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What is the definition or meaning of accounting?
In general, the definition or meaning of accounting is a process that begins with recording, grouping, processing, presenting data, and recording transactions related to finance. Thus, this information can be used by experts in their field and become a basis for making a decision. A practitioner who is an expert in this field is called an accountant.
Accounting can also be referred to as the business language for measuring the results of economic activities in an organization and providing information to various parties, including management, investors, creditors, and regulators.
Various theories have developed as more and more people want to study it. Although accounting systems provide various conveniences in carrying out activities, knowledge and understanding of the basic principles of accounting is also very important for entrepreneurs to understand.
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The Definition of Accounting from the Perspective of Users
Then what is Accounting when viewed from the perspective of users has a definition as a discipline that provides or supplies information that is needed to carry out activities efficiently and evaluates activities carried out by an entity. As mentioned above, accounting will provide reported or required information for:
- Effective planning, monitoring, decision making by management.
- Accountability of the entity to investors, creditors, government bodies and so on.
That information is very necessary and important in a business/company entity. This information also plays an important role in the running of a company's activities, which will later be studied and analyzed by managers as a starting point for making internal organizational decisions and also for making decisions by parties outside the organization (external) such as investors and creditors.
Investors are people who invest their money in a company to gain a profit, while creditors are those who provide loans (debts) to the company or other parties.
The Main Function of Accounting for a Company
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So what is the main function of accounting for a company? One of them is as financial information of a business or company.
From the reports produced, the financial position of a business or company can be seen as well as the changes that occur within it.
There are some definitions that need to be understood to understand the important role of accounting, including the following:
- As a financial controller or financial manager within a company. In economic activities, especially in the business world, control is an important factor that will determine the success of the business. With accounting, companies will know how to manage funds, how much profit is obtained, and whether there are losses from economic activities.
- Accounting can also serve as a medium for evaluating a company. Accounting reports will show the results of the company in certain periods. Reports that contain important information that can describe the financial condition of the company. Therefore, the company's leaders can evaluate the business being run and identify financial problems that are being faced.
- It plays an important role in the company's future planning. After thoroughly evaluating the financial accounting reports, the company's leaders can have an idea or business goal to be achieved.
- As important information used for the purpose of decision-making, monitoring and implementing company decisions.
What are the General and Specific Objectives of Accounting?
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If explained further, there are several things that need to be considered, what are the objectives of accounting or accounting?
1. General Objectives of Accounting
- To provide information related to the financial of the company such as assets and liabilities.
- To report information if there is a change in various economic sources of the company such as assets, liabilities, and capital.
- To present various other information related to simple or complex financial reports so that report users will be assisted.
- To explain in more detail the financial information that is expected to increase the potential profit of the company.
2. Specific Objectives of Accounting
The specific objective of accounting is to provide information in the form of reports that contain financial position, results of operations, and other changes in accordance with Generally Accepted Accounting Principles (GAAP).
3. Qualitative Objectives
- To present financial information that is relevant and reliable because it can be compared and communicated in accordance with Generally Accepted Accounting Principles (GAAP)
- To provide information that can be understood by parties that are concerned Assist in the preparation of financial reports for the benefit of parties related to company activities
- To explain the usefulness of transactions that occur in more detail.
What are the Benefits that Can be Obtained From Accounting?
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Accounting is extremely important if you want to develop your business in a measurable and predictable way.
By having a system for tracking assets, liabilities, and business income, it will enable you to make smart and accurate business decisions based on past performance and present the financial health of your company.
With a clear and organized system, you can not only analyze your company's financial data, but also support growth and increase profits.
Proper accounting also helps you to satisfy customers. How?
By understanding the basic concepts of accounting and the financial capabilities of the company, from revenue and expenses.
Then the company can determine the possibility to innovate in order to improve customer service.
By understanding the financial condition, the company will also better understand what needs to be done in the future to maintain customer satisfaction and develop the business.
In addition to the above, what is equally important is how accounting can help you track who owes your company.
Who you owe to, how to manage payroll records, loan payments, interest payments, and perhaps most importantly, providing you with the financial data you need when it comes time to file and pay your company's taxes.
The Following are Types of Fields or Specializations in Accounting
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- Auditing: Specializing in conducting independent audits to assess the financial statements of an organization for accuracy and compliance with accounting standards.
Auditing is a field of activity that can involve the examination of the records and results of a company's financial activities. This activity is generally more focused on testing the validity of a company's financial statements. The audit that is conducted in this type of accounting is independent, although not completely independent and impartial, so that the results of the audit can be accountable and its objectivity can be guaranteed. Financial statements can be considered valid if their preparation is in accordance with the common accounting principles and standards such as Generally Accepted Accounting Principles (GAAP).
- Taxation: Specializing in the preparation and filing of tax returns for individuals and businesses, as well as providing tax planning advice.
Tax accounting deals with determining the tax objects that a company is responsible for and calculating them. This activity helps management and makes decisions about transactions that will be carried out in relation to tax considerations. Therefore, accountants working in this field must have a thorough understanding of the applicable tax laws.
- Management Accounting: Specializing in providing financial information to internal stakeholders such as managers and executives to aid in decision making.
In simpler terms, management accounting is a branch of accounting that deals with collecting and processing historical (primarily cost-related) data and estimates. Its main goal is to provide managers with the information they need to carry out their day-to-day activities and make informed plans for the future. For example, management accounting can help financial managers plan funding and sales managers determine pricing for new products. Ultimately, the objective of management accounting is to aid managers in making the best possible decisions.
- Financial Accounting: Specializing in providing financial information to external stakeholders such as shareholders and creditors.
The objective or target of financial accounting activities is the financial transactions that are carried out by an organization/company and have already occurred (also referred to as historical data) that involve changes in the company's assets, liabilities, and equity.
- Forensic Accounting: Specializing in investigating financial fraud and white-collar crime.
- Cost Accounting: Specializing in accounting for the costs and benefits of environmental impacts and sustainability.
In summary, cost accounting is a specialization within the field of accounting that focuses on the financial transactions related to costs, particularly those associated with the process of turning raw materials into finished products. The goal of this field is to provide internal management with information on costs used in determining selling prices and creating financial reports. The final result of this field is a report on the cost of goods manufactured, which is used by managers to evaluate the performance of the company's operations and plan for future operations.
- Public Accounting: Specializing in providing accounting services to the public, such as preparing financial statements and tax returns.
- Government Accounting: Specializing in accounting for government entities, including budgeting, financial reporting, and compliance with regulations.
Governmental accounting, also known as government accounting, is a field that deals with issues related to the financial examination of the state. It often involves the administration of the financial operations of the government.
- Budgetary Accounting
Budgetary accounting is a field that deals with the collection and processing of financial data that has occurred, as well as estimates of what is likely to happen in the future, for the purpose of determining a company's financial operation plan (budget) for a certain period of time.
Records comparing the established financial operation plan with its implementation are tools that assist management in carrying out the supervision function.
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Jobs or Positions in the Field of Accounting
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An accountant is a very important person within a company as they provide crucial information for the company. In addition, there are various problems in the field of accounting that drive the professionalism of this position or profession.
Working in the field of accounting means that it cannot be done carelessly, given the importance of the information reported by an accountant. Therefore, it must be done by people who are indeed experts in their field and can be proven with a certificate or degree.
In Law No. 34 of 1954, Article 1 and 2, it is explained that the term accountant or those who are entitled to use the title are those who have an accounting degree.
This degree is not easily obtained, as it has criteria such as:
a. A degree awarded by a state university or other higher education institution established by law or recognized by the government, as a sign that the education of an accountant at the relevant higher education institution has been completed successfully.
b. A degree received after passing another examination, which in the opinion of the expert committee (appointed by the Minister of Education) is necessary to perform the work of an accountant and can be considered equivalent to an accounting degree.
From the perspective of their work, accountants can be divided into several fields, such as public accounting, internal accounting, government accounting, and educational accounting.
Here we will explain one by one about the 3 professions of accountants that have been mentioned:
1. Public Accountant
The profession of a public accountant is a private accountant who provides accounting examination services to others. This field of accounting is considered a type of external accountant, meaning when a company is examined by a public accountant, the examination is conducted by a party from outside the company. Therefore, the examination carried out is independent, but still adheres to the norms of accounting examination. In addition to providing examination services, public accountants also provide other services such as tax consulting and management consulting.
2. Internal Accountant
They are accountants who work in private companies. They receive a salary from the company where they work, thus becoming part of the company where they work. The results of the examination carried out by the accountant will be used for the benefit of the company.
3. Government Accountant
They are accountants who work in government agencies, government banks, the General Directorate of Taxation, the General Directorate of State Financial Supervision, and so on.
The Process of Accounting
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As mentioned above, accounting refers to the process of dealing with any financial transactions that occur in a business or organization. The process includes four steps: recording, summarizing, analyzing, and reporting. Here is a more detailed explanation of these four accounting processes:
- Recording: The first and most important process in the accounting process is the recording of transactions that occur within a company. This process is often referred to as simple accounting bookkeeping, which involves recognizing transactions and entering them into records.
The bookkeeping process is only related to recording. It is typically done for the purpose of detailed record-keeping and to produce financial reports as a final financial statement.
This step involves identifying and documenting financial transactions, such as sales, purchases, and payments. These transactions are recorded in journals and ledgers in a systematic and chronological manner.
- Summarizing: Typically, raw data is the result of transaction records and is considered not very important. Raw data does not affect the decision-making process. However, this is where accountants play a role in using raw data, dividing it into categories, and interpreting it. The process that usually occurs also includes recording transactions and then summarizing them.
This step involves classifying and organizing the recorded transactions into meaningful financial statements such as the income statement, balance sheet, and cash flow statement.
- Analyzing: This step involves interpreting and analyzing the financial statements to identify trends, patterns, and other relevant information that can be used to make informed business decisions.
After recording and summarizing, you must certainly draw conclusions. This is where management plays an important role in reviewing both positive and negative points. In analyzing all of this, accounting introduces the concept of comparison. Where you can compare sales, profit and loss, equity, and more to determine and analyze work and make decisions.
Of the many definitions of accounting, they all have almost the same goal, which is to provide accurate reports related to the financial issues of the company. By understanding more about the definition of accounting, it will help you in presenting detailed reports on the company's expenses and income, thus knowing the profit and loss. In addition, the use of this science will also help the company to know which employees are committing fraud.
Can you now answer the question what is accounting? Once again, accounting means the process of recording and processing data in every transaction that occurs in a business. It is important for you to understand this correctly if you want to become an accountant.
- Reporting: This step involves communicating financial information to relevant parties such as investors, management, and the government through financial reports. These reports are used to provide an overview of the organization's financial performance and to fulfill legal and tax requirements.
Every matter that occurs in a company is the responsibility of management. Every business owner should be aware of the various operations or activities that take place in the company and how the company uses its money. In this case, the company owner will receive a financial report for the company which is usually sent monthly. Meanwhile, there is also an annual report that will summarize all performance within the company.
Who is Entitled to Handle a Company's Accounting?
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To answer this question, you must first know the size of your business and how quickly you hope to grow. Public companies with many corporations typically appoint a Chief Financial Officer (CFO) or head financial officer to handle the company's finances. Smaller companies may feel the need to hire an external accountant on a part-time basis to help handle bills and keep accounts up-to-date.
In general, a company's accounting can also be handled by internal accountants or the company's own human resources staff. And it's good, that is clear, whoever handles the company's accounting will be very important if the company also has facilities that make it easy such as accounting software to make the work easier.
Parties That Use Accounting Information
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1. Leaders of The Company
The first users of accounting information are the leaders of the company (management). For these leaders, this information is useful for:
- Providing evidence of accountability to the company's owners for their leadership in managing the company.
- As a tool for evaluating the implementation of the company's operations, both overall and for individuals who have authority and responsibility.
- Measuring the level or magnitude of the costs of business activities carried out by the company.
- As a basis for making considerations in making decisions on the company's future plans.
2. Owners of a Company
The owners of a company such as a PT, where the leadership is handed over to others, the accounting report serves the following functions for the owners:
- As a monitoring tool or evaluation of the results achieved by the company's leaders.
- As a basis for determining estimates or predictions of future profits and also predictions about the development of the company's stock price.
3. Creditor and Prospective Creditor
We often hear the term creditor, so what is a creditor?
The definition of a creditor is a person or entity that provides loan services (debt) to a company, the loan can be in the form of money or goods.
Financial reports reported by accountants will be useful for both creditors and prospective creditors, as a basis for making considerations and decisions in giving credit or debt to the relevant company.
Creditors or prospective creditors will analyze the financial report, and from the results of the analysis, it can be determined whether the relevant company will be able to repay the loan when the time comes (maturity) to pay its debts to the creditor.
4. Government Agencies
Certain government agencies or bodies also require a company's financial report.
For example, the Tax Service Office uses financial reports to determine a company's income tax.
5. Employees
Not only the owners of the company, the company's leaders and management need financial reports.
It turns out that financial reports are also useful for the company's employees.
Here are the functions of financial reports for employees:
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When accounting is done correctly, the risk of financial fraud or unnecessary budget leaks in a company can be significantly minimized.
Proper accounting records can also help if the government conducts an audit of the company.
A good history of accounting records will make it easier for the company to go through the audit process without suspicion and doubts.
On one hand, accounting is the quantitative conscience of the business world, where everything is measurable and written clearly.
Business accountants usually work in the finance department of a business unit. Business accountants handle everyday tasks such as balancing income/expense accounts, determining costs and revenues, making payments and paying company salaries.
In addition, the tasks of a business accountant can also include preparing or creating financial reports to comply with government regulations. Please consider the needs of this business accountant when taking classes. You can take accounting classes that provide experience and knowledge according to your goals.
You also need to know that :
- Typically, classes for business and financial accounting cover topics such as PSAK (Financial Accounting Standards Statements) and the basics of ledger books, cost accounting, and balance sheets.
- Although a business accountant does not necessarily need to handle tax return documents, it is still beneficial to take a tax course to learn the basics and concepts of taxation in Indonesia.
- Prepare yourself for a managerial position if necessary by taking other classes such as finance, business, quantitative analysis, communication, and management.
4. Involve Yourself in Accounting-related Activities
During your accounting studies, don't forget to participate in organizations and activities related to accounting. These activities can be used as capital for your resume. They show how proactive you are and how well prepared you are for your studies and future career.
You can participate in several professional accounting organizations on campus. Join in community service groups, such as preparing tax returns for the elderly or even teaching community members about financial knowledge.
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