The basic concept of accounting is a generally accepted basis in order to obtain a unity of analysis, views, and opinions both by financial information presenters and those who need it. Understanding of the basic concepts of accounting is very important to understand in order to avoid accounting record errors that can affect the company’s financial condition and cause errors in decision making. So that your understanding of accounting does not experience errors, below we will discuss the basic concepts of accounting that you need to know in the opinion of Armada (2016).
On the basic accrual concept, a business event is directly observed and linked to when the event occurred. If the event has occurred, the effect has to be recognized without regard to the payment has been done or not.
Economic transactions or events are recognized when cash payments or receipts occur and are recorded in an accounting book and reported in the financial statements at the time / period the cash transaction takes place.
The Concept of Business Unity
The concept of business unity is the company’s financial information which only informs the company’s financial problems themselves. The company’s finances are separate from the owner, employee finances, and from the directors’ finances. As such, companies are considered as independent entities or organizations.
Sustainability (Going Concern)
The company in carrying out its business activities strives to run continuously throughout time. In the business process, the company’s financial statements are always made. The financial statements of companies that are prepared periodically can be compared so that information on business progress or setbacks is obtained. By comparing financial statements from one period to another, an accurate data can be obtained regarding the ups and downs of income and expenses. From the comparison of the financial statements, if deemed necessary it is necessary to make strategies and policies for business development.
Expense and Income (Matching Concept)
Determination of company expenses and income is only recognized in the period concerned so that the expenses and income that occur have actually been realized. Calculation of income statement reported describes the actual situation in a certain period or a certain period.
Business transactions that occur in purchases made by companies are recorded at the acquisition price of the goods. For example, bought a machine for Rp. 10,000,000. The machine is then installed at the factory. It turned out that the engine installation expense was still incurred at Rp1,200,000. Therefore, the acquisition price will be Rp.11,200,000 (Rp.10,000,000 + Rp1,200,000). This value is recorded in accounting. Cost is the amount of money spent to obtain an item or service in exchange.
Company financial information must be reported regularly, for example quarterly, six months, nine months or one year. Reporting financial information regularly is called the accounting period. The purpose of this periodic reporting is to determine the company’s strategy and policies in the future.
Measurement of Money Value
Business transactions must be measured in certain units of money. Likewise, assets, debts, and capital contained in the company. With this measurement with the value of money, then the entire value of the company’s wealth can be calculated.
In addition to paying attention to the 8 basic accounting concepts above, you also need to understand that accounting itself is a financial recording concept consisting of a collection of information that must be grouped based on financial statements or information needed by internal and external parties of the company.
To avoid recording errors and reduce the risk of human error due to the recording of transactions repeatedly on each type of different reports, so now the Journal of online accounting software appears as an easy and efficient accounting solution.