Warren Adaptasi Edisi 2_Ch01

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Principles of AccountingPrinciples of Accounting

——Indonesia AdaptationIndonesia Adaptation

22ndnd Edition Edition

Reeve | Warren | Duchac | Suhardianto | Kalanjati | Jusuf | Djakman |

©Copyright 2012 Penerbit Salemba Empat and Cengage Learning

Introduction to Accounting and Business

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2. Summarize the development of accounting principles and relate them to practice.

3. State the accounting equation and define each element of the equation.

After studying this chapter, you should be able to:

1. Describe the nature of a business and the role of ethics and accounting in business.

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4. Describe and illustrate how business transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation.

After studying this chapter, you should be able to:

5. Describe the financial statements of a proprietorship and explain how they interrelate.

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Describe the nature of a business and the role of ethics and accounting in business.

Objective 1Objective 1Objective 1Objective 1

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ServiceService BusinessBusiness ServiceService ServiceService BusinessBusiness ServiceService

Plaza Indonesia Realty Tbk. Shopping mallHotel Sahid Jaya Tbk. Hospitality and lodging Bank Mandiri Tbk. Financial servicesGaruda Indonesia Tbk TransportationIndosat Tbk. Telecommunication

Plaza Indonesia Realty Tbk. Shopping mallHotel Sahid Jaya Tbk. Hospitality and lodging Bank Mandiri Tbk. Financial servicesGaruda Indonesia Tbk TransportationIndosat Tbk. Telecommunication

1-1Types of Businesses

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Merchandising BusinessMerchandising Business ProductProductMerchandising BusinessMerchandising Business ProductProduct

Matahari Putra Prima Tbk. Clothes and apparelHero Supermarket Tbk. Food and groceriesToko Gunung Agung Tbk. Books and stationeriesAce Hardware Indonesia Tbk. Consumer electronicsAlfa Retailindo Tbk. Consumer goods

Matahari Putra Prima Tbk. Clothes and apparelHero Supermarket Tbk. Food and groceriesToko Gunung Agung Tbk. Books and stationeriesAce Hardware Indonesia Tbk. Consumer electronicsAlfa Retailindo Tbk. Consumer goods

Types of Businesses 1-1

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Manufacturing BusinessManufacturing Business ProductProductManufacturing BusinessManufacturing Business ProductProduct

Sepatu Bata Tbk. ShoesMustika Ratu Tbk. CosmeticsGudang Garam Tbk. CigarettesMayora Indah Tbk. Food and beveragesKalbe Farma Tbk. Pharmaceutical

Sepatu Bata Tbk. ShoesMustika Ratu Tbk. CosmeticsGudang Garam Tbk. CigarettesMayora Indah Tbk. Food and beveragesKalbe Farma Tbk. Pharmaceutical

Types of Businesses 1-1

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Proprietorship Partnership Corporation Cooperatives

Common Forms of Business Organizations 1-1

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Most of Business entities in Indonesia is proprietorship

Cost of organizing is low Is limited to financial resources of the

owner. Is used by small businesses.

A proprietorship (perusahaan perseorangan) is owned by one individual and—

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In Indonesia we know firma and CV as two types of partnership. Firma and CV will be discussed more in chapter 12.

Combines the skills and resources of more than one person.

A partnership is similar to a proprietorship except that it is owned by two or more individuals and—

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A corporation is organized under government statues as a separate legal taxable entity and—

1-1

Includes ownership divided into shares of stock, sold to shareholders (stockholders).

Is able to obtain large amounts of resources by issuing stock.

Is used by large businesses.

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Is owned by a group of people (named as member). Cooperatives mainly are organized by and for member only.

For example Employee Cooperatives (Koperasi Karyawan), Milk Farmer Cooperatives (Koperasi Pengrajin Susu), Batik Business Owner Cooperatives (Koperasi Pengusaha Batik), and many more

Cooperatives (Koperasi)

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A business stakeholder is a person or entity having an interest in the economic

performance and well-being of a business.

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Capital market stakeholders provide the major financing for the business in order for the business to begin and continue its operations.

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Product or service market stakeholders include customers

who purchase the business’s products or services as well as

the vendors who supply inputs to the business.

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Government stakeholders have an interest in the economic

performance of a business. Provincial governments collect

taxes from businesses within their jurisdiction.

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Internal stakeholders include individuals employed by the business. Managers have an

incentive to maximize the economic value of the business.

Employees have an interest because their jobs depend on it.

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The moral principles that guide the conduct of individuals are

called ethics.

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1. Individual character

2. Firm culture3. Laws and

enforcement

The answer to “What went

wrong for these companies?”

(Exhibit 2) involves three

factors.

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Accounting can be defined as an information system that provides reports to stakeholders about the

economic activities and condition of a business.

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The process by which accounting provides information to business stakeholders is as follows:

Identify stakeholders. Assess stakeholders’ information needs. Design the accounting information system to

meet stakeholders’ needs. Record economic data about business

activities and events. Prepare accounting reports for stakeholders.

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2222

1-1

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Financial accounting is primarily concerned with the recording and reporting of economic

data and activities for a business.

Managerial accounting uses both financial accounting and estimated data to aid management in running day-to-day

operations and in planning future operations.

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Accountants employed by a business firm or a not-for-profit organization are said to be

employed in private accounting.

Accountants and their staff who provide services on a fee basis are said to be

employed in public accounting.

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Summarize the development of accounting principles and

relate them to practice.


1-2

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Financial accountants follow generally accepted accounting principles (GAAP) in preparing reports. In Indonesia, GAAP is well-known as PABU (Prinsip Akuntansi Berterima Umum).

1-2

Indonesian Financial Accounting Standards Board (Dewan Standar Akuntansi Keuangan—DSAK) is the authoritative body having the primary responsibility for developing accounting standards. The DSAK publishes Statement of Financial AccountingStandards (Pernyataan Standar Akuntansi Keuangan—PSAK) as well as Interpretation of these standards (Interpretasi Standar Akuntansi Keuangan—ISAK).

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1-2

Currently, the DSAK adopts international financial accounting standards developed by InternationalAccounting Standard Boards (IASB) to enhance the international comparability of Indonesian companies’ financial reports.

IASB is international accounting standard body that produces international accounting standards named International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS).

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The The business entity concept limits the limits the economic data in the accounting system economic data in the accounting system to data related directly to the activities of to data related directly to the activities of

the business.the business.

The business is viewed as an entity separate from its owners, creditors, or

other stakeholders

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The cost concept is the basis for entering the

exchange price, or cost of an acquisition in the

accounting records.

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The objectivity concept requires that the accounting records and reports be based

upon objective evidence.

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The unit of measure concept requires that

economic data be recorded in rupiah.

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Example Exercise 1-1

On August 25, Bengkel Agung Jaya extended an offer of Rp125,000,000 for land that had been priced for sale at Rp150,000,000. On September 3, Bengkel Agung Jaya accepted the seller’s counteroffer of Rp137,000,000. On October 20, the land was assessed at a value of Rp98,000,000 for property tax purposes. On December 4, Bengkel Agung Jaya was offered Rp160,000,000 for the land by a national retail chain. At what value should the land be recorded in Bengkel Agung Jaya’s records?

Follow My Example 1-1

Rp137,000,000. Under the cost concept, the land should be recorded at the cost to Bengkel Agung Jaya.

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1-2

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State the accounting equation and define each element of the equation.


1-3

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Assets = Liabilities + Owner’s Equity

The resources owned by a

business

The Accounting Equation 1-3

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The rights of the creditors, which represent debts of the business



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The rights of the owners



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The following accounts appear in the adjusted trial balance of Hindsight Consulting. Indicate whether each account would be reported in the (a) current asset; (b) property, plant, and equipment; (c) current liability, (d) long-term liability; or (e) owner’s equity section of the December 31, 2007, balance sheet of Hindsight Consulting.


Asep Sunarya is the owner and operator of Pasti Sukses, a motivational consulting business. At the end of its accounting period, December 31, 2007, Pasti Sukses has assets of Rp800,000,000 and liabilities of Rp350,000,000. Using the accounting equation, determine the following amounts:

a. Owner’s equity, as of December 31, 2007.

b. Owner’s equity, as of December 31, 2008, assuming that assets increased by Rp130,000,000 and liabilities decreased by Rp25,000,000 during 2008.

Follow My Example 1-2a. A = L + OE Rp800,000,000 = Rp350,000,000 + OE OE = Rp450,000,000

b. A = L + OE Rp130,000,000 = –Rp25,000,000 + OE

OE = Rp155,000,000 OE on Dec. 31, 2008: Rp605,000,000 (Rp450,000,000+Rp155,000,000)

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Describe and illustrate how business transactions can be

recorded in terms of the resulting change in the basic elements of the

accounting equation.


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A business transaction is an economic event or condition that

directly changes an entity’s financial condition or directly

affects its results of operations.

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On November 1, 2010, Cinta Cita begins a business that will

be known as SolusiNet.

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a. Cinta Cita deposits Rp25,000,000 in a bank account in the name of SolusiNet

Cinta Cita, Capital25,000,000

Investment by Cinta Cita

Cash25,000,000

a.

=

Assets Owner’s Equity=

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b. SolusiNet exchanged Rp20,000,000 for land.

Cinta Cita, Capital25,000

Cash + Land 25,000 Bal.

Assets Owner’s Equity=

=b. –20,000 +20,000Bal. 5,000 20,000 25,000

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1-4(in Rp000)

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Accounts Cinta Cita, Cash + Supplies + Land Payable Capital

Assets

c. During the month, SolusiNet purchased supplies for Rp1,350,000 and agreed to pay the supplier in the near future (on account).

Owner’s Liabilities + Equity=

5,000 20,000 25,000=

+1,350 +1,350c.Bal.

5,000 1,350 20,000 1,350 25,000Bal.

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1-4(in Rp000)

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Beginning with entry (d) the asset section will be shown first, then the liabilities and

owner’s equity will be shown in the following slide.

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Cash + Supplies + Land

Assets

5,000 1,350 20,000

d. SolusiNet provided services to customers, earning fees of Rp7,500,000 and received the amount in cash.

Bal.

12,500 1,350 20,000+7,500d.

Bal.

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1-4(in Rp000)

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d. SolusiNet provided services to customers, earning fees of Rp7,500,000 and received the amount in cash.

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1-4

Liabilities + Owner’s Equity Accounts Cinta Cita, Fees

Payable Capital + Earned 1,350 25,000 Bal.

+7,500 d.

+

25,000 7,500 Bal.1,350

(in Rp000)

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1-4

The amounts used in earning revenue are called expenses. Adding expenses to the owner’s equity section results in a space

problem. To adjust for these added headings, the word “Bal.” has been omitted

from Slides 48, 50, 52, and 54. The bottom row in these four slides provides

the balances after each transaction.

Expenses

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Assets

e. SolusiNet paid the following expenses: wages, Rp2,125,000; rent, Rp800,000; utilities, Rp450,000; and miscellaneous, Rp275,000.

Bal. 12,500 1,350 20,000

Bal. 8,850 1,350 20,000 e. –3,650

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1-4(in Rp000)

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Accounts Cinta Cita, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense

Liabilities + Owner’s Equity

1,350 25,000 7,500

–2,125 –800 –450 –275 e.

1,350 25,000 7,500 –2,125 –800 –450 –275

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e. SolusiNet paid the following expenses: wages, Rp2,125,000; rent, Rp800,000; utilities, Rp450,000; and miscellaneous, Rp275,000.

1-4(in Rp000)

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f. SolusiNet paid Rp950,000 to creditors during the month.


Assets

Bal. 8,850 1,350 20,000

Bal. 7,900 1,350 20,000 f. –950

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1-4(in Rp000)

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Accounts Cinta Cita, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense


1,350 25,000 7,500 –2,125 –800 –450 –275

400 25,000 7,500 –2,125 –800 –450 –275

f. NetSolutions paid Rp950,000 to creditors during the month.

f.–950

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1-4(in Rp000)

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g. At the end of the month, the cost of supplies on hand is Rp550,000, so Rp800,000 of supplies were used.


Assets

Bal. 7,900 1,350 20,000

Bal. 7,900 550 20,000 g. –800

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1-4(in Rp000)

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Accounts Cinta Cita, Fees Wages Rent Supplies Util. Misc. Payable + Capital + Earned Exp. Exp. Exp. Exp. Exp.


400 25,000 7,500 –2,125 –800 –450 –275

g. At the end of the month, the cost of supplies on hand is Rp550,000, so Rp800,000 of supplies were used.

g. –800

400 25,000 7,500 –2,125 –800 –800 –450 –275

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1-4(in Rp000)

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Assets

Bal. 7,900 550 20,000

Bal. 5,900 550 20,000 h. –2,000

h. At the end of the month, Cinta withdrew Rp2,000,000 in cash from the business for personal use. 53

1-4(in Rp000)

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Accounts Cinta Cita, Cinta Cita Fees Wages Rent Supplies Util. Misc. Payable + Capital + Drawing Earned Exp. Exp. Exp. Exp. Exp.


400 25,000 7,500 –2,125 –800 –800 –450 –275 h. –2,000

h. At the end of the month, Cinta withdrew Rp2,000,000 in cash from the business for personal use.

400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275

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1-4(in Rp000)

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Owner’s withdrawals

Expenses

Decreased byDecreased by

Owner’s Equity

Increased byIncreased by

Owner’s investments

Revenues

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Simatupang Express is owned and operated by Bonar Simatupang. The following selected transactions were completed by Simatupang Express during February:

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1. Received cash from owner as additional investment, Rp35,000,00.

2. Paid creditors on account, Rp1,800,000.

3. Billed customers for delivery services on account, Rp11,250,000.

4. Received cash from customers on account, Rp6,740,000.

5. Paid cash to owners for personal use, Rp1,000,000.

1-4

Continued

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Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense) by listing the numbers identifying the transactions, (1) through (5). Also, indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below.

(1) Asset (Cash) increases by Rp35,000,000; Owner’s Equity (Bonar Simatupang, Capital) increases by Rp35,000,000.

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(2) Asset (Cash) decreases by Rp1,800,000; Liability (Accounts Payable) decreases by Rp1,800,000.

For Practice: PE 1-3A, PE 1-3B

(3) Asset (Accounts Receivable) increases by Rp11,250,000; Revenue (Simatupang Express) increases by Rp11,250,000.

(4) Asset (Cash) increases by Rp6,740,000; Asset (Accounts Receivable) decreases by Rp6,740,000.

(5) Asset (Cash) decreases by Rp1,000,000; Owner’s Equity (Bonar Simatupang, Drawing) increases by Rp1,000,000.

1-4

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Describe the financial statements of a proprietorship

and explain how they interrelate.


1-5

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Accounting reports, called financial statements, provide summarized

information to the owner.

1-5

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The income statement is a summary of the revenue

and expenses for a specific period of time,

such as a month or a year.

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Fees earned Rp7 500 000Expenses:

Wages expense Rp2 125 000Rent expense 800 000Supplies expense 800 000Utilities expense 450 000Miscellaneous expense 275 000

Total expenses 4 450 000Net income Rp3 050 000

SolusiNetIncome Statement

For the Month Ended November 30, 2010

Net income is carried to the statement of owner’s equity

Income Statement 1-5

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A statement of changes in equity is a summary of the changes in

the owner’s equity that have occurred during a specific period

of time.

1-5

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Cinta Cita, capital, November 1, 2010 Rp 0Investment on November 1, 2010 Rp25 000 000Net Income for November 3 050 000

Rp28 050 000Less withdrawals 2 000 000Increase in owner's equity 26 050 000Cinta Cita, capital, November 30, 2010 Rp26 050 000

SolusiNetStatement of Owner's Equity


1-5Statement of Owner’s Equity

From the income statement

To the balance sheet

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A statement of financial position (balance sheet) is a list of the assets, liabilities, and owner’s equity as of a

specific date.

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Assets LiablitiesCash Rp 5 900 000 Accounts Payable Rp 400 000Supplies 550 000 Owner's EquityLand 20 000 000 Cinta Cita, capital 26 050 000

Total Liabilities andTotal assets Rp26 450 000 Owner's equity Rp26 450 000

SolusiNetBalance Sheet

November 30, 2010

Balance Sheet 1-5

This amount is compared to the net cash flow on the statement of cash flows

From the statement of owner’s equity

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A statement of cash flows is a summary of the cash receipts and payments for a specific period of time.

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Cash flows from operating activitiesCash received from customers Rp 7 500 000Deduct cash payments for expense and

payments to creditors 4 600 000Net cash flow from operating activities Rp 2 900 000

Cash flows from investing activitiesCash payments for purchase of land (20 000 000)

Cash flows from financing activitiesCash received as owner's investmentsRp25 000 000Deduct cash withdrawal by owner 2 000 000Net cash flow from financing activities 23 000 000

Net cash flow and November 30, 2010, cash balance Rp 5 900 000

SolusiNetStatement of Cash Flows


Statement of Cash Flows 1-5

This amount should match Cash on the balance sheet.

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The income statement reports the revenues and expenses for a period of time based on the matching concept.

This concept is applied by matching the expenses with the revenue generated during a period by those expenses.

1-5Income Statement

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The excess of revenue over the expenses is called net

income or net profit. If the expenses exceed the revenue,

the excess is a net loss.

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The assets and liabilities of Cimande Travel Service at April 30, 2011, the end of the current year, and its revenue and expenses for the year are listed below. The capital of the owner, Adam Kuncoro, was Rp80,000,000 at May 1, 2010, the beginning of the current year.

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Accounts payable Rp 12,200,000 Miscellaneous expense Rp 12,950,000Accounts receivable 31,350,000 Office expense 63,000,000Cash 53,050,000 Supplies 3,350,000Fees earned 263,200,000 Wages expense 131,700,000Land 80,000,000

Prepare an income statement for the current year ended April 30, 2011.

1-5

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CIMANDE TRAVEL SERVICEINCOME STATEMENT

For the Year Ended April 30, 2011

Fees earned Rp263,200,000Expenses:

Wages expense Rp131,700,000Office expense 63,000,000Miscellaneous expense 12,950,000 Total expenses 207,650,000

Net income Rp 55,550,000

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The statement of changes in equity reports the changes in

the owner’s equity for a period of time. It is prepared after the

income statement.

1-5Statement of Changes in Equity

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Using the data for Cimande Travel Service shown in Example Exercise 1-4, prepare a statement of changes in equity for the current year ended April 30, 2011. Adam Kuncoro invested an additional Rp50,000,000 in the business during the year and withdrew cash of Rp30,000,000 for personal use.

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CIMANDE TRAVEL SERVICESTATEMENT OF CHANGES IN EQUITY

For the Year Ended April 30, 2011

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Adam Kuncoro, capital, May 1, 2010 Rp 80,000,000Additional investment by owner during year Rp 50,000,000Net income for the year 55,550,000

Rp 105,550,000Less withdrawals 30,000,000Increase in owner’s equity 75,550,000Adam Kuncoro, capital, April 30, 2011 Rp 155,550,000

1-5

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The statement of financial position (balance sheet) reports the amounts of a firm’s assets, liabilities,

and owner’s equity at the end of a specific period.

1-5Balance Sheet

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The account form of balance sheet lists the assets on the left and the liabilities and owner’s equity on the right—similar to

design of an account.

1-5

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The report form of balance sheet presents the liabilities and owner’s equity sections

below the assets section.

1-5

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Using the data for Cimande Travel Service shown in Example Exercise 1-4 and 1-5, prepare the balance sheet as of April 30, 2011.

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1-5

CIMANDE TRAVEL SERVICEBALANCE SHEET

April 30, 2011 Assets Liabilities

Cash Rp 53,050,000 Accounts payable Rp 12,200,000Accounts receivable 31,350,000Supplies 3,350,000 Owner’s EquityLand 80,000,000 Adam Kuncoro, capital 155,550,000Total assets Rp167,750,000 Total liab. & owner’s eq. Rp 167,750,000

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The statement of cash flows consists of three sections:

1-5

(1) Operating activities

(2) Investing activities

(3) Financing activities

Statement of Cash Flows

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The cash flows from operating activities section reports a summary of cash receipts and cash payments

from operations.

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The cash flows from investing activities section reports the cash

transactions for the acquisition and sale of relatively permanent assets.

1-5

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The cash flows from financing activities section reports the

cash transactions related to cash investments by the owner,

borrowings, and cash withdrawals by the owner.

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A summary of cash flows for Cimande Travel Service for the year ended April 30, 2011, is shown below.

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Cash receipts:Cash received from customers Rp 251,000,000Cash received from additional investment of owner 50,000,000

Cash payments:Cash paid for expenses 210,000,000Cash paid for land 80,000,000Cash paid to owner for personal use 30,000,000

The cash balance as of May 1, 2010, was Rp72,050,000.

Prepare a statement of cash flows for Cimande Travel Service for the year ended April 30, 2011.

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CIMANDE TRAVEL SERVICESTATEMENT OF CASH FLOWSFor the Year Ended April 30, 2011

Cash flows from operating activities:Cash received from customers Rp251,000,000Deduct cash payments for expenses 210,000,000Net cash flows from operating activities Rp 41,000,000

Cash flows from investing activities:Cash payments for purchase of land (80,000,000)

Cash flows from financing activities:Cash received from owner as investment Rp 50,000,000Deduct cash withdrawals by owner 30,000,000Net cash flows from financing activities 20,000,000

Net decrease in cash during year Rp (19,000,000)Cash as of May 1, 2010 72,050,000Cash as of April 30, 2011 Rp 53,050,000

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The income statement and the statement of owner’s equity are interrelated.

Net income or net loss appears on both statements.

1-5Interrelationships Among Financial Statements

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The statement of owner’s equity and the balance sheet are interrelated.

The owner’s capital at the end of the period on the statement of owner’s equity also appears on the balance

sheet as owner’s capital.

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The balance sheet and the statement of cash flows are interrelated.

The cash on the balance sheet also appears as the end-of-period cash on

the statement of cash flows.

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End of Chapter 1

Documents

Warren Adaptasi Edisi 2_Ch01