Identify 4 Concept ( Methods ) Accounting Record :
1. Cash Bases
2. Modified Bases
3. Modified Accrual
4. Accrual Bases
And how the application of the four bases in Indonesia ?
Answer :
4 Concept (
Methods ) Accounting Record
Basically there are two methods for recording
transactions in the accounting , the cash basis and accrual basis , but there
is also mention that there are 4 methods for recording these transactions are:
1 . Cash Basis ( Cash Basis )
2 . Modified Cash Basis ( Modified Cash Basis
)
3 . accrual Basis
4 . Modified Accrual Basis
1. Cash
-Based
In cash accounting , economic transactions and
other events are recognized when cash is received or paid . The cash basis to
measure the financial performance of the government is to know the difference
between cash receipts and cash payments during a period . Cash basis provides
information on the sources of funds generated during the period , the use of
funds and cash balances at the reporting date . Model of financial reporting in
the cash basis is usually shaped Receipts and Payments Statement ( Statement of
Receipts and Payment ) or Statement of Cash Flow ( Cash Flow Statement ).
In
addition it should be made a note to the financial statements or notes to the
financial statements presents the details of the items contained in the
financial statements and additional information such as :
1 . Items that are recognized in accrual
accounting , such as fixed assets and debts / loans.
2 . Items commonly expressed in accrual
accounting , such as commitments , contingencies and guarantees .
3 . Other items , such as information that is
forecast (forecast ) .
Cash Basis financial activities will be
recorded when cash or money has been received for example the company sells its
product but payment has not been received then the recording of sales revenue
is not done , if the cash has been received then the transaction will be
recorded as well as the " accrual basis " this apply to all
transactions made , both techniques will greatly affect the financial
statements , if using the accrual basis of product sales are made on credit
companies will increase the accounts receivable so that the effect on the
amount of accounts receivable that they use conversely if the cash basis
accounts receivable will reported to be lower than it actually happened . Cash
Basis concept is also based on two pillars , namely :
In addition , the accounting with cash basis
method also has several advantages and disadvantages are as follows :
Excellence In Cash Basis Accounting Record
• The method used for recording Cash basis
revenue recognition , expenditure and financing.
• Expenses / costs not recognized until the
payment in cash even though the load has occurred , so it does not cause a
reduction in the income calculation .
• Revenue is recognized upon receipt of cash ,
so it truly reflects the position of the actually .
• Cash receipts are usually recognized as
income .
• Financial Statements presented the financial
position that existed at the time the report .
• No need for a company to make provisions for
cash not yet collected .
Weakness In Cash Basis Accounting Record
• Cash basis method does not reflect the
amount of cash available .
• Will be able to lower the bank's earnings
calculation , due to the recognition of revenue until the receipt of cash .
• The elimination of receivables directly and
does not recognize the existence of estimated uncollectible .
• Usually used by a relatively small company
business such as shops , cafes , malls ( retail ) and the practice of
specialists such as doctors , informal traders , massage parlors ( in fact
there are disposable credit card - but remember credit cards are also
categorized as a cash basis) .
• Any cash expenditures are recognized as an
expense .
• Difficulty in performing a delayed payment
transaction , because the recording is recognized when cash is in or out .
• It is difficult for management to determine
future policy for always sticking to cash .
2.
Modification Of Cash Based Accounting
This basis of accounting is basically the same
as the cash -based accounting , but the accounting basis for the current year
period was coupled with a certain time or period (specific period) for example
1 or 2 months after the period ( ? Leaves open the books ? ) . Cash receipts
and payments that occurred during a particular period but due to the previous
reporting period will be recognized as revenue and expenses over the last
reporting period ( previous period ) . Cash flow at the beginning of the
reporting period are taken into account in the reporting period last year
reporting period runs deductible .
The financial statements in this basis also
requires additional disclosure on certain items that are generally recognized
in the accrual basis of accounting . Such disclosure varies in accordance with
government policy . In addition to the items disclosed in the cash basis ,
there are several separate disclosure on near - cash balances are shown in
receivables that will be accepted and the debts are to be paid for a certain
period and the financial assets and liabilities . For example, the Government
of Malaysia using the specified period in the annual financial report , which
reveals several notes ( memos ) regarding assets , investments , liabilities ,
government debt (public debt ) , guarantees ( guarantees ) , and notes payable
.
In this basis there are some things that need
to be addressed:
1 . Measurement focus under this basis is the
current financial resources (current financial resources) and changes to the
financial resources . This basis of accounting has a broader focus on the
measurement of the cash basis , the recognition of certain cash receipts and
payments for a specific period means that there is information on receivable and
debt , although it is not recognized as assets and liabilities .
2 . Determination of the period length varies
between several governments , but there are a few provisions , namely :
a . certain period applied consistently from
year to year
b . certain period should be equal to cash
receipts and payments
c . The same criteria for the recognition of
cash receipts and payments for a certain period should be applied to all
receipts and payments
d . one month is the perfect time , because
purchase goods on credit is generally completed within that period , the period
that is too long may lead to difficulties in generating financial statements
e . accounting policies used should be
disclosed in full ( fully disclosed )
3 . Criteria for the recognition of revenue
for a particular period is that acceptance has to come from the last period ,
but the application is not uniform for all countries . Some government assumes
that all revenue received during a certain period is derived from the previous
period , while other government recognize only a few of such acceptance .
3. Accrual
Based Accounting
Accrual accounting means a basis of accounting
in which economic transactions and other events are recognized and recorded in
the accounting records and reported in the financial reporting period at the
time of the transaction , rather than when cash or cash equivalent is received
or paid . Accrual accounting is widely used by public sector institutions and
other institutions that aim for profit . International Monetary Fund ( IMF ) as
a creditor institution compile Government Finance Statistics ( GFS ) in which
suggested to the debtor countries to implement accrual accounting in financial
reporting . The reason is because the application of the accrual basis of
recording time ( recording) in accordance with the current flow of resources .
So the accrual basis provides a precise estimate of the effect of government
policy on the macro economy . Additionally accrual basis provides the most
comprehensive information resource for the entire flow record, including internal
transactions , in-kind transaction , and other economic flows .
There are several benefits that can be
obtained on the application of the accrual basis , for both the user reports (
user ) and the government as a provider of financial statements . These
benefits include :
1 . can present the government's statement of
financial position and changes
2 . demonstrate accountability for the use of
all resources
3 . demonstrate accountability for the
management of all assets and liabilities are recognized in the financial
statements
4 . shows how the government fund its
activities and meet its cash needs
5 . allows the user to evaluate the
government's ability to fund activities and to meet its obligations and
commitments
6 . assist the user in making decisions about
providing resources to, or doing business with entities
7 . user can evaluate the government's
performance in terms of cost of service , efficiency and delivery of services.
Accrual Basis ( Accrual Basis ) Technical
features the accrual basis of recording in which the transaction is to be noted
because it has implications for cash transactions in or out in the future .
Transactions are recorded when they are incurred even if the money has not
really - actually received or issued .
In addition , the accounting with cash basis
method also has several advantages and disadvantages are as follows :
Excellence In Accrual Basis Accounting Record
• The method used for measuring accrual basis
of assets , liabilities and equity funds .
• Expenses are recognized when the transaction
occurs , so that the information provided is more reliable and trustworthy .
• Revenue is recognized when the transaction
occurs , so that the information provided is more reliable and trustworthy even
though cash has not been received .
• Widely used by companies - large company ( in accordance with the provisions of Financial Accounting Standards which
require a company to use the accrual base ) .
• uncollectible receivables will not be
deleted directly , but will be calculated into the estimated uncollectibles .
• All receipts and payments are logged into
each account in accordance with the transaction .
• An increase in corporate earnings due to
cash received can not be recognized as revenue .
• The financial statements can be used as a
guide in determining corporate policy management future .
• The establishment of reserve for
uncollected cash , so as to reduce the risk of loss .
In Accrual Basis Accounting
weakness Recording :
• The method used for recording accrual basis
.
• Costs are not paid in cash , will be
recorded as a cost effective so as to reduce the company's revenue .
• The risk of uncollectible revenues so as to
make reducing the company's revenue .
• With the establishment of reserves will
reduce earnings .
• The company does not have a precise estimate
of when the cash is not paid by the other party acceptable .
4.
Modification of Accrual Based Accounting
This basis of accounting include the
recognition of some assets , but not entirely , such as physical assets , and
the recognition of a liability , but not all , such as debt retirement .
Examples of variation ( modification ) of accounting accruals , can be found in
practice as follows:
1 . recognition of all assets , except for
infrastructure assets , assets and asset defense historic / heritage , which is
recognized as an expense ( expense ) at the time of acquisition or construction
. This treatment was adopted because the practice is difficult and huge costs
to identify or assess those assets .
2 . recognition of almost all assets and
liabilities in accordance with the accrual basis , however, the recognition of
revenue based on the cash basis or modified cash basis
3 . recognition of assets and liabilities only
for short-term financial
4 . recognition of all liabilities with the
exception of certain obligations such as debt retirement .
Some standard setters have identified revenue
recognition criteria over time with the accrual basis of accounting , for
example, the Government of Canada recognizes revenue in the period in which the
transactions or events have occurred when the revenue can be measured
(measurable ) . U.S. Federal Government ( State ) recognizes tax revenues in
the accounting period in which the income is to be susceptible to accrual ( when the revenues become measurable and available to finance expenditures ) .
Available means are collectible within the current period or soon after the
transaction .
The application of the four bases in Indonesia ; Which the accounting basis used by a
particular government , depending on the policies and conditions. Each of the
accounting basis has advantages and disadvantages , the accrual basis of
accounting provides more benefits than other accounting basis , both for the
government itself as a constituent of the financial statements and for the
users of financial statements ( user ) . Indonesian government , in accordance
with Law No. 17 Year 2003 on State Finance and Law No. 1 of 2004 on State
Treasury , has had to implement full accrual accounting basis no later than the
year 2008 .
