Universitas Gadjah Mada

Fakultas Ekonomika dan Bisnis

(2015/2016)
Intermediate Accounting I
(Akts Pengantar II)

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Environment and Theoretical
Structure of Financial Accounting
TOPIC 1

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Financial Accounting
Environment
Providers of External
Financial Information User Groups

Investors
Creditors
Profit-oriented Relevant Employees
companies
Labor unions
Not-for-profit Customers
entities Suppliers
Financial
Government
Information
agencies
Households
Financial
intermediaries

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Financial Accounting
Environment
Relevant financial information is provided
primarily through financial statements
and related disclosure notes.
Balance Sheet
Statement of Comprehensive Income
Statement of Cash Flows
Statement of Shareholders Equity

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Investment-Credit Decisions
A Cash Flow Perspective

Corporate shareholders will receive cash

from their investments through . . .
Periodic dividend distributions from the
corporation.
The ultimate sale of the ownership shares
of stock.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Investment-Credit Decisions
A Cash Flow Perspective

Accounting information should help

investors evaluate the amount, timing,
and uncertainty of the enterprises
future cash flows.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Cash Versus Accrual Accounting
Cash Basis Accounting
Revenue is recognized when cash is received.
Expenses are recognized when cash is paid.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Cash Versus Accrual Accounting
Cash Basis Accounting
Carter Company has sales on account totaling
$100,000 per year, and collected as shown on
the following slide. The company prepaid
$60,000 for three years rent in the first year.
Utilities are $10,000 per year, but in the first
year only $5,000 was paid. Payments to
employees are $50,000 per year.

Lets look at the cash flows.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001
 Cash Versus Accrual Accounting
Cash Basis Accounting
Summary of Cash Flows
Year 1 Year 2 Year 3 Total
Cash receipts from
customers $ 50,000 $125,000 $125,000 $300,000
Payment of 3
years' rent (60,000) - - (60,000)
Payments to
employees (50,000) (50,000) (50,000) (150,000)
Payments for
utilities (5,000) (15,000) (10,000) (30,000)
Net cash flow $ (65,000) $ 60,000 $ 65,000 $ 60,000

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Cash Versus Accrual Accounting
Cash Basis Accounting
Summary of Cash Flows
Year 1 Year 2 Year 3 Total
Cash receipts from
customers $ 50,000 $125,000 $125,000 $300,000
Payment of 3
years' rent (60,000) - - (60,000)
Payments to
employees (50,000) (50,000) (50,000) (150,000)
Payments Cash
for flows in any one year may not be a
utilities predictor of future
(5,000) cash flows.
(15,000) (10,000) (30,000)
Net cash flow $ (65,000) $ 60,000 $ 65,000 $ 60,000

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Cash Versus Accrual Accounting
Accrual Accounting
Revenue is recognized when earned.
Expenses are recognized when incurred.

Lets reconsider the Carter Company

information.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Cash Versus Accrual Accounting
Accrual Accounting
Revenue is recognized when
Summary earned.
of Operations
Year 1 Year 2 Year 3 Total
Expenses are recognized when incurred.
Revenue $ 100,000 $ 100,000 $ 100,000 $ 300,000

Lets reconsider the Carter Company

Rent expense (20,000) (20,000) (20,000) (60,000)
information.
Salary expense (50,000) (50,000) (50,000) (150,000)

Utility expense (10,000) (10,000) (10,000) (30,000)

Income $ 20,000 $ 20,000 $ 20,000 $ 60,000

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Development of Financial
Accounting

Concepts,
principles, and
procedures were
developed to meet the
needs of external
users (GAAP).

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Early Standard Setting
Evolution of Standard-Setting Process
1938 - 1959:
Committee on Accounting Procedures (CAP)
1959 - 1973:
Accounting Principles Board (APB)

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Current Standard Setting - FASB
www.fasb.org
Supported by the Financial Accounting Foundation.
Seven full-time, independent voting members
serving for 10 years.
Answerable only to the Financial Accounting
Foundation.
Members not required to be CPAs.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Establishment of Accounting Standards
A Political Process

Internal Revenue Financial Executives

Service Institute
www.irs.gov www.fei.org

Governmental
American Institute
Accounting
of CPAs GAAP
Standards Board
www.aicpa.org
www.gasb.org

Securities and American

Exchange Accounting
Commission Association
www.sec.gov www.aaa-edu.org

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 International Accounting Standards
Committee (IASC)
Established in 1973 to narrow the
range of differences in accounting
standards.
Increase in international trade has
motivated the IASC to attempt to
eliminate alternative accounting
treatments.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Role of the Auditor
Independent intermediary to help insure
that management has in fact
appropriately applied GAAP.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 The Conceptual Framework
Accounting standards
consistency.
Resolve new accounting
problems.
Provide user benefits.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 The Conceptual Framework
Objectives of Financial Reporting
(SFAC No. 1)

Qualitative Characteristics Elements of

of Accounting Information Financial Statements
(SFAC No. 2) (SFAC No. 6)

Recognition and Measurement Criteria

(SFAC No. 5)
Environment Implementation Implementation
assumptions principles constraints

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Conceptual Framework Objectives
To provide information:
Useful for decisions.
That helps predict cash flows.
About economic resources, claims to resources,
and changes in resources and claims.

Qualitative Recognition and

Elements Measurement
Characteristics Concepts

Financial
Constraints Statements
Continued
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001
 Objectives
Recognition and
Elements Measurement
Qualitative Concepts
Assets
Characteristics
Liabilities Assumptions
Understandability Equity Economic entity
Primary Investments by Owners Going concern
Relevance Distributions to owners Periodicity
Reliability Revenues Monetary unit
Expenses
Secondary Principles
Gains
Comparability Historical cost
Losses
Consistency Realization
Comprehensive Income
Matching
Full Disclosure

Financial Statements
Constraints Balance sheet
Cost effectiveness Income statement
Materiality Statement of cash flows
Conservatism Statement of shareholders equity
Related disclosures
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001
 Qualitative Characteristics
Understandability

Decision Usefulness

Relevance Reliability

Predictive Feedback Representational

Timeliness Verifiability Neutrality
Value Value Faithfulness

Comparability Consistency

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 The Realization Principle
Two conditions must be met if the
realization principle is to be satisfied.

Reasonable Substantial
Assurance of Completion of
Collection Transaction

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Recognition and Measurement Concepts
Assumptions Description
Economic entity All economic events identified with a particular
economic entity.
Going concern Business entity will continue to operate indefinitely.
Perodicity Life of company is divided into time periods to provide
timely information.
Monetary unit Financial statements are measured in U. S. Dollars.

Principles
Historical cost Measurement based on exchange transaction amounts.
Realization Revenue recognized when earnings process is complete
and reasonable certainty of collection exists.
Matching Expenses recognized in same period as related revenue.
Full disclosure Information that could change user decisions should be
included.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 SFAC No. 6
Revenues
Inflows of assets or settlements of
liabilities during a particular accounting
period. Such inflows or settlements
stem from delivery or production of
goods or rendering of services.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 SFAC No. 6
Expenses
Outflows of assets or incurrences of
liabilities during a particular accounting
period. Such outflows are necessary to
delivery or production of goods or
rendering of services.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 SFAC No. 6
Gains and Losses
Gains: Increases in equity resulting from
incidental transactions not associated
with the companys major business.
Losses: Decreases in equity resulting
from incidental transactions not
associated with the companys major
business.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 SFAC No. 6
Assets and Liabilities
Assets: Business resources that have
probable future economic benefits.

Liabilities: Probable future sacrifices of

economic benefits.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 SFAC No. 6
Equity
Residual interest in the assets of a
business entity is also known as net
assets.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 SFAC No. 6
Investments and Distributions
Investments by owners: Increases in
equity resulting from asset contribution
by other entities (owners/stockholders).
Distribution to owners: Decreases in
equity resulting from the distribution of
assets to other entities.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 SFAC No. 6
Comprehensive Income
The change in equity resulting from the
aggregate of all transactions reported in
a particular accounting period, except
for investments by and distributions to
owners.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The function of financial accounting is to
identify, measure and communicate
financial information about economic
entities to interested parties.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The function of financial accounting is to
identify, measure and communicate
financial information about economic
entities to interested parties.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
Accrual accounting provides a better
indication of ability to generate cash flows
than does information limited to the
financial effects of cash receipts and cash
payments.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
Accrual accounting provides a better
indication of ability to generate cash flows
than does information limited to the
financial effects of cash receipts and cash
payments.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The primary objective of accrual basis
accounting is the measurement of income.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The primary objective of accrual basis
accounting is the measurement of income.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
Generally accepted accounting principles
include both standards set by various rule
making bodies and certain accounting
practices that have evolved over time.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
Generally accepted accounting principles
include both standards set by various rule
making bodies and certain accounting
practices that have evolved over time.

a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The major financial accounting standard
setting body is the

a. Accounting Principles Board

b. Securities and Exchange Commission
c. Financial Accounting Standards Board
d. American Institute of CPAs

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The major financial accounting standard
setting body is the

a. Accounting Principles Board

b. Securities and Exchange Commission
c. Financial Accounting Standards Board
d. American Institute of CPAs

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The FASB issues which of the following
types of pronouncements?

a. Standards
b. Interpretations
c. Financial Accounting Concepts
d. Technical Bulletins
e. All of the above

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The FASB issues which of the following
types of pronouncements?

a. Standards
b. Interpretations
c. Financial Accounting Concepts
d. Technical Bulletins
e. All of the above

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The Financial Accounting Standards Board
develops accounting and reporting
standards independent of public, business
and political pressures.
a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Question
The Financial Accounting Standards Board
develops accounting and reporting
standards independent of public, business
and political pressures.
a. True
b. False

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Ethics in Accounting
To be useful, accounting information
must be objective and reliable.
Management may be under pressure to
report desired results and ignore or
bend existing rules.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 Model for Ethical Decisions
Determine the facts of the situation.
Identify the ethical issue and the stakeholders.
Identify the values related to the situation.
Specify the alternative courses of action.
Evaluate the courses of action.
Identify the consequences of each course of action.
Make your decision and take any indicated action.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001

 End of Topic 1

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2001