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No. For not-for-profit organization, they get the surplus but nor profit. Surplus is an amount which revenue more than expenditure. Not-for-profit organization has a surplus to make them less stress and equips the organization to bear the activities to hit its target. The activities which the organization deal must relate with its mission, if not, the surplus which gain from that activities consider as unrelated business income. All the surplus must invested to the organization, cannot go in the pockets of board member or staff.
There are many ways that not-for-profit organization to acquire fund. The non-for-profit organization raises money through memberships fees. For example, a person who wants to join a club, he must paid an amount each year, so that, he can use all the facilities in that club. The memberships a fee is collect once a year. They collect this money to cover the expenditure of the organization. So, when the money which collect from the members more than the expenditure, it is a surplus, and the surplus will transfer to the accumulated fund account. In the other hand, the not-for-profit organization also gets the surplus from an activity. For example, a sport club held competition, it must collect the registration fee to bear the expenses of the competition. When there has a balance of money, it will be transfer to that year receipts and payment account and consider as the revenue of the year. This money is used to bear the expenditure of the club, such as printing and stationery, wages of assistance and so on.
The not-for-profit organization also funded from outsiders, such as the public, companies and other. Funded from outsiders is the main part that to maintain the organization. The money received from outsiders will record at the receipts account. Some of the organization not only received money, but also received thing which can donate to needy. Some of the not-for-profit organization gets help from government. That is government aid. General Hospital is one of the organization which fund from government. The General Hospital only collect a small amount money from patient who went for treat. The amount they collect is to cover some of theirs expenditure. They are not going to gain profit, but they are to help the needy. The not-for-profit organization is qualified as tax-exempt as the organization do not gain profit.
Definition of Conceptual Framework is a coherent system which is inter-related and fundamentals must lead to consistent standards purposely to make sure the nature, function and limits of financial accounting and financial statements. There are some reasons why conceptual Framework are provided. Conceptual framework is plan to act as a regulation for setting an accounting standards. Besides, it can also act as a foundation for accounting standards to lead in resolving accounting disputes. Conceptual framework is also a fundamental principles to make sure there is no any repeated in accounting statements. Conceptual Framework can create efficiencies and better communication. With Conceptual Framework, we can upgrade accounting standards to a higher level. We no need do everything from an origin when we want evaluate an new accounting issue.
Besides that, harmonization by providing a basis for selecting the most suitable accounting treatment permitted by the financial accounting standards are promoted by the conceptual framework. The conceptual framework is also one of the guide for companies' development of future financial accounting standards. The conceptual framework usually deals with events, conditions or transactions. Some circumstances, transactions, events or conditions in Financial accounting standards which is developed by Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) can help by the Conceptual Framework.
Furthermore, to make sure the contents in financial statements prepared is consistent with financial accounting standards, the users of financial reports in explaining the information contained by using the conceptual framework. The Conceptual Framework is not only function in our own country but also helps national standard setting bodies in developing national accounting standards.
Based on accounting standards. For the evolution of principles, the conceptual framework plays an important part. Management when preparing financial statements and other financial reports by using the Conceptual Framework as a guide of subjective judgement. The information in the work of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) can be provided by the Conceptual Framework.
The Conceptual Framework helps Accounting Standards setting are to analyze accounting issues, the conceptual framework is more prompt by offering a common set of terms and premises. Lack of a conceptual framework might spread of 'rules-based' accounting systems. The development of a conceptual framework can lead IASB and FASB to do things much more smoothly and perfectly.
'Bookkeeping' means recording of all the financial transactions that are taking place in a company. Bookkeeping is usually recorded by bookkeeper. Before evolution of bookkeeping, instead of using our modern day general ledger, tokens were used in 4000 B.C. . This is really made bookkeeper felt stress. Bookkeeping is recorded by writing and recording debit and credit entries into journal and so on. Some error would occur in bookkeeping progress and this is a common error. It was realistic because of the manual calculations. Once trial balance was not in balance, bookkeeper had to go back to check every parts see whether which part occur error. If the trial balance was corrected, bookkeeper would send to accountants to prepare adjusting entries followed by financial statements.
Well, Today, the job of bookkeeper is much more lighter and easier. As the time pass by, many companies started to change the position of bookkeeper because they think that a usual office boy can take over this job. The manual of journalizing and posting is replaced by computer software. Computer software helps to solve problems in accounting such as they can check the trial balance or which part error occur through account computer software. Besides that, individual customer's record can updated directly such as debts, cost of goods sold and so on. Debits and credits are equal in amount and miscalcute balance or clerical errors are getting lesser and lesser.
Single Entry is defined as an accounting ways in which transactions are recorded as a single entry. Single entry are usually no separate columns for debits and credits, full of positive and negative numbers and so on. Single entry accounting mostly used by small companies with simple financial statements. For single entry system, personal accounts are recorded maintain into a cash book and books generally. Companies seldom use single entry because there might be some transactions are not recorded and some others transactions only recorded partially. This may cause trial balance are not accurate at all. Moreover, accountants cannot prepare an accurate profit or loss to companies as an accurate financial report. Companies cannot determine their companies are gaining profit or suffering in loss. Single entry makes a lot of mistakes and the risk of fraud is more higher so this system can be determined as a not perfect system.
Today, most of the companies choose to use double entry system. Double entry system is much more better than single entry and totally different from single entry system. Double entry system is using two columns to record debits and credits. No more positive and negative numbers in the books as each transaction can record in two different places which is debit side and credit side so that you can make sure everything is recorded and balance. Double entry system records two fold aspects of every transactions and trial balance can be drawn up more accurately. Profit or loss can be prepare accurately due to a systematic method of recording. Companies can easily know whether their companies gain profit or suffer in loss so that they can set their goals for future. The risk of fraud and mistakes can be reduce through double entry system. For example, a labour had been signed to have a job in a construction site. The company will pay her after her performance. In double entry accounting, Account Receivable should record as a debit assigned and a credit to Revenue account with the same amount. This is the double entry system which is less mistakes in every transactions. Evolution of bookkeeping and the double entry has improved human beings and made things become much more easier.
There is one advantage for using accounting standard relate the remission of understanding the financial statement. FASB has been published the accounting standards for standing for some point of view that the necessary processes for the business to follow. The users of financial statement expect corporations to follow the accounting standards by the published while creating financial statement. The accounting standards were relied on the assumptions set forth into by these users when the results reported. Therefore, financial statements of different companies using the same assumptions were interpreted by the users. Once the users understand there assumptions so that they may use this knowledge when reading any financial statement.
Moreover, there is another advantage of using accounting standards following the guidance of providing to accountants. Then, when the financial reporting problems occur, the accountant may consult to the published accounting standard to define the event how to record. The issues include new accounting standards transactions come out from technology, for example: Internet sales or news operations set by the company, such as change in retirement pension. Therefore, the needs of financial statements users as well as company feedback were incorporated by the FASB when creating accounting standards. So that, this process let the accountants to trust that the guidance providing through the accounting standards passed the allow process of ensuring that everyone's needs when they meet it.
Therefore, another advantage of using accounting standards there is the corporations use the account standards to prepare their financial statement that can be compared to each other more correctly. Therefore, it also an important while comparing with other companies which located in different countries since they may otherwise on using the different rules and method for the statements. According to this increase in comparability, it might help investor determine and know themselves investment should go.
Of course, in the accounting standards also have the disadvantages of using it. In the accounting standards, it involves the inflexible framework, so the accountants must comply with, they cannot broke the accounting standards rules even there are inflexible. Then, every company faces different experience because the companies are different, so that the ways they solve are different too. Because of the companies have a different ways to solve, so they may have their own unique experience, so that the accountant have to make the company's unique experiences and then fit them into the guidelines of the published accounting standards.
Cost to comply
In addition, there is a disadvantage of using accounting standards when considers the cost for the company to comply with the standard. Furthermore, the company has to consider the requirements of the standard were required by the new accounting standards and what about the company must take to carry out the actions for the standard and what is the cost will be too. There are a lot of cases occur, so that the company have to design some new procedures and which is required to has a large financial investment that are including the employees labor and, system upgrades and employee trading and so on .
Not Globally Accepted
Another disadvantage there is the account standard has not yet adopted by some other countries to hold it as well. This factor makes the companies that do business are required to use financial IFRS and using another set by Generally Accepted Accounting Principle.
The historical cost is the consideration that given to acquire asset such as cash or its cash equivalent paid or received or the fair value. When the liability was incurred or cash or cash equivalent expected to be paid, it can be refer to the liability in historical cost.
There are some merit and shortcomings of the historical cost accounting concept. Firstly, the merit of historical cost accounting can be figure as historical cost is relevant for making economic decision. The evaluation and selection of decision rules are affected by the historical cost. It was presented by Ijiri (1975) about the reason why historical cost is relevant for decision making. Some important information is needed about the quality of the past decisions such s a forecast of future prices must be made, and past prices serve as basic. Historical cost is an important input for those question like how much has already been earned rather than how much more they could earn. It couldn't be denied that a context such as taxable income and cost-plus contracts is the fact that historical cost is employed and imposed by decision maker by his environment.
Secondly, historical cost is also less subject to manipulation. Actual, not merely, transactions are a historical cost based on and it's also the acquisition price of an assets. Accountants or managers are to be informed to record all the assets and liabilities at their acquisition price. By this way, the assets are measured and reported objectively and verifiable fundamentally. Therefore, the risk of manipulation of amounts by the manager can minimizes.
Thirdly, historical cost is functional as control purpose. In a general accounting, objective of accounting can't be destruct that it is seen as involving importantly in the management function. An n accounts is given to the equity holders by the manager. The income statement contributes the evidence to pin down how effectively management has done its obligation. For accountability, recording about the past transactions are necessary.
In other hand, there are some shortcomings of the historical cost accounting concept. First, historical cost is not related for the decision making. Historical cost is practicability and not enough for the interpretation of business decisions. The history of accounting disclose to the users about the primary role of accounting to meet the needs of accounting information. Besides the interesting in management function of the accounting information, as represented by the net assets of the company, users also interested in the increasing and decreasing of the value of their investment.
In addition, historical cost accounting is misleading in some information. The figures of conventional accounting were misguiding those investors and creditors to part with their money. The transaction-oriented by the accountants in checking documents for historic cost were more interesting than the current physical reality and valuation of the entity. Therefore, the application of the historical cost concept can be misleading, this give a meaning that the quality of justice cannot guarantee and honesty to the information it carries.