Retnoningrum Hidayah, S.E.,M.Si.,MSc.,QIA.

,
CRMP
Occupation:
1. Lecturer of Accounting Department
2. Internal Control Unit
3. House wife

Graduate from:
University of Huddersfield, United Kingdom-
MSc
Diponegoro University- M.Si
Universitas Negeri Semarang S.E

Phone number 085 727 588 366

 ACCOUNTING—
INDONESIA ADAPTATION
4 TH EDITION—VOLUME 1
Carl S. Warren
James M. Reeve
Jonathan E.Duchac
Ersa Tri Wahyuni
Amir Abadi Jusuf
 CHAPTER 1

INTRODUCTION TO ACCOUNTING
AND BUSINESS
Contents

Nature of Business and Accounting

Integrity, Objectivity, and Ethics in Business: Bernie Madoff

Indonesian Financial Accounting Standars

International Financial Reporting Standard

Contents
The Accounting Equation

Business Transactions and The Accounting Equation

Business Connection: The Accounting Equation

Financial Statements

Financial Analysis dan Interpretation: Ratio of Liabilities to Owner’s Equity

Nature of Business and Accounting
(slide 1 of 2)

Busines Convert basic resources to

●

provide goods or services to

s customers

The ●
To earn profit
Objective of ●
Profit = Sales — Expenses
business
Nature of Business and Accounting
(slide 2 of 2)
Types of Business

Services Merchandising Manufacturing

Buy products from

other business and Change inputs
Provide services
resell them to into products
customers

Astra
Garuda Indonesia,
Alfamart, International,
Telekomunikasi
Tokopedia Indofood Sukses
Indonesia
Makmur
Role of Accounting in Business

• Accounting is an information system that provide reports to users

about the economic activities and condition of business.

Exhibit 1: Accounting as an Information System

Role of Ethics in Accounting
and Business

• The objective of accounting is to provide

relevant, timely information for user decision
making.
• Ethics are moral principles that guide the conduct
of individuals.
Exhibit 2 : Accounting and
Business Frauds
Opportunities for Accountants

• Numerous career opportunities are available for

students majoring in accounting.

Demand for Number of new

accountant > graduates
Accounting Career Paths and
Salaries in Indonesia
Indonesian Financial Accounting
Standard

• Financial accountants follow Indonesian

Financial Accounting Standards (SAK) in
preparing reports.
• The objective is to allow investors and other users
to compare one company to another.
Statement of Financial
Accounting Standards

Dewan Standar ●
Develops accounting
Akuntansi
principles
Keuangan
(DSAK)
●
Follow IASB

International
Accounting Issues International Financial
●

Standard Boards Reporting Standards (IFRSs)

(IASB)
Business Entity Concept

• “The activities of a business are recorded

separately from the activities of its owners,
creditors, or other businesses”
• The business is an entity separate from its
owners, creditors, or other businesses.
Form of Business Entity
Cost Concept (slide 1 of 2)

Amount are initially recorded in the accounting

records at their cost or purchase price.
Example of Cost Concept
At
At what
what amount
amount
the
the land
land should
should
be
be recorded?
recorded?

Asses value for

property taxes, Dec
31, 2016 = Rp190
millions

Estimated selling Price listed by

price on Des 31, seller on Jan 1,
2016 = Rp220 2014 = Rp160
millions millions

Aurora Publishers’s
Purchase price on
Initial Offer to buy
Feb 20, 2014 = on Jan 31, 2014 =
Rp150 millions Rp140 millions
Cost Concept (slide 1 of 2)

Objectivity Concept Unit of Measure Concept

Amounts recorded based on Economic data be recorded

objective evidence in Rupiah
The Accounting Equation

Assets = Liabilities + Owner’s Equities

Resources
Claims to the Claims to the
owned by a
assets by assets by
business, e.g.
creditors owners
cash and land
Example Exercise 1-2:
Accounting Equation

• Jonathan is the owner and operator of Jadilah Bintang, a

motivational consulting business .
• At the end of its accounting period, December 31, 2015, Jadilah
Bintang 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, 2015.
b. Owner’s equity as of December 31, 2016, assuming that assets increased by
Rp130,000,000 and liabilities decreased by Rp25,000,000 during 2016.
Follow My Example 1-2
A. Assets = Liabilities + Owner’s Equity
Rp800,000,000 = Rp350,000,000 + Owner’s Equity
Owner’s Equity = Rp450,000,000

B. First, determine the change in owner’s equity during 2016 as follows:

Assets = Liabilities + Owner’s Equity
Rp130,000,000 = – Rp25,000,000 + Owner’s Equity
Owner’s Equity = Rp155,000,000

Next, add the change in owner’s equity during 2016 to the owner’s equity on December 31,
2015.

Owner’s Equity on Dec 31, 2016 = Rp450,000,000 + Rp155,000,000 =

Rp605,000,000
Business Transactions and the
Accounting Equation

• Business transaction is an economic event or

condition that directly change an entity’s financial
condition or its result of operation, e.g. paying
monthly bills.
• All business transactions can be stated in terms of
changes in the elements of the accounting
equation.
Example of Recording Business Transaction
Using Accounting Equation

• Assume that on November 1, 2015, Cristina begins a business

that will be known as SolusiNet.
• Each transaction during SolusiNet’ first month of operations is
described in the following paragraphs.
• The effect of each transaction on the accounting equation is
then shown.
Transaction A (slide 1 of 2)

Nov. 1, 2015
Cristina deposited Rp25,000,000 in a bank
account in the name of SolusiNet.
Transaction A (slide 2 of 2)
The effect of transaction A to Accounting Equation:
• Cash (assets) increases by Rp25,000,000.
• The owner’s equity (on the right side of the equation)
increases by the same amount.
• The equity of the owner is identified using the owner’s name
and “Capital,” such as “Cristina, Capital.”
Transaction B (slide 1 of 2)

Nov. 5, 2015
SolusiNet paid Rp20,000,000 for the purchase of
land as a future building site.
Transaction B (slide 2 of 2)
The effect of transaction B to Accounting Equation:
• The purchase of the land changes the makeup of the assets, but
it does not change the total assets (remains Rp 25,000,000).
• The items in the equation prior to this transaction and the
effect of the transaction are shown below.
• The new amounts are called balances.
Transaction C (slide 1 of 2)

Nov. 10, 2015

SolusiNet purchased supplies for Rp1,350,000 and
agreed to pay the supplier in the near future.
Transaction C (slide 2 of 2)
• This type of transaction is called a purchase on account and is
often described as follows: Purchased supplies on account,
Rp1,350,000.
• The liability created by a purchase on account is called an
account payable.
• The effect of this transaction is to increase assets (Supplies)
and liabilities (Accounts Payable) by Rp1,350,000.
Transaction D (slide 1 of 3)

Nov. 18, 2015

SolusiNet received cash of Rp7,500,000 for
providing services to customers.
Transaction D (slide 2 of 3)

• A business earns money by selling goods or services to its

customers, is called revenue.
• The receipt of cash increases SolusiNet assets and also
increases Cristina’s equity in the business.
Transaction D (slide 3 of 3)
• The revenues of Rp7,500,000 are recorded in A Fees Earned
column to the right of Cristina, Capital.
• The effect of this transaction is to increase Cash and Fees
Earned by Rp7,500,000.
Types Of Revenue
Providing
Fees earned
services

Sale of
Sales
merchandise

Revenue Rent Rent revenue

Interest
Interest
revenue

Fees earned on
Payment at a
account or sales
later date on account
Transaction E (slide 1 of 3)

Nov. 30, 2015

SolusiNet paid the following expenses during the
month: wages, Rp2,125,000; rent, Rp800,000;
utilities, Rp450,000; and miscellaneous,
Rp275,000.
Transaction E (slide 2 of 3)

●
Assets used in this process
Expenses of earning revenue

Supplies used and payments for employee

Expenses
●

wages, utilities, and other services.

Miscellaneo Small amounts paid for such items

●

us expenses as postage, coffee, and newspapers

Transaction E (slide 3 of 3)
• Expenses reduces assets and owner’s equity.
• The expenses are recorded in columns to the right Of Cristina,
Capital. However, since expenses reduce owner’s equity, the
expenses are entered as negative amounts.
• The effect of this transaction is shown below.
Transaction F (slide 1 of 3)

Nov. 30, 2015

SolusiNet paid creditors on account, Rp950,000.
Transaction F (slide 2 of 3)
• when SolusiNet pays Rp950,000 to creditors, it
reduces its assets and liabilities, as shown below.
Transaction F (slide 3 of 3)
• Paying an amount on account is different from
paying an expense.
Transaction G (slide 1 of 2)

Nov. 30, 2015

Cristina determined that the cost of supplies
on hand at the end of the month was
Rp550,000.
Transaction G (slide 2 of 2)
Supplies on hand Purchase of supplies Supplies on hand
(beginning of period) (during a period) (end of period)
Rp0 Rp1,350,000 Rp550,000

Supplies used during period

Recorded as an expenses
Rp800,000
Transaction H (slide 1 of 3)

Nov. 30, 2015

Cristina withdrew Rp2,000,000 from
SolusiNet for personal use.
Transaction H (slide 2 of 3)
• This transaction is the opposite of an investment in the
business by the owner.
• Withdrawals is not an expenses since they do not represent
assets or services used in the process of earning revenues.
• Withdrawals are a distribution of capital to the owner.
• Owner withdrawals are identified by the owner’s name and
Drawing.
Transaction H (slide 3 of 3)
• The effect of the Rp2,000,000 withdrawal is as follows:
 Types of Transactions Affecting
Owner’s Equity

Owner’s Equity

Types of
transaction
Owner’s Owner’s Revenue Expenses
Investments Withdrawals

Net Income
(Net Loss)
Summary
You should note the following:
1. The effect of every transaction is an increase or a decrease
in one or more of the accounting equation elements.
2. The two sides of the accounting equation are always equal.
3. The owner’s equity is increased by amounts invested by the
owner and is decreased by withdrawals by the owner. In
addition, the owner’s equity is increased by revenues and is
decreased by expenses.
Summary Of Accounting
Equation Of Solusinet
Financial Statements (slide 1 of 3)

• After transactions have been recorded and summarized,

reports are prepared for users. The accounting reports
providing this information are called financial statements.

Statement of Statement of
Income Statement of
Owner’s Financial
Statement Cash Flow
Equity Position
Financial Statements (slide 2 of 3)
Financial Statements (slide 3 of 3)

• All financial statements are identified by the name of the

business, the title of the statement, and the date or period of
time.
• The data presented in the income statement, the statement of
owner’s equity, and the statement of cash flows are for a
period of time.
• The data presented in the statement of financial position are
for a specific date.
Income Statement (slide 1 of 2)

• The income statement reports:

 revenues and,
 expenses
for a period of time, based on the matching concept.

• This concept is applied by matching the expenses incurred

during a period with the revenue that those expenses
generated.
Income Statement (slide 2 of 2)

Net
Revenue
> Expenses
= Income

Or

Revenue
< Expenses
= Net Loss
Example Exercise 1-4:
Income Statement
The revenues and expenses of Cisadane Travel Service for the
year ended April 30, 2016, are listed below.

Prepare an income statement for the current year ended April

30, 2016.
Follow My Example 1-4
Statement of Owner’s Equity
(slide 1 of 2)

Reports the changes in the owner’s equity for a period of time.

It is prepared after the income statement because the net income or net loss for the
period must be reported in this statement.

the statement of owner’s equity as the connecting link between the income
statement of financial position.
Statement of Owner’s Equity
(slide 2 of 2)

Three types of transactions affected owner’s equity of

SolusiNet during November:

Original
Original
Investment
Investment
Rp
Rp
25,000,000
25,000,000

Net
Net
income
income for
for
the
the month
month
Rp
Rp
3,050,000
3,050,000

Withdra
wal
Rp
2,000,000
Example Exercise 1-5: Statement of
Owner’s Equity
• Using the income statement for Cisadane Travel Service
prepare a statement of owner’s equity for the year ended
April 30, 2016.
• Adam Sarbini, the owner, invested an additional
Rp50,000,000 and withdrew cash of Rp30,000,000 for
personal use during the year .
• The capital of Adam Sarbini was Rp80,000,000 on May 1,
2015, the beginning of the current year .
Follow My Example 1-5

Taken from Cisadane

income statement
Exhibit 8: Financial Statements for
SolusiNet (slide 1 of 2)
Exhibit 8: Financial Statements for
SolusiNet (slide 2 of 2)
Statement of Financial Position
(slide 1 of 2)

• The statement of financial position presents assets in the order

that they will be converted into cash or used in operations.
• Cash is presented first, followed by receivables, supplies,
prepaid insurance, and other assets. The assets of a more
permanent nature are shown next, such as land, buildings, and
equipment.
Statement of Financial Position
(slide 2 of 2)
• In the liabilities section of the statement of financial position
in Exhibit 8, accounts payable is the only liability.
• When there are two or more liabilities, each should be listed
and the total amount of liabilities presented as follows:
Accounts payable Rp12,900,000
Wages payable 2,570,000
Total liabilities Rp15,470,000
Example Exercise 1-6: Statement of
Financial Position
• Using the following data for Cisadane Travel Service as
well as the statement of owner’s equity, prepare a statement
of financial position as of April 30, 2016.
Follow My Example 1-6

Taken from Cisadane’s

statement of owner’s equity
Statement of Cash Flows (slide 1 of 3)

Operating activities Investing activities Financing activities

Reports cash
Reports cash
Summary of cash transaction
transaction for
receipt and related to
the acquisition
payment from investment by
and sale of
operation owner, borrowing
permanent assets
and withdrawals
Statement of Cash Flows (slide 2 of 3)

Cash Flows from Operating Activities.

• The net cash flow from operating activities normally differs
from the amount of net income for the period. reported net
cash flows from operating activities of Rp2,900,000 and net
income of Rp3,050,000.
• This difference occurs because revenues and expenses may
not be recorded at the same time that cash is received from
customers or paid to creditors.
Statement of Cash Flows (slide 3 of 3)

• Cash Flows from Investing Activities

Exhibit 8 reports that SolusiNet paid Rp20,000,000 for the
purchase of land during November.

• Cash Flows from Financing Activities

Exhibit 8 shows that Cristina invested Rp25,000,000 in the
business and withdrew Rp2,000,000 during November.
Preparing Statement of Cash Flows
(slide 1 of 2)

• Requires that each of the November cash transactions for

SolusiNet be classified as an operating, investing, or
financing activity.
• The November cash transactions for SolusiNet are classified
as follows:
Preparing Statement of Cash Flows
(slide 2 of 2)

The last three lines of SolusiNet’ statement of cash flows for

December would be as follows:
• Decrease in cash Rp(3,835,000)
• Cash as of December 1, 2015 5,900,000
• Cash as of December 31, 2015 Rp 2,065,000
Example Exercise 1-7: Statement
Of Cash Flow
A summary of cash flows for Cisadane Travel Service for the year ended April 30,
2016, is shown below.
Cash receipts:
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ….. Rp251,000,000
Cash received from additional investment of owner . . . . . . . . . . . . 50,000,000
Cash payments:
Cash paid for expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . … 210,000,000
Cash paid for land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 80,000,000
Cash paid to owner for personal use . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30,000,000

The cash balance as of May 1, 2015, was Rp72,050,000. Prepare a statement of cash flows
for Cisadane Travel Service for the year ended April 30, 2016.
Follow My Example 1-7
Interrelationships Among Financial
Statements (slide 1 of 2)
Income statement
Statement of owner’s equity
Statement of financial position
Statement of cash flows
• Financial statements are
prepared in the order
because the financial
statements are
interrelated.
• These interrelationships
for SolusiNet are shown
in Exhibit 8 and are
described below.
Interrelationships Among Financial
Statements (slide 2 of 2)
Financial Analysis and Interpretation:
Ratio of Liabilities to Owner’s Equity

• The basic financial statements illustrated in this chapter are

useful to analyze and interpret the financial performance and
condition of a company.
• It is useful in analyzing the ability of a company to pay its
creditors.
• The relationship between liabilities and owner’s equity, is
computed as follows:
SolusiNet Ratio of Liabilities to
Owner’s Equity
SolusiNet’ ratio of liabilities to owner’s equity at the
end of November is 0.015, as computed below.
Ratio of Liabilities to Total Stockholders’
Equity (slide 1 of 4)

• In a corporations, total owner’s equity is total stockholders’

equity.
• Total liabilities and total stockholders’ equity are as follow:
Ratio of Liabilities to Total Stockholders’ Equity (slide
2 of 4)
Ratio of Liabilities to Total Stockholders’
Equity (slide 3 of 4)

• The lower the ratio of liabilities to owner’s equity, the better

able the company is to withstand poor business conditions and
to pay its obligations to creditors.
• PT Ace Hardware Indonesia is unusual in that it has a very
low amount of liabilities; thus, its ratio of liabilities to
stockholders’ equity of 0.22 in the recent year and 0.24 in the
prior year is low.
• In contrast, KFC has more liabilities; its ratio of liabilities to
stockholders’ equity is 1.11 in the recent year and 1.07 in the
prior year.
Ratio of Liabilities to Total Stockholders’
Equity (slide 4 of 4)

• Because KFC ratio of liabilities to stockholders’ equity

increased slightly, its creditors are slightly more at risk at the
end of the recent year.
• KFC’s creditors are more at risk than are PT Ace Hardware
Indonesia’s creditors.
• As well-established companies, however, the creditors of both
companies are protected against the risk of nonpayment.