CHAPTER 5

BASIC
CONCEPTS

RANI YULIANTI (B1034161022)

ELVINA (B1034161023
BASIC CONCEPTS

The basic concept in general is an abstraction or conceptualization of the

environmental characteristics of the place or region in which financial reporting is
applied.
Ikatan Akuntan Indonesia (IAI)

There are two basic concepts specifically mentioned in the conceptual framework
of the IASC, including:
1. Accrual Basis (Accrual Bases)
2. Going Concern (Going Concern)
 Paul Grady
Grady described the basic concept as a concept that underlies the quality of the
usefulness and reliability of accounting information or as a limitation inherent in financial
statements. The ten concepts include:
1. Community and government structures that recognize private property
2. Specific business entity
3. The effort continues
4. Monetary symbol in a set of accounts
5. Consistency between periods for the same entity
6. Diversity of accounting treatment among independent entities
7. Conservatism
8. Data reliability through internal control
9. Materiality
10. Timeliness in financial reporting requires estimates
Accounting Principles Board (APB)
The APB refers to the basic concepts as basic features and includes them in the APB statement. The APB
identifies thirteen basic concepts which are the environmental characteristics of accounting.

Accounting Principles
Board
mengidentifikasi
1. Accounting entity 7. Exchange price

2. The effort continues 8. Figures approach

3. Measurement of
economic resources 9. Considerations
and liabilities
10. General financial
4. Periods of time
information
11. Financial
5. Measurement in
statements are
units of money
fundamentally related
12. The substance of
6. Accrual 13. Materiality
the form
 Wolk, tearney, dan dodd
Wolk, Tearney lists four concepts that are considered as postulates and
several other concepts as input-oriented principles, namely recognition,
matching, conservatism, disclosure, materiality, and objectivity and output-
oriented principles, namely comparability , consistency, and uniformity. The
four concepts categorized as postulates are:

1. Going concern
2. Time period
3. Accounting entity
4. Monetary units
Anthony, hawkins, dan merchant
The basic concepts 1 to 5 are categorized as a basis for a statement of financial position (balance sheet)
while the basic concepts 6 to 11 are categorized as a basis for an income statement.
1. Measurement with money units (Money measurement)
2. Entity
3. Going concern
4. Cost (Cost)
5. Dual aspects (Dual aspect)
6. Accounting period
7. Conservatism
8. Realization
9. Matching
10. Consistency
11. Materiality
 Paton dan littleton

The basic concepts put forward by Paton and Littleton are:

– The business entity or business entity
– Continuity of activities or businesses (Continuity of activity)
– Football awards (Measured consideration)
– Costs attached
– Efforts and achievements / results (Effort and accomplishment)
– Verified and objective evidence (Verifiable, objective evidence)
– Assumptions
Business Unit

– This concept states that the company is considered as a unit or economic entity
that is independent, acting on its own behalf, and its position is separate from
the owner or other parties who invest funds in the company and the economic
entity is the center of attention or accounting point of view.
Unitary Boundary

– Although juridically supported by the existence of business entities, the usha

unity boundary in terms of accounting is not a legal or legal unit but an
economic unit. Where accounting treats business entities as an economic entity
rather than a legal entity.
 Definition of equity

Equity is the owner's residual rights to net assets as defined in the conceptual framework of
the FASB. The FASB perspective is the owner. The relationship between the concept of
business units and the definition of equity is expressed symbolically as shown in Figure 5.2
below.
 Definition of income

– The concept of business unity can explain why income (and debt) is defined
as an increase or inflow of assets. With the concept of business unity, all
economic resources owned or controlled by the company are company
assets not owner assets. Thus it can be said that income adds to equity
(business entity debt to the owner).
 Definition of costs

– The definition of cost as a decrease in assets or incurring liabilities can be explained by the concept of
business unity. Delivery of products in order to create income causes assets (inventory) to decrease. This
reduction in assets (as much as cash goods sold) is called cost. So, it can be said that the cost of reducing
equity. The cost definition by the FASB is consistent with the concept of business unity. The implications
of defining income and costs are illustrated in Figure 5.3 below.
 Pair system

The pair system or multiple aspects put forward by Anthony, Hawkins, and
Merchant are actually logical consequences or derivatives of the concept of
business unity. The business relationship between management and owner
results in management always having to account for the assets under
management and the source of those assets. This means that the effect of
transactions on business relationships and financial position (including debts
with owners and other parties) must always be demonstrated. To do this
easily and comfortably, a paired system is used.
 Accounting Equation

The concept of business unity separates management from providers and funds and
management is accountable to them. Accountability requires that assets entrusted to
management always show the source or origin. Financial reporting must show this
relationship. This functional relationship is called the Accounting Equation.
For financial statements to be prepared quickly intervening, the general ledger accounting
system must be organized on the basis of the accounting equation. Therefore, the
accounting equation can be said to be the functional relationship of the general ledger that
presents elements of financial statements. The functional relationship between Reviews
These ledgers can be stated as follows:

Assets = Liabilities + Equity + Revenue - Costs

 articulation

As a basic concept put forward by APB items, namely that the financial
statements are fundamentally related (fundamentally Related Financial
Statement). Articulation is actually a derivative or a consequence of the
concept of business unity. By articulation, it can always be shown that the
profit in the statement of income will be the same as the profit in the
statement of changes in equity and the amount of rupiah equity in the
balance sheet.
Business continuity

-The concept of business continuity or continuing business states that

if there are no signs, symptoms, or plans in the future that the
business entity will be dissolved or liquidated, the accounting
assumes that the business unit will continue indefinitely.
-This concept will be taken into consideration when preparing
financial statements or accounting when faces various choices in the
engineering or the standard setting process due to the fact that the
company's future survival is uncertain.
Significance of Periodic reports

– With the concept of business continuity, the company Strives to continue to

progress and develop. To find out how developed and developing the company
is run, then the company must make-periodic company reports. If the company
does not make periodic reports, it is difficult, to Determine further decisions.
 Position of the profit and loss
statement
To measure the long-term profitability, the continuous flow of economic resources in
and out of a business entity (income and costs) must be beheaded for a period of
time as a container or measure. So, the concept of the time period put forward by
Hawkins, Anthony, and Merchant or the accounting period by APB is actually a
derivative of the basic concept of business continuity. Income and cost fragments for
a period are set forth in the periodic income statement so that the income statement
is seen as the most important statements in financial reporting because of the rate
of profit in order to assess the profitability.
 The function of the balance sheet
and the evaluation of its elements

The concept of business continuity plays a huge role in underlying the assessment of
elements or balance sheet items and the interpretation of the amount of rupiah
contained Therein. With the concept of business continuity, the purpose of reporting
the balance sheet items is to show the remaining potential services or economic
resources that have not been consumed in the year ending in the balance sheet. In
other words, the balance sheet serves to show the potential services that are still
owned / controlled by a business entity to generate revenue in the following periods.
 appreciation disagreements

Concept this declare that total IDR / aggregate price or appreciation

disagreements that involved in each tranksaksi or activity exchange
constitute ingredients though basic accounting the most objectively
especially in measure source economy that entry and source economy that
Exit, As consequence, the elements or posts reporting finance be measured
on basic appreciation disagreements mentioned,
Term that right

According to opinion author, term cost in fact enough right for

declare price-aggregate or measured consideration because reasons
following:
1. From facet seller, although term cost not enough large, Flow
entry appreciation disagreements sale / income that noted finally
will into cost too if already be used for gain goods and service,
2. From facet buyer, if term cost have keterbatasan karena tidak
dapat menyatakan hal yang sama dari kedua belah pihak dalam
suatu pertukaran, keterbatasan ini sebenarnya tidak masalah
karena akuntansi menganut konsep kesatuan usaha.
 Services behind boarding

Accounting uses currency units because they are the easiest to qualify objects
or services into homogeneous units and also because prices in units of money
are a common way of expressing agreements in exchange. In terms of
accounting, it is not actually money or the price itself that has an important
meaning but rather the potential services that are behind the koslah
numbers are important. Keep in mind that boarding is one of the attributes
to accurately represent the reality of company activities.
 Limitations of Accounting
Information
– By understanding the costs as accounting material, how can the
limitations of accounting be recognized in providing information for
decision making purposes by external parties and management?
Accounting information is only part of external rights and management.
More than that, although all considerations and policies are based on
accounting data in sufficient depth. In the end the resulting decision will
also reflect the influence of non-accounting data and will be interviewed
with very qualitative and subjective matters.
 Kos cling

Concept declare that kos cling on objects that dipresentasinya so that cash is
easy move and could broken and put together back follow objects that
approached, Various kos have power each other binding between that one
with that more follow bonds objects that symbolize,
 time recognition value more

in ekonomik, activity company consist on incorporation various factor production for

produce product new that benefits more high, If activity production use ingredients standard
and various kind factor production, activity accounting use kos for declare processing factor
production mentioned, Purpose activity accounting is follow in right change mentioned with
classify, break, and recapitulate kos ingredients standard, kos power work, kos ingredients
machine, and kos factor production more so that all kos mentioned in together will shape kos
production, So, basic concept kos cling be required because in follow Flow fisis mentioned
should there is supposition that each kos have power each other binding when combined
with kos other in right,
Concept basic this have implication important to time recognition additional benefit product
fisis that be produced, If kos product show value, then into the kos product mentioned should
included total rupiah value that constitute additional benefit that cling on product as result
from process that, Willbut not known in objectively and reassure how many magnitude value
more mentioned,
 Container incorporation

In follow Flow fisis production, cash broken, grouped, and then combined
back follow unit fisis product, This mean that cost combined with product as
Wardah or measure incorporation,
 Effort and result

Concept this declare that cost constitute effort in framework gain result the
form opinion, With other word, not there is result without effort, in
conceptual, opinion arise because cost not conversely opinion bear cost, that
is to say, so unity business do activity productive then opinion could said
already form also although not yet realized,
Principle Accrual

– Principle accrual is principle in recognition income and

cost that declare that income recognized on time right
unity arise because handover goods or service to party
outer and cost recognized on time obligation arise
because use of source ekonomik that cling on goods and
service that submitted mentioned,
 objectivity evidence

Mautz and Sharaf explain understanding and scope evidence audit as following:

– Audit evidence includes all influences on the mind of the auditor roomates Affect
his judgment about the truthfulness of the financial statements proposition,
submitted to him for review.
 Objectivity relatively

Accounting not science certainly so that objectivity evidence in accounting is

relatively, activity business not enable for used ingredients analysis
laboratory and not also follow formulas mathematics, With thus fact
accounting not a will always is objectively full and could verified in complete,
By because that, concept objectivity in creation data accounting is objectivity
that be adapted with circumstances that there is on time determination fact
not objectivity absolute,
 Objectivity and verification period long
Evidence the most strong and most desirable is evidence that fully objectively, Willbut, when requirements
objectivity a sort of this should followed in absolute in all case then accounting will into view period short
and conflict with concept continuity business, Evidence accounting too not should fundamental on evidence
juridical, That's why, For could otherwise as assets should reported by unity business, something assets not
should have unity business but enough overpowered,
In period long, there is risks from concept objectivity relative that is that treatment accounting on basic
evidence that available now into not corresponding with circumstances and fact on period time
datang.akan but, if fact that be used is that best obtainable then not there is again that could consist on
time that,
Accounting should attempted for get evidence that best without sacrifice reliability, however, gain
evidence that in reassure objectively too need kos that high,
With concept basic this, accounting could use those estimates and approximation as concept that
submitted inAPB No. 4.
 Assumption
Some example assumption that into base reasoning in have
concept that relevant,
 Continuity Business, Concept continuity business only could
justified on basic experience company on generally,
 Period One Year, Reporting periodic with time as container
measurement is false one custom important in accounting for
purpose "dosing" to income and cost that produce income
mentioned, interval time that biasanyayang be used is one
year, well year calendar or year book / fiscal,
 Kos As material Sports, appreciation disagreements that into
ingredients by accounting is based on assumption that kos
factor production that obtainable company show value on
time occurrence, Assumption behind reasoning mentioned is
that the doer economy Act rational, something assumption
that not too right in each circumstances,
 Power Buy Money Stable, Concept that total rupiah recorded
will permanent show value is based assumption that power
buy money is stable along time, In periods that experience
inflation enough high assumption mentioned clear not apply
again for goals certain,
 Purpose search Profit, Concept income and cost as Flow total
rupiah matched in fact contain assumption that income is
objects that intended by effort that be measured with kos,
With other word, company be regarded as, something
organization that be formed for produce profit, Assumption
this not doubtful feasibility, Desire for produce profit is
characteristics real that cling on firms commercial on
umunya,
 Concept Basic Other, Concepts basic that outlined by P & L
above constitute concepts basic that integrated and complete
as base conceptual for merekaya reporting finance, already
discussed also connection between concepts basic mentioned
with concept basic from source other interlock,
 substance Of the Form, Concept this declare that in set
something concept level engineering or in set standard in
level composer standard, accounting will emphasize mean or
substance ekonomik something objects or event of the mean
juridical although mean juridical maybe want or recommend
treatment accounting that different,
Recognition Right property
personal
– Concept this declare that recognition right property
personal should be protected or recognized in juridical,
Without this concept, the business entity can not have
economic resources or assets. Because ownership is one
way to gain mastery,
– false one form of protection is the obligation to account
for its management of wealth entrusted to the other.
conservatism

– conservatism is attitude or Flow in face uncertainty for take action or

decision on basic pop-ups that the ugliest from uncertainty mentioned,
– Attitude conservative too contain mean attitude take - heart in face risk
with way ready sacrifice something for decrease or get rid of risk,
– If accounting adheres to the basic concepts konservtisma, in addressing
the uncertainties, accounting (standard setter) will determine the choice
of treatment or accounting principles based on the pop-up (state, hopes
events, or results) that are considered less decisive.
 benefit concept basic

Concept Basic

benefit

2. To define the
1. As the cornerstone concepts, principles,
of the reasoning on methods, or
the level of techniques that will be
engineering used as the standard
for standard setter.