Public Sector Accounting ( Task 3 )

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 .