2.Total Fixed assets +2. Total Capital + AssetsPayables & Capital

39 Closing Journal There are many types of account that must closed, here they are : 1.Closing all of the incomes account 2.Closing all of expenses 3.Closing all of income summary 4.Closing a drawing account

40 Making post closing trial balance Making post closing trial balance has the similar method with technic to make trial balance. The differences between trial balance with post closing trial balance are making post closing trial balance adjusted the transaction that happen in one accounting period.

41 Reversing Journal Accounts that need reversing jurnal are : 1. Expenses payables 2. Income receivables 3. Prepaid expense that recorded as an expense 4. Income received in advance that recorded as an income

42 Thank You Very Much… Let’s Share….

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