What is
Accounting
Gabriel A. Listianto, Ph.D., Ak.
Undergraduate Accounting Progam. Sanata Dharma University.
What is Accounting
Accounting is the financial information system that provides understanding what is happening financially inside a company.
In short, to understand an organization of any
type, you have to know the numbers.
The purpose of accounting:
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(1) to identify, record, and
communicate the economic events of an
(2) organization to
(3) interested users .
The three activities of accounting:
(1) Identifies
(2) Records
(3) Communicates
The economic events of an organization
Identification of an economic event
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An event can be categorized as an
economic event if the event results the
change of the organization’s the financial
position (assets, liabilities, or equity).
Recording of an economic event
Once an organization identifies an economic event,
the organization records the event in order to provide a history of the organization’s financial activities.
Recording consists of keeping a systematic,
chronological diary of events, measured in
monetary units.
Identification of an economic event
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Communication of an economic event
Finally, a company communicates the collected information to interested users by means of accounting reports.
The most common of these reports are called financial statements.
To make the reported financial information meaningful, a
company reports the recorded data in a standardized way.
Communication of an economic event
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A vital element in communicating economic events is the accountant’s ability to analyse and interpret the reported information.
Analysis involves use of ratios, percentages, graphs, and charts to highlight significant financial trends and relationships.
Interpretation involves explaining the uses, meaning, and
limitations of reported data.
The activities of accounting process
Who uses accounting data?
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1. Internal Users
Internal users of accounting information are managers who plan, organize, and run the business.
2. External Users
External users are individuals and organizations outside a company who want financial information about the company. The two most common types of external users are investors and creditors. Investors
(owners) use accounting information to make decisions to buy, hold, or
sell ownership shares of a company. Creditors (such as suppliers and
bankers) use accounting information to evaluate the risks of granting
credit or lending money.
Internal Users of Accounting Data
1. Management 2. Finance
3. Marketing
4. Human Resources
Questions that internal users ask
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To answer these and other questions, internal users need detailed information on a timely basis.
Managerial accounting users make decisions about their companies.
External Users of Accounting Data
1. Creditors 2. Investors 3. Customers
4. Labor Union
5. Tax Authority
Questions that external users ask
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Financial accounting answers these questions. It provides economic and
financial information for investors, creditors, and other external users.
Source:
Weygandt, J.J., Kimmel, P.D., and Kieso, D.E.
2015. Financial Accounting IFRS Edition. 3 rd Ed.
John Wiley & Sons, Inc.
