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Understanding of Accounting

Accounting is often referred to as the language of business (business language), or rather as the language of decision making. The more someone masters this language, the better the person will handle various aspects of finance in his life. The definition of accounting can be formulated through 2 (two) points of view, namely the definition from the point of view of the users of accounting services and the definition from the perspective of the process of its activities.

From the point of view of users of accounting services, accounting can be defined as a scientific discipline and or service activity that provides information needed to carry out activities efficiently and evaluate the activities of an entity or financial transactions. The usefulness of accounting information is to:

  • Make effective planning, as well as oversee, and make appropriate economic decisions by management
  • The responsibility of the entity to investors, creditors, the government, and so on.

If viewed from the perspective of the process of its activities, accounting can be defined as the process of recording, classifying, summarizing, reporting and analyzing financial data of an entity. From this it can be seen, that accounting is a complex activity, involving a variety of activities, so basically accounting must:

  1. Identify which data is related or relevant to the decision to be taken,
  2. Process or analyze relevant data,
  3. Turn data into information that can be used for decision making.

From the above definition, we can simply explain that accounting can produce information that is used by managers to carry out company operations. Accounting also provides information to interested parties to find out the financial performance and condition of the company. Thus, in general, accounting can be defined as a financial information system that produces reports to interested parties regarding economic activities and company conditions. As a financial information system, accounting is a process of 3 (three) activities, namely the identification, recording and communication of economic events of a company that produce information for its users.


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Financial Accounting According to Experts

  • Financial Accounting According to Warren Reeve Fess (2008: 15)
    In the book "Introduction to Accounting Accounting", Warren Reeve Feves explains:
    "Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business. Although such reports provide useful information for managers, they are the primary reports for owners, creditors, governmental agencies, and the public. "(2008: 1) Meaning: Financial accounting is the recording and reporting of data and economic activity of the company. Even if the report produces information which is useful for managers, but it is the main report for the owner (owner), creditors, government agencies and the general public. "(2008: 15)

  • Financial Accounting according to Donald E. Kieso, et al (2008: 2)
    In his book "Intermediate Accounting"
    Financial accounting is a process that ends in making financial statements concerning the company as a whole for use by both internal parties and external parties. "(2008: 2)

  • Financial Accounting According to Martani (2012: 8)
    Financial accounting is oriented to reporting external parties. The diversity of external parties with specific objectives for each party makes the compiler of the financial statements using the principles and assumptions in preparing financial statements. For this reason, accounting standards are needed that are used as guidelines by both the authors and the readers of financial statements. Reports produced from financial accounting in the form of financial statements for general purposes (general purpose financial statement).

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Specialization in Accounting

  • Financial accounting is also called general accounting (general accounting). Information presented from financial accounting is in the form of financial statements, the users of which are decision makers from outside the company. Information generated by financial accounting is general for various users. User groups that usually require financial accounting information are:
  1. The company owner, uses this financial information to make a decision whether they will continue to hold ownership of the company or have to give up ownership in the company.
  2. Corporate creditors, use this financial information to make a decision whether they will extend the company's credit or refuse it.
  3. The government uses this information as a basis for determining the amount of tax, etc.
    d. Employees need this financial information to negotiate with the company in terms of contracts or various decisions relating to employment.
  4. The company's customers use this financial information for decision making related to working with the company.
    Financial accounting usually includes 3 (three) functions, namely (1) data selection and recording, (2) data analysis, and (3) preparing reports for users.


  • Cost accounting (cost accounting), budgeting, management accounting in the group. Company management must provide a variety of information for achieving goals. The main category of information needed is for corporate planning and control on a daily basis. Management must know what is happening in the company and its environment at the present time and whether the company's operations can run smoothly as desired to achieve its objectives. Another category of information needed by management is for long-term planning, for example to determine overall policies for the company or to make specific policies because events that have been unwanted in the past will be repeated again in the future.

  • Management accounting includes 3 (three) functions, namely: (1) data selection and recording, (2) data analysis, and (3) preparing reports for management.

  • Accounting inspection (Auditing)
    examination of accounting is accounting-related field activities to record the results of the examination of the Financial Accounting that is testing the feasibility of Financial Statements independently (independent / impartiality) and objective.

  • Tax Accounting (Tax Accounting) The
    field of tax accounting relates to the determination of tax objects that are the responsibility of the company and its calculations. Tax accounting activities are to assist management in determining transaction choices to be made in connection with taxation considerations.

  • Budget Accounting (Budgetary Accounting) The
    field of budget accounting activities relating to the collection and processing of financial operations data that has occurred and the estimated likelihood that will occur, for the purposes of determining the company's financial operations plan (budget) within a certain period.

  • Accounting Examination (Governmental Accounting)
    governmental accounting is accounting field whose activities are related to the problem of financial examination, commonly called the State Financial Administration.

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Understanding Financial Accounting

Financial Accounting  is one part of accounting relating to the presentation of the company's financial statements to external parties in the form of balance sheet, income statement, Changes in Capital and Cash Flow to shareholders, creditors or investors, especially regarding profitability and credibility of the company, to suppliers, and the government .

Financial Accounting, which is part of the accounting relating to the preparation of financial statements for external parties, such as shareholders, creditors, suppliers, and the government. The main principle used in financial accounting is the accounting equation (Assets = Liabilities + Equity). Financial accounting is related to the problem of recording transactions for a company or organization and preparing various periodic reports from the results of the recording.

This report is prepared in the public interest and is usually used by company owners to assess the performance of managers or use managers as financial accountability to shareholders. The important thing about financial accounting is the existence of Financial Accounting Standards (SAK) which are the rules that must be used in the measurement and presentation of financial statements for external purposes. Thus, it is expected that users and compilers of financial statements can communicate through these financial statements, because they use the same reference, namely SAK. This SAK was implemented in Indonesia in 1994, replacing the Indonesian Accounting Principles in 1984.

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The Nature and Purpose of Financial Accounting

Desired Quality of Accounting Information

  • Releven (relevance) is the capacity of information to influence a decision and is the first primary quality of accounting information. The implication of this is timeliness which is a characteristic of the desired accounting information.
  • Reliable (reliability) is an important characteristic in financial information. To be reliable, information must be verifiable (information can be confirmed), presented honestly (reflecting reality), and neutral (meaning true & unbiased information).
  • Comparability and consistency are secondary qualities of accounting information. Comparability means that information is measured in the same way at various companies. Consistency  means the same method is used for the same transaction all the time. The principle of comparability and consistency is needed so that information becomes relevant and reliable.

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Financial Accounting Function

One of the main functions of financial accounting is to provide information about the finances of an organization or company. With reports made, so that it can see the financial condition of a company and any changes that have occurred in it. Information about the company's finances is needed by management because it can help to make or make decisions, which in turn will affect the company's circumstances.

Some general accounting functions. As for some general accounting functions, which include the following:

  1. To find and calculate the profit or loss that has been obtained by the company.
  2. To provide information that can be useful for company management.
  3. Can help to determine the rights for each party who has an interest in a company, both internal and external parties.
  4. To supervise and control various kinds of activities that occur at the company.
  5. And to assist the company in achieving its predetermined targets.

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The Purpose of Financial Accounting

  • To provide reliable information about a change in a company's net economic resources that arises from an activity in order to make a profit.
  • Aiming to provide a reliable information about assets, liabilities and finally capital.
  • Aims to help users in estimating a company's potential to generate a profit.
  • Aims to provide other important information regarding a change in economic resources & obligations such as information about shopping activities.
  • Aims to disclose other information relating to a financial statement that is relevant to a user's financial statement needs.

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Types of Financial Reports.

One result of accounting activities is in the form of financial statements. Then this report can later be used for the benefit of external parties and internal company parties. And the types of financial statements resulting from accounting activities include the following:

  • First, cash flow statement is a type of report that can provide information about cash receipts and payments of a company for a certain period.
  • Second, the income statement is one of the reports generated from accounting activities, which this report can provide information on the results (profit and loss) of a company's activities for a certain period.
  • Third, a balance sheet is a type of financial statement that can provide information that has to do with the assets, equity and obligations of a company.
  • The fourth, the equity report is a type of financial statement that provides information relating to owner's equity or capital for a certain period in a company.
  • And finally, the financial statement record is a physical financial or non-financial information. This report aims to provide information about the accounting policies used by a company.

Types of Financial Statements

  1. A cash flow statement is a type of report that can provide information about a company's cash receipts or payments for a certain time.
  2. An income statement is one type of report that results from accounting activities, and this report can provide information about the advantages and disadvantages of a company's activities for a certain time.
  3. A balance sheet, is one type of financial statement that can provide information about the assets, equity and liabilities of a company.
  4. Equity report, is a type of financial statement that provides information related to owner's equity or capital for a certain time in a company.
  5. Financial statement records, are information that has a physical financial or non-financial nature. This type of report aims to provide information about the accounting policies adopted by a company.

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Main Functions of Financial Statements

The main functions of financial statements for external parties are as follows:

  1. Shareholders , information that enables them to assess the company's ability to pay dividends.
  2. Investors , Investments are very vulnerable to risk, they really need financial data information whether the funds they invest are feasible ( Feasible ) or not.
  3. Creditors , Information to assess a company's ability to pay service fees and repay principal debt when due.
  4. Supplier , information to assess whether their sales bill will be paid by the company when due.
  5. Government , Information regarding tax policy determination and national income statistical data.


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