The Balanced Scorecard

The Balanced Scorecard Traditional financial reporting systems provide an indication of how a firm has performed in the past, but offer little information about how it might perform in the future. For example, a firm might reduce its level of customer service in order to boost current earnings, but then future earnings might be negatively impacted due to reduced customer satisfaction. To deal with this problem, Robert Kaplan and David Norton developed the Balanced Scorecard, a performance measurement system that considers not only financial measures, but also customer, business process,...

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Financial Accounting Standards

Financial Accounting Standards Accounting standards are needed so that financial statements will fairly and consistently describe financial performance. Without standards, users of financial statements would need to learn the accounting rules of each company, and comparisons between companies would be difficult. Accounting standards used today are referred to as Generally Accepted Accounting Principles (GAAP). These principles are "generally accepted" because an authoritative body has set them or the accounting profession widely accepts them as appropriate. Securities and Exchange Commission (SEC) The Securities and Exchange Commission is a U.S. regulatory agency that has the authority to establish accounting standards for publicly...

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Closing Entries

Closing Entries Revenue, expense, and capital withdrawal (dividend) accounts are temporary accounts that are reset at the end of the accounting period so that they will have zero balances at the start of the next period. Closing entries are the journal entries used to transfer the balances of these temporary accounts to permanent accounts. After the closing entries have been made, the temporary account balances will be reflected in the Retained Earnings (a capital account). However, an intermediate account called Income Summary usually is created. Revenues and expenses are transferred to the Income Summary account, the balance of which clearly shows the firm's income for the period. Then, Income Summary is closed to Retained Earnings. The...

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Trial Balance

Trial Balance A basic rule of double-entry accounting is that for every credit there must be an equal debit amount. From this concept, one can say that the sum of all debits must equal the sum of all credits in the accounting system. If debits do not equal credits, then an error has been made. The trial balance is a tool for detecting such errors. The trial balance is calculated by summing the balances of all the ledger accounts. The account balances are used because the balance summarizes the net effect of all of the debits and credits in an account. To calculate the trial balance, construct a table in the following format: Trial Balance Calculation     Account        Debits        Credits     Account...

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Adjusting Entries

Adjusting Entries In the accounting process, there may be economic events that do not immediately trigger the recording of the transaction. These are addressed via adjusting entries, which serve to match expenses to revenues in the accounting period in which they occur. There are two general classes of adjustments: Accruals - revenues or expenses that have accrued but have not yet been recorded. An example of an accrual is interest revenue that has been earned in one period even though the actual cash payment will not be received until early in the next period. An adjusting entry is made to recognize the revenue in the period in which it was earned. Deferrals - revenues or expenses that have been recorded but need to be deferred...

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Debits and Credits

Debits and Credits In double entry accounting, rather than using a single column for each account and entering some numbers as positive and others as negative, we use two columns for each account and enter only positive numbers. Whether the entry increases or decreases the account is determined by choice of the column in which it is entered. Entries in the left column are referred to as debits, and entries in the right column are referred to as credits. Two accounts always are affected by each transaction, and one of those entries must be a debit and the other must be a credit of equal...

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The General Ledger

The General Ledger While the journal lists transactions in chronological order, its format does not faciliate the tracking of individual account balances. The general ledger is used for this purpose. The general ledger is a collection of T-accounts to which debits and credits are transferred. The action of recording a debit or credit in the general ledger is referred to as posting. The posting of a journal entry to the general ledger accounts is a purely mechanical process using information already in the journal entry and requiring no additional analysis. To understand the posting process, consider a journal entry in the following format: General Journal Entry Date Accounts Debit Credit mm/dd Account 1 xxxx.xx    ...

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Journal Entries

Journal Entries After a transaction occurs and a source document is generated, the transaction is analyzed and entries are made in the general journal. A journal is a chronological listing of the firm's transactions, including the amounts, accounts that are affected, and in which direction the accounts are affected. A journal entry takes the following format: Format of a General Journal Entry Date Accounts Debit Credit mm/dd account to be debited xxxx.xx          account to be credited   xxxx.xx In addition to this information, a journal entry may include a short notation that describes the transaction. There also may be a column for a reference number so that the transaction can be...

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The Source Document

The Source Document When a business transaction occurs, a document known as the source document captures the key data of the transaction. The source document describes the basic facts of the transaction such as its date, purpose, and amount. Some examples of source documents: cash receipt cancelled check invoice sent or received credit memo for a customer refund employee time sheet The source document is the initial input to the accounting process and serves as objective evidence of the transaction, serving as part of the audit trail should the firm need to prove that a transaction occurred. To facilitate referencing, each source document should have a unique identifier, usually a number or alphanumeric code. Prenumbering of commonly-used...

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The Accounting Cycle

The Accounting Cycle The sequence of activities beginning with the occurrence of a transaction is known as the accounting cycle. This process is shown in the following diagram: Steps in The Accounting Cycle Identify the Transaction Identify the event as a transaction and generate the source document. Analyze the Transaction Determine the transaction amount, which accounts are affected, and in which direction. Journal Entries The transaction is recorded in the journal as a debit and a credit. Post to Ledger The journal entries are transferred to the appropriate T-accounts in the...

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FAIR VALUE

FAIR VALUE... BAB 1 PENDAHULUAN Sejak akuntansi pertama kali di terapkan dalam dunia bisnis , pelaporan keuangan telah diatur sedemikian rupa sehingga laporan keuangan dapat menyajikan informasi yang benar-benar dapat diandalkan untuk pengambilan keputusan. Namun seiring dengan berjalannya waktu, akuntan menemukan banyak celah dalam pendekatan-pendekatan pelaporan keuangan yang telah ada, untuk melakukan fraud (kecurangan). Hal ini merupakan salah satu sebab munculnya pengaturan akuntansi baru yang principal based yaitu IFRS ( International Financial Reporting Standart ). Dalam IFRS...

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The Accounting Equation

The Accounting Equation The resources controlled by a business are referred to as its assets. For a new business, those assets originate from two possible sources: Investors who buy ownership in the business Creditors who extend loans to the business Those who contribute assets to a business have legal claims on those assets. Since the total assets of the business are equal to the sum of the assets contributed by investors and the assets contributed by creditors, the following relationship holds and is referred to as the accounting equation : Assets    =     ...

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