Hello guys, Assalamualaikum warahmatullahi wabarakatuh. Nice to meet you, I'm Nofri Sohardianto, your instructor, your lecturer in this introduction to accounting 1 and we're gonna learn some very basic principles in accounting and this is the part of introduction to accounting 1. okay are you ready I remember I suggest you to read the book do the practice exercise before or after or during listening to this video okay so let's get started okay so we are going to discuss some very basic principles in introduction to accounting we are going to discuss some basic concept about business and accounting so to make it focus I will turn off the video and to let you focus on the content of this presentation okay let's get it on okay let's start from very basic definition of account What is accounting? So if we want to learn accounting we have to know what is accounting.
Accounting is a system to provide financial information of a business. So accounting is a system. Accounting is a system that produce financial information.
We can identify three keywords here. First, system. In any system, in every system in the world, There are three elements.
First, the input and second process and the last is output. Any system has input, process and output. The output of accounting is financial information. Financial information, that's the output of accounting and this output is the next keyword, the second keyword. financial information accounting is about financial information accounting is not about your customer satisfaction for examples although some criticism addressed to accounting say that accounting should consider more non-financial information it's fine but accounting itself is more focused on the financial information for examples the profitability of the business the ability to pay the liabilities to pay the debt of a business so accounting is not about how satisfy your customer whether your employee is happy with you or not it's not about that accounting is about the financial condition the financial position of a company The third keyword is business.
Accounting is about business. Accounting is about the organization. So we have to consider, we have to know that accounting is not about society, for example. Accounting is not about some group of people. but accounting is for organization accounting is about formal organization so we gonna we're gonna uh uh learn deeply on these three keywords during this presentation so please make note that accounting is a system because accounting is a system there will be input process and output the output of accounting is financial information of a business and what next we have to know what is the process and what is the input of accounting first we have to know what is business business a company an organization um from the business itself i mean from the from the uh business that a company do we can we can identify three types of business first manufacturing business manufacturing business they transform the raw materials into a finished good they they they produce the finished good using the raw materials like coke coca-cola that produce coke and then samsung that produce electronic apparels nike that produce spot apparel and so on so they their business is to buy some raw material and transform these raw materials into a finished good the second type of business is merchandising in indonesia it's very popular in indomark alphamart and matahari so these three companies are merchandising business they buy the inventory and sell the goods so their business is very simple buy the inventory and sell it and the last type of business is service business like Garuda Indonesia, air transportation Kereta Api Indonesia, the train transportation in Indonesia Bank Mandiri, banking service so in in service industry or service companies they don't buy inventory they pay the salary of their employee and the employee do the service to the customer okay these three companies have different business they do different activities in their operation they have in different internal process that's why they will have different uh they will have different activity they will have of course they will produce different information because they do different activities from the point of view of organization we can separate or we can define business into three based on the organization form the first is proprietorship or in bahasa we call as perseorangan, proprietorship a company that owned by a single owner for example if your mother or if your parents has if your parents have this business very very small shop in front of your home it's kind of family business so it's proprio-trust owned by single family or owned by single person second is partnership two or more owners join the capital together they contribute the capital and run the business together we call partnership and the last is corporation this is the biggest form of of a business so the owner is more than two and they have shared they contribute to the they contribute money to the company and they i mean the investor or the owner will have share as a proof that they own some capital in the corporation it's again each form of organization will have different activity or will have different business activity for example in partnership they share the income to all owner but in proprietorship the profit will go to the single owner on the other hand in corporation profit will not be divided to the investor unless they agree to divide the profit.
So because this form has different legal requirements and they have different activity so they will have different uh different information they will have different activity they will have they will do different activity in their business they will have different uh legal requirement that's why they will have different accounting okay because accounting is about business so how the business work how the business works how the business uh how the form of the business will affect account so after talking about business let's talk about business stakeholder every single business there will be stakeholders any party that needs information about the business any party that that want to know about the business they have interest in the business we can define the uh we can divide these stakeholders into two the first is the internal stakeholder These are the people who have positions in the company or in a business and they want, of course, they need information about the business. The owners of the business will always want to know about his business. The managers who take care of the business, he produces the information and he needs to measure whether he is doing good. good or not. The external stakeholders, creditors, government.
Creditors want to know whether the company or the business can pay the debt or not. Bank for example, bank want to know whether the client or the debtor can pay its debt or not. Government, of course government want to know whether the company can pay the tax or not. whether they how much profit the company earn and how much tax that they can they can find from the from the business so every single company has its stakeholders and accounting again accounting back to the definition accounting will provide the stakeholders with information what owners decide what owners need what managers need creditors and government they need information and accounting will provide the information for them okay let's let's have some reflective questions if you were If you were the owner of a business, do you need information about your business?
Yes, of course. As an owner, you will need information. You need information about the performance of your business, whether the capital that you invest in that company grows or not. If you were a banker, Do you need information about the credit worthiness of your clients? Yes, of course.
You want to know whether the client can pay the debt or not. So you will search this information, right? And accounting will provide this information.
As a businessman, do you need financial information to make decisions? Yes. You can name it, you can give many examples.
For example, if you want to make a decision about whether you hire more employees or not, you need information whether you can pay this new employee. If you want to buy some more inventory for your trading, for your merchandising business, of course you need to know whether you can pay. the debt you can pay the supplier right so if you need information from the business then you need it again if you need information from the business means you need accounting because accounting is a system that provides information about the business So, Let's have some examples the decision and the information that you need So for example, a decision to buy inventory is a common decision It's a daily decision But to make this decision you need to know whether you can pay or not Once you have the product, you then you need to sell the product, then you will decide how much the price that you sell the product.
Again, when you're pricing the product, then you need to know how much it costs, how much profit that you need, and any information to justify your profit. Means that you need accounting to supply you information about the cost of the product. okay if you want to pay salary or you want to hire more employees means you need to know whether you can pay or not if you want to expand your business you want to open a new branch or you want to you want to develop a new plant means you need to know how much capital that you need you need to know the financial sources of your business all information are the output of accounting so they are the output because accounting will provide you information accounting is not about gossip accounting is not about analysis i mean judgment only accounting is for information and the information must be reliable otherwise the decision will miss it okay again what is accounting it is a process to provide financial information of a business so the output of accounting is financial information and the financial information is prepared is packed in a report we call as accounting report or financial report okay so how to get this output how do we get this output then we have to do the process the accounting process what is What is the thing that we have to process? We need the input of accounting is transaction.
Please check the previous presentation or the previous slide. Accounting is about system because accounting is a system, transaction is the input of accounting and this is the process. and this is the output it's always like that and now your turn your turn open your book read find what is transaction what is transaction transaction is an event that change the financial position of a company for example if the company has like 1 million cash and when the company make a transaction this 1 million cash or 1 million asset will change that's a very simple example of transaction but please check again your textbook to know what is transaction to have a clear understanding about the input of accounting and what is accounting process what is accounting process you will learn accounting process during this course what are the types of accounting information that accounting provide for the stakeholders please read the book and find the answer of these questions okay this is your duty this is your part two self learning So now let's turn to the process of accounting.
First, ask yourself what you need to run a business. What you need to run a business. I need information.
Okay, and in accounting, this information is symbolized as account. So, account. in my understanding is a unit of information when you go to this the gas station gas station or in bahasa we call as SBBU in gas station you can find many types of fuel you can find premium you can find Pertamax you can find Pertalit and any kind of any type of fuel so in accounting is actually the same i mean we we follow the same logic accounting provide information what kind of information then we pack this information we label the information using account for examples how much resources that the company has we call these resources we label these resources as asset how much liabilities that the company has to pay so we call this information as payable or liabilities and so on account so check your book again find the definition of account what is account next what information you need the general very general information that you need to evaluate your business is these five item first assets you you need to know how many resources that the company has it's about asset how many people or liabilities that the company has to pay it's about liabilities how much capital how much capital that the owner invests in the company it's about equity how much money that you earn from your customer is sales, how much money that you spend for the production process, for the selling process, it's about expenses.
All this information will be provided by accounting and accounting provide the information under the label of assets, liabilities, equity, sales, and expenses. So how to get the information? You remember what is the input of accounting?
The input of accounting is transaction. So start from the transaction. Analyze the transaction.
How to analyze the transaction? Follow the math. Follow the principles of math.
By using the mathematical equation, we can process the transactions and do this accounting process. What is accounting cycle or accounting process? We will do all the process in accounting cycle from analyzing and recording transaction, posting to ledger and so on.
We will do this accounting cycle during the semester. So from the beginning, the transaction is the starting point. Analyzing transaction is the starting point. After analyzing the transaction, you need to record the transaction. You need to summarize the transaction.
we are not going to write a diary or we're not going to write a novel about accounting but we will summarize the information i mean the transactions the event into a nice information that useful for decision making process okay however however to make the information reliable to assure that the information is relevant for decision making the process should follow accounting standard here in accounting we have standard we call as generally accepted accounting principles this is a set of standard that we have to follow to interpret to analyze a transaction to summarize or to record the transaction and to do all the process of accounting in order to provide reliable and relevant information the second and the most important is professional ethics in during the accounting process we have to obey ethics if the business suffer a loss it's fine report the loss don't try to make the loss into profit then means that you commit a unethical unethical practice. So by following the accounting standard and obeying this professional ethics, the accounting process will generate reliable information, trustable information. Accounting is about trust because you provide information. Once you get the trust, then the decision will be beneficial or welfare once the information is fake then you lose the trust and accounting is nothing without the trust accounting is a public is a public goods it provides information for the public that's why accounting should be credible that's why accounting should follow the accounting standard so follow this professional ethics okay so let's talk about the business when running a business you need resources right for examples you need cash right to run the business you need inventory as the goods that you want to sell you need a of course sales equipment the store and so on but how do we get this where do we get this from then the only sources is two there are two sources to get these resources first is liabilities that you buy the inventory from the supplier but you don't pay yet you pay later means you get this inventory but you have to record a liability on okay otherwise you will use your own money then it's owner's equity owner's equity owner's equity or the capital that provided by the owner accounting is about the resources of business, is about the liabilities of the business. Accounting is about the capital that provided by the owner of the business.
We are not talking about the personal fund of the owner. We are not talking about the personal wealth of the owner. We are talking about the business.
Once you have a business, then accounting will take care the capital that you invest in a business. Accounting will not take care your personal wealth because accounting follows a very great principle we call as business entirety. Again, I suggest you to do self-study, find what is business entity concept. In business entity concept, accounting is about the business, not about the owner. For example, once you invest like 1 million rupiah for a business, then accounting is about this 1 million.
Accounting will not take care, will not care about the how much money that you have left in your bank account. No, accounting is about the business. It's all about the business.
It's not about the owner. Okay, what we have on the left side is the resources. And we call these resources as assets. and where do assets from?
it's assets come from two resources the first is the liabilities sorry there is the sources of assets is two liabilities and equities the capital okay as you can see here we just form a method equation a mathematical equation assets the resources that business need to use are from liabilities or owner's equity okay so we have this basic accounting equation assets of a business are from liabilities and owner's equity and this is the equation that we use in accounting it's very easy how much the resources that the company has then where do the resources come from so if it come from i mean if the assets come from liabilities then you have to report how much liabilities that you have if the assets come from the owner's equity then you have to know you have to note how much owners query that you have okay is so we have many assets assets is a group of resources it's a label as i said it's a label of many many resources that used by the company because company use cash inventories supplies land building and so on please check your book to find the definition of accounts of these accounts and as i said accounts is a unit is a single unit of information for example cash cash is a single unit of information it's about how much money that the company has On the right hand side, there are two accounts, the sources. of the company's wealth, liabilities, and owner's equity. there are some type of liabilities. under the level of liabilities, there are many type of account. and the last is the owner's equity, the owner's owner capital.
we can expand this counting equation by using math so we can use math to do some mathematical game for examples if you buy merchandise inventory but you pay later so your inventory increase because you just bought it but because you don't pay yet then you have to record liabilities I will pay later then the supplier send you the inventory but you have to record liabilities so you add asset and you add the liabilities as well so when asset increase the liabilities will increase one example of transaction next when you pay your liabilities so you spend some cash to pay liabilities then the liabilities will go down and decrease the second set of transaction is between asset and owner's equity when the owner invests some money to the business then business now receive some money and on the other hand business will record okay this money is from the owner so balance balance or if the owner withdraw some money from the business then the business spend some cash and the cash will goes to the owners in other word capital that owner invested is just decreasing okay so we keep the equation balance okay we keep the equation balance the last type of transaction is within each categories within asset there are possible transactions that will increase asset and decrease in the same time for example you buy some merchandise inventory on cash means you receive some inventory and you spend some cash so the transaction will affect the balance of assets and again we can expand this into more detailed account as i said sales or revenue when the company sell its inventory or sells its service to the customer the company will earn revenue and the revenue will increase the owner's equity when the company for example pay salary for the employee or pay the electricity bill and so on so the company spend some resources to create revenue create revenue so the expenses will reduce the owner's equity and the last is actually drawing when the company when the owner withdraw some of his money from the business so drawing will reduce the owner's equity balance so it's your turn now to open your book to do some practice exercise related to accounting equation so you can pause the video do the practice exercise and make yourself happy by doing more so after doing all the exercise and then we just recorded all the transactions happen during the year or during the period then this is the expanded accounting equation as you can see we have asset liabilities and owners equity but in asset we have three items or three accounts cash supplies and land and we have only one liability account it is accounts payable however we have some owners equity some owners equity account in owners equity we can see some a very expanded account, you can see the capital of the owner, the drawing of the owner, of course the drawing will reduce, will deduct the equity, this is the fees earned, the revenue, and this all the expenses of the business. So as I said, the definition of accounting, accounting is to provide financial information however we cannot give this information of this this this form this report to the company to the to the business or to the stakeholders the investor will not understand what do you mean with this right this become become very raw information we have to process the information so after having after recording the transaction then we need to report okay so after analyzing the transaction after recording the transaction then we have to report the information we have to report the information that stakeholders need so how to you how to report then we have to provide financial statement we have four financial statements income statement Statement of changes in equity or sometimes called statement of owner's equity, balance it, or sometimes we call as statement of financial position, and the last statement of cash flow. So how to arrange the previous data that's very raw data? We can arrange the information into four statements.
the first is the income statement in the income statement we report two things or maybe three things first the revenue okay revenue this is the revenue that earned by the business during period the expenses that the business spent to create or to achieve the sales or to achieve the revenue and the net profit that the business earned during the period and this net income on the net profit okay is carried to the second statement that called statement of owner's equity okay so finance the second financial statement is statement of owner's equity in here in this report we report very simple thing actually first is the beginning balance of capital so we report capital or equity at the beginning balance. and you add some profit because the owners draw or withdraw some money of course we have to reduce the capital or to deduct the capital by some withdrawals then we get this the ending balance the ending balance of capital then we bring this ending balance of capital to the third report that is balance sheet in balance sheet we can see our accounting equation assets liabilities and owner's equity these are the resources that the company has at the point November 30 and this is the liabilities that the company has on November 30 and the ending balance of capital from the statement of owner's equity so we report this at the third at the balance sheet also on the balance sheet and is if you can see this cash balance there is a report that tell the information about the cash that you have and the transactions and and other information related the use of the cash and we call as statement of cash flow i will just show this statement of cash flow actually statement of cash flow show you the detail about the usage of the usage of cash however we will not learn this statement of cash flow this semester for the uh for the introduction to accounting one you will learn the statement of cash flow in introduction to accounting 2 next semester okay i think that's all that i can summarize the chapter for you during this video presentation and i hope you can enjoy studying i suggest you very very hard to do the self-study without self-study it's very difficult during this pandemic this this season or this time so self-evaluation self-study is very important for you after watching this video do some more practice exercise if you cannot do by yourself ask friend or ask me you can ask help from me if you want to know if you want to send a message just send a message or send an email to me so i will let you do practice exercise and we gonna meet online after this okay thank you and see you later