Introduction to
Accounting and
Business
1
1
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.
2. Summarize the development of accounting
principles and relate them to practice.
3. State the accounting equation and define
each element of the equation.
2
After studying this chapter, you should be able to:
4. Describe and illustrate how business
transactions can be recorded in terms of the
resulting change in the basic elements of the
accounting equation.
5. Describe the financial statements of a
proprietorship and explain how they
interrelate.
3
1-1
Objective 1
Describe the nature of a
business and the role of ethics
and accounting in business.
4
1-1
Types of Businesses
Service Business
Plaza Indonesia Realty Tbk.
Hotel Sahid Jaya Tbk.
Bank Mandiri Tbk.
Garuda Indonesia
Indosat Tbk.
Service
Shopping mall
Hospitality and
lodging
Financial services
Transportation
Telecommunication
5
Types of Businesses
1-1
Merchandising Business Product
Matahari Putra Prima Tbk.
Clothes and apparel
Hero Supermarket Tbk.
Food and groceries
Toko Gunung Agung Tbk.
Books and stationeries
Ace Hardware Indonesia Tbk. Consumer electronics
Alfa Retailindo Tbk.
Consumer goods
6
1-1
Types of Businesses
Manufacturing Business
Sepatu Bata Tbk.
Mustika Ratu Tbk.
Gudang Garam Tbk.
Mayora Indah Tbk.
Kalbe Farma Tbk.
Product
Shoes
Cosmetics
Cigarettes
Food and beverages
Pharmaceutical
7
Common Forms of Business Organizations
1-1
 Proprietorship
 Partnership
 Corporation
 Cooperatives
8
1-1
A proprietorship (perusahaan perseorangan)
is owned by one individual and—
 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.
9
1-1
A partnership is similar to a proprietorship
except that it is owned by two or more
individuals and—
 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.
10
1-1
A corporation is organized under
government statues as a separate legal
taxable entity and—
Continued
11
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.
12
1-1
Cooperatives (Koperasi)
 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
13
1-1
A business stakeholder is a
person or entity having an
interest in the economic
performance and well-being
of a business.
14
1-1
Capital market stakeholders
provide the major financing for the
business in order for the business to
begin and continue its operations.
15
1-1
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.
16
1-1
Government stakeholders have an
interest in the economic
performance of a business.
Provincial governments collect
taxes from businesses within their
jurisdiction.
17
1-1
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.
18
1-1
The moral principles that guide
the conduct of individuals are
called ethics.
19
1-1
The answer to
1. Individual
“What went
character
wrong for these
2. Firm culture
companies?”
3. Laws and
(Exhibit 2)
enforcement
involves three
factors.
20
1-1
Accounting can be defined as an
information system that provides
reports to stakeholders about the
economic activities and
condition of a business.
21
1-1
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.
22
1-1
23
23
1-1
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.
24
1-1
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.
25
1-2
Objective 2
Summarize the development
of accounting principles and
relate them to practice.
26
1-2
The business entity concept
limits the economic data in
the accounting system to
data related directly to the
activities of the business.
27
1-2
The cost concept is the
basis for entering the
exchange price, or cost
of an acquisition in the
accounting records.
28
1-2
The objectivity concept
requires that the accounting
records and reports be based
upon objective evidence.
29
1-2
The unit of measure
concept requires that
economic data be
recorded in rupiah.
30
1-2
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.
31
1-3
Objective 3
State the accounting
equation and define each
element of the equation.
32
The Accounting Equation
1-3
Assets = Liabilities + Owner’s Equity
The resources
owned by a
business
33
The Accounting Equation
1-3
Assets = Liabilities + Owner’s Equity
The rights of the
creditors, which
represent debts
of the business
34
1-3
The Accounting Equation
Assets = Liabilities + Owner’s Equity
The rights of the
owners
35
1-3
Example Exercise 1-2
Asep Sunarya is the owner and operator of Pasti Sukses, a motivational consulting
business.
At the accounts
end of its accounting
Decembertrial
31, 2007,
PastiofSukses has
The
following
appear inperiod,
the adjusted
balance
assets of Rp800,000,000 and liabilities of Rp350,000,000. Using the accounting
Hindsight
Consulting. Indicate whether each account would be
equation, determine the following amounts:
reported in the (a) current asset; (b) property, plant, and
a. Owner’s(c)
equity,
as ofliability,
December(d)
31, long-term
2007.
equipment;
current
liability; or (e)
b. Owner’s
equity,
as ofof
December
31, 2008, 31,
assuming
assets sheet
owner’s
equity
section
the December
2007,that
balance
increased by Rp130,000,000 and liabilities decreased by Rp25,000,000
of Hindsight
Consulting.
during 2008.
Follow My Example 1-2
a.
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)
36
36
1-4
Objective 4
Describe and illustrate how
business transactions can be
recorded in terms of the resulting
change in the basic elements of the
accounting equation.
37
1-4
A business transaction is an
economic event or condition that
directly changes an entity’s
financial condition or directly
affects its results of operations.
38
1-4
@solusinet
On November 1, 2007, Cinta
Cita begins a business that will
be known as SolusiNet.
39
1-4
Assets
Cash
a.
25,000,000
=
=
Owner’s Equity
Cinta Cita, Capital
25,000,000
Investment by Cinta
Cita
a. Cinta Cita deposits Rp25,000,000 in a
bank account in the name of SolusiNet
40
1-4
(in Rp000)
Assets
Cash + Land
Bal. 25,000
b. –20,000 +20,000
Bal. 5,000
20,000
=
=
Owner’s Equity
Cinta Cita, Capital
25,000
25,000
b. SolusiNet exchanged Rp20,000,000 for
land.
41
1-4
(in Rp000)
Assets
=
Cash + Supplies + Land
Bal. 5,000
c.
Bal. 5,000
20,000
+1,350
1,350
20,000
Owner’s
Liabilities + Equity
Accounts
Cinta Cita,
Payable
Capital
=
25,000
+1,350
1,350
25,000
c. During the month, SolusiNet purchased
supplies for Rp1,350,000 and agreed to pay
the supplier in the near future (on
account).
42
1-4
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.
43
1-4
(in Rp000)
Assets
Cash + Supplies + Land
Bal. 5,000
d. +7,500
Bal. 12,500
1,350
20,000
1,350
20,000
d. SolusiNet provided services to
customers, earning fees of Rp7,500,000
and received the amount in cash.
44
(in Rp000)
1-4
Liabilities +
Owner’s Equity
Accounts
Cinta Cita,
Fees
Payable +
Capital + Earned
Bal.
1,350
25,000
+7,500 d.
1,350
25,000
7,500 Bal.
d. SolusiNet provided services to
customers, earning fees of Rp7,500,000
and received the amount in cash.
45
Expenses
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.
46
1-4
(in Rp000)
Assets
Cash + Supplies + Land
Bal. 12,500
1,350
20,000
e. –3,650
Bal. 8,850
1,350
20,000
e. SolusiNet paid the following expenses:
wages, Rp2,125,000; rent, Rp800,000;
utilities, Rp450,000; and miscellaneous,
Rp275,000.
47
1-4
(in Rp000)
Owner’s Equity
Liabilities +
Accounts
Payable +
1,350
1,350
Cinta Cita,
Fees
Wages
Rent
Utilities
Misc.
Capital + Earned Expense Expense Expense Expense
25,000
7,500
25,000
7,500
–2,125
–800
–450
–275
–2,125
–800
–450
–275
e. SolusiNet paid the following expenses: wages,
Rp2,125,000; rent, Rp800,000; utilities,
Rp450,000; and miscellaneous, Rp275,000.
e.
48
1-4
(in Rp000)
Assets
Cash + Supplies + Land
Bal. 8,850
1,350
20,000
f. –950
Bal. 7,900
1,350
20,000
f. SolusiNet paid Rp950,000 to
creditors during the month.
49
1-4
(in Rp000)
Owner’s Equity
Liabilities +
Accounts
Cinta Cita,
Fees
Wages
Rent
Utilities
Misc.
Payable + Capital + Earned Expense Expense Expense Expense
–800
–450
–275
1,350
25,000
7,500 –2,125
f.
–950
400
25,000
7,500
–2,125
–800
–450
f. NetSolutions paid Rp950,000 to
creditors during the month.
–275
50
1-4
(in Rp000)
Assets
Cash + Supplies + Land
Bal. 7,900
1,350
20,000
g.
–800
Bal. 7,900
550
20,000
g. At the end of the month, the cost
of supplies on hand is Rp550,000,
so Rp800,000 of supplies were
used.
51
1-4
(in Rp000)
Owner’s Equity
Liabilities +
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.
–800
400
25,000
7,500
–2,125
–800
–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.
52
1-4
(in Rp000)
Assets
Cash + Supplies + Land
Bal. 7,900
550
20,000
h. –2,000
Bal. 5,900
550
20,000
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)
Liabilities +
Owner’s Equity
Accounts Cinta Cita, Cinta Cita Fees Wages
Payable + Capital + Drawing Earned Exp.
400
7,500 –2,125
25,000
Rent Supplies Util. Misc.
Exp. Exp. Exp. Exp.
–800
–800
–450
–275
h.
–2,000
400
25,000
–2,000
7,500 –2,125
–800
–800
–450
h. At the end of the month, Cinta
withdrew Rp2,000,000 in cash from
the business for personal use.
–275
54
1-4
Owner’s Equity
Increased by
Decreased by
Owner’s
investments
Owner’s
withdrawals
Revenues
Expenses
55
1-4
Example Exercise 1-3
Simatupang Express is owned and operated by Bonar
Simatupang. The following selected transactions were
completed by Simatupang Express during February:
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.
56
Continued
1-4
Example Exercise 1-3
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.
57
1-4
Follow My Example 1-3
(2) Asset (Cash) decreases by Rp1,800,000; Liability
(Accounts Payable) decreases by Rp1,800,000.
(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.
For Practice: PE 1-3A, PE 1-3B
58
1-5
Objective 5
Describe the financial
statements of a proprietorship
and explain how they
interrelate.
59
1-5
Accounting reports, called
financial statements,
provide summarized
information to the owner.
60
1-5
The income statement is
a summary of the revenue
and expenses for a
specific period of time,
such as a month or a year.
61
1-5
Income Statement
SolusiNet
Income Statement
For the Month Ended November 30, 2007
Fees earned
Expenses:
Wages expense
Rent expense
Supplies expense
Utilities expense
Miscellaneous expense
Total expenses
Net income
Rp7 500 000
Rp2 125
800
800
450
275
000
000
000
000
000
4 450 000
Rp3 050 000
Net income is carried to the
statement of owner’s equity
62
1-5
A statement of owner’s equity
is a summary of the changes
in the owner’s equity that have
occurred during a specific
period of time.
63
Statement of Owner’s Equity
1-5
From the income statement
SolusiNet
Statement of Owner's Equity
For the Month Ended November 30, 2007
Cinta Cita, capital, November 1, 2007
Rp
0
Investment on November 1, 2007
Rp25 000 000
Net Income for November
3 050 000
Rp28 050 000
Less withdrawals
2 000 000
Increase in owner's equity
26 050 000
Cinta Cita, capital, November 30, 2007
Rp26 050 000
To the balance sheet
64
1-5
A balance sheet is a list of
the assets, liabilities, and
owner’s equity as of a
specific date.
65
1-5
Balance Sheet
Assets
Cash
Supplies
Land
Total assets
SolusiNet
Balance Sheet
November 30, 2007
Liablities
Rp 5 900 000 Accounts Payable
550 000
Owner's Equity
20 000 000 Cinta Cita, capital
Total Liabilities and
Rp26 450 000
Owner's equity
This amount is compared to the
net cash flow on the statement of
cash flows
Rp
400 000
26 050 000
Rp26 450 000
From the statement
of owner’s equity
66
1-5
A statement of cash flows
is a summary of the cash
receipts and payments for
a specific period of time.
67
1-5
Statement of Cash Flows
SolusiNet
Statement of Cash Flows
For the Month Ended November 30, 2007
Cash flows from operating activities
Cash received from customers
Rp 7 500 000
Deduct cash payments for expense and
payments to creditors
4 600 000
Net cash flow from operating activities
Rp 2
Cash flows from investing activities
Cash payments for purchase of land
(20
Cash flows from financing activities
Cash received as owner's investmentsRp25 000 000
Deduct cash withdrawal by owner
2 000 000
Net cash flow from financing activities
23
Net cash flow and November 30, 2007, cash balance
Rp 5
900 000
000 000)
000 000
900 000
This amount should match
Cash on the balance sheet.
68
Income Statement
1-5
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.
69
1-5
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.
70
1-5
Example Exercise 1-4
The assets and liabilities of Cimande Travel Service at April 30,
2008, 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, 2007, the beginning of the
current year.
Accounts payable
Accounts receivable
Cash
Fees earned
Land
Rp 12,200,000
31,350,000
53,050,000
263,200,000
80,000,000
Miscellaneous expense
Office expense
Supplies
Wages expense
Rp 12,950,000
63,000,000
3,350,000
131,700,000
Prepare an income statement for the current year ended April
30, 2008.
71
1-5
Follow My Example 1-4
CIMANDE TRAVEL SERVICE
INCOME STATEMENT
For the Year Ended April 30, 2008
Fees earned
Expenses:
Wages expense
Office expense
Miscellaneous expense
Total expenses
Net income
Rp263,200,000
Rp131,700,000
63,000,000
12,950,000
For practice: PE 1-4A, PE 1-4B
207,650,000
Rp 55,550,000
72
Statement of Owner’s Equity
1-5
The statement of owner’s
equity reports the changes in
the owner’s equity for a period
of time. It is prepared after the
income statement.
73
1-5
Example Exercise 1-5
Using the data for Cimande Travel Service shown
in Example Exercise 1-4, prepare a statement of
owner’s equity for the current year ended April 30,
2008. Adam Kuncoro invested an additional
Rp50,000,000 in the business during the year and
withdrew cash of Rp30,000,000 for personal use.
74
1-5
Follow My Example 1-5
CIMANDE TRAVEL SERVICE
STATEMENT OF OWNER’S EQUITY
For the Year Ended April 30, 2008
Adam Kuncoro, capital, May 1, 2007
Additional investment by owner during year
Net income for the year
Less withdrawals
Increase in owner’s equity
Adam Kuncoro, capital, April 30, 2008
For Practice: PE 1-5A, PE 1-5B
Rp 80,000,000
Rp 50,000,000
55,550,000
Rp 105,550,000
30,000,000
75,550,000
Rp 155,550,000
75
Balance Sheet
1-5
The balance sheet reports
the amounts of a firm’s
assets, liabilities, and
owner’s equity at the end
of a specific period.
76
1-5
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.
77
1-5
The report form of balance
sheet presents the liabilities
and owner’s equity sections
below the assets section.
78
1-5
Example Exercise 1-6
Using the data for Cimande Travel Service shown in Example
Exercise 1-4 and 1-5, prepare the balance sheet as of April 30, 2008.
Follow My Example 1-6
CIMANDE TRAVEL SERVICE
BALANCE SHEET
Assets
Cash
Accounts receivable
Supplies
Land
Total assets
April 30, 2008
Liabilities
Rp 53,050,000 Accounts payable
Rp 12,200,000
31,350,000
3,350,000
Owner’s Equity
80,000,000 Adam Kuncoro, capital
155,550,000
Rp167,750,000 Total liab. & owner’s eq.
Rp 167,750,000
For Practice: PE 1-6A, PE 1-6B
79
Statement of Cash Flows
1-5
The statement of cash flows
consists of three sections:
(1) Operating activities
(2) Investing activities
(3) Financing activities
80
1-5
The cash flows from
operating activities section
reports a summary of cash
receipts and cash payments
from operations.
81
1-5
The cash flows from investing
activities section reports the cash
transactions for the acquisition and sale
of relatively permanent assets.
82
1-5
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.
83
1-5
Example Exercise 1-7
A summary of cash flows for Cimande Travel Service for the
year ended April 30, 2008, is shown below.
Cash receipts:
Cash received from customers
Cash received from additional
investment of owner
Cash payments:
Cash paid for expenses
Cash paid for land
Cash paid to owner for personal use
Rp 251,000,000
50,000,000
210,000,000
80,000,000
30,000,000
The cash balance as of May 1, 2007, was Rp72,050,000.
Prepare a statement of cash flows for Cimande
Travel Service for the year ended April 30. 2008.
84
84
1-5
Follow My Example 1-7
CIMANDE TRAVEL SERVICE
STATEMENT OF CASH FLOWS
For the Year Ended April 30, 2008
Cash flows from operating activities:
Cash received from customers
Deduct cash payments for expenses
Net cash flows from operating activities
Cash flows from investing activities:
Cash payments for purchase of land
Cash flows from financing activities:
Cash received from owner as investment
Deduct cash withdrawals by owner
Net cash flows from financing activities
Net decrease in cash during year
Cash as of May 1, 2007
Cash as of April 30, 2008
For Practice: PE 1-7A, PE 1-7B
Rp251,000,000
210,000,000
Rp 41,000,000
(80,000,000)
Rp 50,000,000
30,000,000
20,000,000
Rp (19,000,000)
72,050,000
Rp 53,050,000
85
85
Interrelationships Among Financial Statements

1-5
The income statement and the statement
of owner’s equity are interrelated.
Net income or net loss
appears on both statements.
86
1-5

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.
87
1-5

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.
88