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MODUL PERKULIAHAN

Pengantar Akuntansi Nature of a Business, the Role of Accounting In Business, Type of Business, General Purpose Financial Statement, IASB and IFRS

Fakultas Program Studi Tatap Muka Kode MK Disusun Oleh

Ekonomi dan Bisnis Manajemen 01 84038 (B01316SP)

Helsinawati, SE, MM

Abstract KompetenceComprehence and understand nature of a business, type of business, role of

Student are able to understand nature of a business, type of business, role of

accounting in business, opportunities for accountant, GAAP

accounting in business, opportunities for accountant, GAAP

Nature of a BusinessIntroduction

A business is an organization in which basic resources (inputs), such as materials and

labor, are assembled and processed to provide goods or services (outputs) to customers.

The objective of most businesses is to earn a profit.

Profit is the difference between the amounts received from customers for goods or

services and the amounts paid for the inputs used to provide the goods or services

A business customers are individuals or other businesses who purchase goods or

services in exchange for money or other items of value. In contrast, a church and mosque is

not a business because those who receive its services are not legally obligated to pay for

them.

The objective of most businesses is to earn a profit. Profit is the difference between

the amounts received from customers for goods or services and the amounts paid for the

inputs used to provide the goods or services. Some businesses operate with an objective

other than to maximize profits. The objective of such not for profit businesses is to provide

some benefit to society, such as medical research or conservation of natural resources. In

other cases, governmental units such as cities operate water works or sewage treatment

plants on a non profit basis.

Type of Business

Three type of businesses operating for profit include service, merchandising and

manufacturing businesses. However, many companies provide both services and products.

Therefore, it is sometimes difficult to classifiy a company into a service or manufacturing

business.

1) Service Business

Provide services rather than products to customers

Product

Disney Entertainment

Delta Air Lines Transportation

Marriott Hotels Hospitality and lodging

Merrill Lynch Financial advice

2016 2 Pengantar Akuntansi

Pusat Bahan Ajar dan eLearningHelsinawati, SE, MM http://www.mercubuana.ac.id

Sprint Telecommunication

2) Merchandising BusinessSell products they purchase from other businesses to customers.

Product

Wal-Mart General merchandise

Toys “R” Us Toys

Circuit City Consumer electronics

Lands’ End Apparel

Amazon.com Internet books, music, video retailer

3) Manufacturing Business

Change basic inputs into products that are sold to customers.

Product

General Motors Cars, trucks, vans

Intel Computer chips

Boeing Jet aircraft

Nike Athletic shoes and apparel

Coca-Cola Beverages

Sony Stereos and television

Type of Business Entities

Under the business entity concept, the activities of a business are recorded separately from

the activities of its owners, creditors, or other businesses.

ProprietorshipA proprietorship is owned by one individual.

70% of business entities in the U.S. are proprietorships.

They are easy and cheap to organize.

Resources are limited to those of the owner.

Used by small businesses.

Advantages

Ease in organizing

Low cost of organizing

Disadvantage



Limited source of financial resources

Unlimited liability

PartnershipA partnership is similar to a proprietorship except that it is owned by two or more individuals.

10% of business organizations in the U.S. (combined with limited liability companies) are

partnerships.

Combines the skills and resources of more than one person.

Advantages

More financial resources than a proprietorship.

Additional management skills

Disadvantage

Unlimited liability

CorporationA corporation is organized under state or federal statutes as a separate legal taxable entity.

Corporations generate 90% of business revenues.

20% of the business organizations in the U.S. are corporations.

Ownership is divided into shares, called stock.

Issues stock.

Used by large firms.

Advantage

The ability to obtain large amounts of resources by issuing stocks

Disadvantage

Double taxation

Limited Liability Company (LLC)A limited liability company (LLC) combines the attributes of a partnership and a corporation.

10% of business organizations in the U.S. (combined with partnerships).

Often used as an alternative to a partnership.

Has tax and legal liability advantages for owners.

Business Stakeholders

A business stakeholder is a person or entity that has an interest in the economic

performance and well-being of a business. For example, owners, suppliers, customers and

employees are all stakeholders in a business.



Capital market stakeholders provide the major financing for the business in order for

the business to begin and continue its operations. Bank and other long term creditors have

an economic interest in recovering the amount they loaned the business plus interest.

Owners want to maximize the economic value of their investments and thus also have an

aconomic interest in the business. Owner of a coporation is called stockholder and also be

one of stakeholder.

Product or service market stakeholders include customers who purchase the business

products or services as well as the vendors who supply inputs to the business. For example,

customers who purchase advance, they need to be assured that Garuda Indonesia is still in

business when they need its service. Similarly, suppliers are stakeholders in the continued

success of their customers as a source of business.

Government stakeholders have an interest in the economic performance of

businesses. As a result, provincial governments often provide incentives for businesses to

locate in their jurisdictions. Provincial governments collect taxes from businesses within their

jurisdictions. In addition, workers are taxed on their wages. The better a business does, the

more taxes the government can collect.

Internal stakeholders include individuals employed by the business. The managers are

those individuals whom the owners have authorized to operate the business. Managers are

primarily evaluated on the economic value of the business. Thus, managers have an

incentive to maximize the economic values of the business. Owners may offer managers

salary contracts that are tied directly to how well the business performs. For example, a

manager might receive a percentage of the profits or a percentage of the increase in profits.

Employee provide services to the company they work for in exchange for pay. Thus,

employees have an interest in the economic performance of the business because their job

depend upon it.

Business Strategies

A business strategy is an integrated set of plans and actions designed to enable the

business to gain an advantage over its competitors, and in doing so, to maximize its profits.

The two basic strategies a business may use are a low-cost strategy or a differentiation

strategy. Under a low-cost strategy, a business designs and produces products or services

of acceptable quality at a cost lower than that of its competitors. Example; Wal-Mart and

Southwest Airlines. Such businesses often sell nofrills, standardized products to the most

typical customer in the industry. Following this strategy, businesses must continually focus

on lowering costs.



Under a differential strategy, a business designs and produces products or services

that possess unique attributes or characteristics which customers are willing to pay a

premium price. Examples; Maytag Tommy and Hilfiger. Businesses using a differentiation

strategy often use information systems to capture and analyze customer buying habits and

preferences. For example, many grocery stores such as Kroger and Safeway issue magnetic

cards to preferred customers that allow the consumer to receive special discounts on

purchases. In addition to establishing brand loyalty, the cards allow the stores to track

consumer preferences and buying habits for use in purchasing and advertising campaigns.

A business using a differentiation strategy wants customers to pay a premium price for

the differentiated features of its products. However, a business may provide features that

exceed the customers’ needs. In this case, competitors may be able to offer customers less

differentiated products at lower costs. Also, customers’ perceptions of the differentiated

features may change. As a result, customers may not be willing to continue to pay a

premium price for the products.

A business may attempt to implement a combination strategy that includes elements of

both the low-cost and differentiation strategies. That is, a business may attempt to develop a

differentiated product at competitive, low-cost prices. For example, Andersen Windows

allows customers to design their own windows through the use of its proprietary

manufacturing software. By using flexible manufacturing, Andersen Windows can produce a

variety of windows in small quantities with a low or moderate cost. Thus, Andersen windows

sell at a higher price than standard low-cost windows, but at a lower price than a fully

customized window built on site.

As you might expect, a danger of a business using a combination strategy is that its

products might not adequately satisfy either end of the market. That is, because its products

are differentiated, it cannot establish itself as the low-cost leader, and, at the same time, its

products may not be differentiated enough that customers are willing to pay a premium price.

In other words, the business may become “stuck in the middle.” For example, JC Penney

has difficulty competing as a low-cost leader against Wal-Mart, Kmart, Goody’s Family

Clothing, Fashion USA, T.J. Maxx, and Target. At the same time, JC Penney cannot

adequately differentiate its stores and merchandise from such competitors as The Gap, Old

Navy, Eddie Bauer, and Talbot’s so that it can charge higher prices. A business may also

attempt to implement different strategies for different markets. For example, Toyota

segments the market for automobiles by offering the Lexus to image and quality conscious

buyers. To reinforce this image, Toyota developed a separate dealer network. At the same

time, Toyota offers a low-cost automobile, the Echo, to price sensitive buyers.



Value Chain of a Business

A value chain is the way a business adds value for its customers by processing inputs

into product or service.

Role of Accounting in BusinessThe role of accounting in business is to provide information for managers to use in

operating the business. In additional, accounting provides information to other users in

assessing the economic performance and condition of the business.

Accounting can be defined as an information system that provides reports to users

about the economic activities and condition of a business.

The process by which accounting provides information to users is as follows:

Identify users.

Assess users’ information needs.

Design the accounting information system to meet users’ needs.

Record economic data about business activities and events.

Prepare accounting reports for users

The Process of Providing Information



Managerial AccountingThe area of accounting that provides internal users with information is called managerial

accounting, or management accounting.

Managerial accountants employed by a business are employed in private accounting.

Financial AccountingThe area of accounting that provides external users with information is called financial

accounting.

The objective of financial accounting is to provide relevant and timely information for the

decision- making needs of users outside of the business.

General-purpose financial statements are one type of financial accounting report that is

distributed to external users



Opportunities for AccountantsRole of Ethics in Accounting and Business

The objective of accounting is to provide relevant, timely information for user decision

making. Accountants must behave in an ethical manner so that the information they provide

users will be trustworthy and, thus, useful for decision making. Ethics are moral principles

that guide the conduct of individuals.

The importance of the role of professional accountants in business in ensuring the

quality of financial reporting cannot be overly emphasized. Professional accountants in

business often find themselves being at the frontline of safeguarding the integrity of financial

reporting. Management is responsible for the financial information produced by the

company. As such, professional accountants in businesses therefore have the task of

defending the quality of financial reporting right at the source where the numbers and figures

are produced.

A competent professional accountant in business is an invaluable asset to the

company. These individuals employ an inquiring mind to their work founded on the basis of

their knowledge of the company’s financials. Using their skills and intimate understanding of

the company and the environment in which it operates, professional accountants in business

ask challenging questions. Their training in accounting enables them to adopt a pragmatic

and objective approach to solving issues. This is a valuable asset to management,

particularly in small and medium enterprises where the professional accountants are often

the only professionally qualified members of staff.

Accountancy professionals in business assist with corporate strategy, provide advice

and help businesses to reduce costs, improve their top line and mitigate risks. As board

directors, professional accountants in business represent the interest of the owners of the

company (i.e., shareholders in a public company). Their roles ordinarily include: governing

the organization (such as, approving annual budgets and accounting to the stakeholders for

the company’s performance); appointing the chief executive; and determining management’s

compensation. As chief financial officers, professional accountants have oversight over all

matters relating to the company’s financial health. This includes creating and driving the

strategic direction of the business to analyzing, creating and communicating financial

information. As internal auditors, professional accountants provide independent assurance to

management that the organization’s risk management, governance and internal control

processes are operating effectively. They also offer advice on areas for enhancements. In

the public sector, professional accountants in government shape fiscal policies that had far-

reaching impacts on the lives of many. Accountants in academia are tasked with the



important role of imparting the knowledge, skills and ethical underpinnings of the profession

to the next generation.

Opportunities for Accountants

Accountants and their staff who provide services on a fee basis are said to be

employed in public accounting.

Accountants employed by a business firm, government, or a not-for-profit organization

are said to be employed in private accounting.

Public accountants who have met a state’s education, experience, and examination

requirements may become Certified Public Accountants (CPAs).

Generally Accepted Accounting Principles (GAAP)Introduction

Financial accountants follow generally accepted accounting principles (GAAP) in

preparing reports.

Within the U.S., the Financial Accounting Standards Board (FASB) has the primary

responsibility for developing accounting principles.



The Securities and Exchange Commission (SEC), an agency of the U.S. government,

has authority over the accounting and financial disclosures for companies whose shares of

ownership (stock) are traded and sold to the public.

Many countries outside the U.S. use generally accepted accounting principles adopted

by the International Accounting Standards Board (IASB).

GAAP (US Generally Accepted Accounting Principles) is the accounting standard used

in the US, while IFRS (International Financial Reporting Standards) is the accounting

standard used in over 110 countries around the world. GAAP is considered a more “rules

based” system of accounting, while IFRS is more “principles based” The U.S. Securities and

Exchange Commission is looking to switch to IFRS by 2015.

Comparison chart

GAAP versus IFRS comparison chartGAAP IFRS

Stands for Generally Accepted Accounting Principles

International Financial Reporting Standards

Introduction Standard guidelines and structure for typical financial accounting.

Universal financial reporting method that allows international businesses to understand each other and work together.

Used in United States Over 110 countries, including those in the European Union

Performance elements

Revenue or expenses, assets or liabilities, gains, losses, comprehensive income

Revenue or expenses, assets or liabilities

Required documents in

financial statements

Balance sheet, income statement, statement of comprehensive income, changes in equity, cash flow statement, footnotes

Balance sheet, income statement, changes in equity, cash flow statement, footnotes

Inventory Estimates

Last-in, first-out; first-in, first-out; or weighted-average cost

First-in, first-out or weighted-average cost

Inventory Reversal Prohibited Permitted under certain criteria

Purpose of the framework

US GAAP (or FASB) framework has no provision that expressly requires management to consider the framework in the absence of a standard or interpretation for an issue.

Under IFRS, company management is expressly required to consider the framework if there is no standard or interpretation for an issue.

Objectives of financial

statements

In general, broad focus to provide relevant info to a wide range of stakeholders. GAAP provides separate objectives for business and non-business entities.

In general, broad focus to provide relevant info to a wide range of stakeholders. IFRS provides the same set of objectives for business and non-business entities.

Underlying assumptions

The "going concern" assumption is not well-developed in the US GAAP framework.

IFRS gives prominence to underlying assumptions such as accrual and going concern.



GAAP versus IFRS comparison chartGAAP IFRS

Qualitative characteristics

Relevance, reliability, comparability and understandability. GAAP establishes a hierarchy of these characteristics. Relevance and reliability are primary qualities. Comparability is secondary. Understandability is treated as a user-specific quality.

Relevance, reliability, comparability and understandability. The IASB framework (IFRS) states that its decision cannot be based upon specific circumstances of individual users.

Definition of an asset

The US GAAP framework defines an asset as a future economic benefit.

The IFRS framework defines an asset as a resource from which future economic benefit will flow to the company.

Daftar Pustaka



Needles et.al, 2011, Principle of Accounting, South-Western Cengange Learning

Reeve et.al, 2012, Principal of Accounting Indonesia Adaption, Salemba Empat : Jakarta

Reeve et.al, 2014, Principle of Financial Accounting with Conceptual Emphasis on IFRS,

Cengage Learning Asia Pte Ltd

Warren et al., 2015 Financial Accounting 14e, Cengage Learning Asia Pte Ltd

Putri Dwi W, 2016, Modul Pengantar Akuntansi UMB



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