ACCOUNTING AND ITS ENVIRONTMENT

Accounting is the system that measures business activities, processes that

information into reports, and communicates these findings to decision-makers.
The output of accounting process is in the form of financial statements. Financial
statements are documents that report on an individual’s or organization’s
business in monetary terms. The accounting process relies on bookkeeping in the
form of double entry system.

There are five elements of financial statements:

1. Assets
2. Liabilities
3. Equity
4. Income
Expenses

Kind of accounting:
1. Financial Accounting
2. Auditing
3. Management Accounting
4. Tax accounting
5. Cost accounting
6. Accounting system

Accounting objectives in general:

1. Provide information about finance, both assets and company liabilities
2. Providing information about changes to various economic resources (net) of
the company.
3. Provide company financial information that can assist in making estimates of
the company's potential profits.
4. Provide information about changes in various economic sources of the
company, both assets, debt and capital.
5. Provide other information related to financial statements to help users of the
report.

The function of accounting:

1. Recording Report
Recording report or recording transaction records systematically and
chronologically is the main function of accounting. The record of this
transaction record is then sent to the Account Ledger until it finally prepares
the final account to find out the profit and loss of the business at the end of the
accounting period.
2. Protecting Property and Assets
 The next accounting function is to calculate the actual amount of
Depreciation of Assets using the right method and apply to certain assets.
3. Communicate Results
The next accounting function is to communicate the results and
transactions that are recorded to all parties interested in a particular business.
For example investors, creditors, employees, government offices, researchers,
and other agencies.
4. Legal Meeting
The accounting function is also related to system design and development.
For example, a system to ensure records and reporting of results always meets
legal requirements. This system will be needed to activate ownership or
authority to submit various statements, such as Tax-Sales Returns, Tax
Returns, and so on.
5. Classify
Furthermore, the accounting function that is not less important is the
classification related to the systematic analysis of all recorded data. With the
classification, it will facilitate the grouping of types of transactions or entries.
This classification activity is carried out in a book called "Ledger".
6. Make a Summary
This summarizing activity involves presenting confidential data with
delivery that is understandable and useful for internal and external end users
of the accounting report.
This activity leads to the preparation of the report:
 Trial balance
 Income statement
 Balance Sheet
7. Analysis and Interpreting
The last accounting function is to analyze and interpret financial data.
Financial data that has gone through the analysis process is then interpreted
in a way that is easy to understand so that it can assist in making judgments
about the financial condition and profitability of the business operations.

Accounting can be defined generally as “the process of identifying and

measuring. The provision of information about the reporting entity’s financial
performance and financial position that is useful to a wide range of users for
assessing the stewardship of the management and for making economic
decisions. Accounting can be distinguished into two basic functions:
1. Financial Accounting
Provides information to people outside the firm.
2. Management Accounting
On the other hand, generates confidential information for internal
decision makers, such as top executives, department heads etc.
 Accounting is also shaped by the environment in which it operates. Since
this differs from country to country (due to legal, economic, political, cultural etc.
differences) very diverse national financial accounting systems have developed.
Their national standards usually comply with the standards issued by the
International Accounting Standards Committee (IASC). IASC consists of
representatives from accounting bodies from all over the world. Before 2001, the
standards issued by IASC were called International Accounting Standards (IASs).
Now these standards are known as International Financial Reporting Standards
(IFRS). In addition, International Accounting Standards Board (IASB) is solely
responsible for developing and issuing new international standards.

ACCOUNTING OBJECTIVES: AN ISLAMIC PERSPECTIVE

Objectives of accounting for Islamic financial institutions according to AAOIFI:
1. Determine rights and obligations of interested parties to ensure fairness and
justice to all contractual parties.
2. Safeguard entity assets and rights of others to ensure proper accounting
recognition (recording) and valuation of the assets to all contractual parties.

AAOIFI in its Statement of Accounting Objectives delineated two approaches

establish the objectives of financial accounting for Islamic financial institutions:
1. Establishing objectives based on the principles of Islam and its teachings, and
then consider these established objectives in relation to contemporary
accounting thought.
2. We can start with objectives established in contemporary accounting thought,
test them against the Shari’ah, accept those consistent with the Shari’ah and
reject those that are not.

If shariah accounting is considered as part of worship, then there are

three dimensions that must be achieved in the purpose of worship, namely
seeking the pleasure of Allah SWT, fulfilling obligations to society, and
simultaneously fulfilling individual rights. So that in its implementation there are
three underlying principles to reach the goal of worship, namely:
1. Principles of Accountability
The principle of accountability is a familiar concept among Muslim
communities. Accountability is directly related to the mandate concept.
Where the implication in business and accounting is that individuals who are
involved in business practices must always do what is mandated and done to
the parties concerned. The responsibility is manifested in the form of
financial statements.
2. Principles of Justice
This principle of justice is not only a very important value in the ethics of
social and business life, but also a value inherently inherent in human nature.
In the context of fairness accounting contains a fundamental understanding
and still rests on ethical / sharia and moral values, simply in fair accounting
is recording correctly every transaction made by the company.
3. The Truth Principle
This principle of truth cannot be separated from the principle of justice.
This truth will be able to create justice in recognizing, measuring, and
reporting economic transactions.