Explain the Concept of Business Entities in the Accounting Process

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Explain the concept of business entities in carrying out the accounting process

Rancakmedia.com – The following is an explanation of the concept of business entities that you should know. The principles and basic elements of accounting are the basis and basic framework for defining business operations, which culminate in the form of financial reports.

Application accountancy in supporting profit-oriented and non-profit companies cannot be separated from the basic understanding of accounting. When learning about expenses and business entities, how well do accounting concepts work?

If we incorrectly identify a business activity, then report finance, which is a summary of the activities that occur in a business, would be wrong.

Therefore, we know that future strategic analysis will also be flawed, resulting in losses and even business for the company.

This week we'll talk about expenses and business entities, two basic accounting concepts.

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Accounting Understanding of Cost Concepts

To better understand the concept of cost, consider the following example:

Cost Concept

Cost concept This will usually affect the company's profit and loss, because the size of the company's profit and loss is very dependent on the size of the costs incurred.

Simple accounting questions and answers include those listed below.
If a plot of land with a building standing on it is obtained for Rp. 250,000,000, then this amount must be documented in the land and building acquisition records.

A price of IDR 300,000,000 can be offered by the vendor. Buyers can bid on land and buildings first for Rp. 200,000,000.

And for Land and Building Tax (PBB) purposes, land and buildings can also be assessed at Rp. 225,000,000, and buyers can also get offers from other parties of Rp. 275,000,000,- after land and buildings are acquired.

Because they do not reflect the value of land and buildings as they would be traded from seller to buyer, the values above do not affect the bookkeeping.

The cost concept is the basis for calculating the exchange price of IDR 250,000,000 or the costs reported in the bookkeeping for purchasing land and buildings.

For example, an offer of Rp. 275,000,000 for the land and buildings that have been acquired shows that the buyer succeeded in securing the land and buildings at a low price, namely Rp. 250,000,000.

However, if IDR 275,000,000 is recorded in the books, income that has not occurred will be incorrectly recorded.

The buyer can recognize and record a profit of IDR 25,000,000 if, after purchasing the land and building, he accepts the offer and sells it to another party for IDR 275,000,000.

The purchaser expects the cost of purchasing the land and building to be IDR 175,000,000.

Relationship between the Cost Concept and Other Accounting Concepts

Using the cost concept combines two additional basic accounting concepts, namely:

  1. Objectivity
  2. There are several units of measurement.
  3. The concept of objectivity mandates that accounting records and reporting be based on objective data.

Every time a transaction occurs between a buyer and a seller, both are looking for the best deal. For accounting reasons, only the final agreed value can be considered objective.

When carrying amounts are frequently changed up and down depending on bids, valuations, and opinions, accounting reports may become unstable and unreliable.

The unit of measurement concept requires that economic data be recorded in currency units such as the Indonesian rupiah, United States dollar, and Malaysian ringgit.

Money is a unit of measurement that is often used for financial data reporting standards.

Examples of Cost Concept Questions and Answers

To test our knowledge again, take the example of service company accounting questions and answers:

Problems example:

Management Finance Network (PT MFN) submitted an offer on March 20 2021 to buy a property block in East Surabaya for IDR 225,000,000, which had previously been offered by the owner for IDR 250,000,000.

On April 10 2021, PT Management Finance Network and the land owner agreed on a price of IDR 235,000,000.

The land was assessed by the tax office on April 12 2021 at Rp. 100,000,000 for purposes of calculating Land and Building Tax (PBB).

Another company submitted a land offer to PT Management Finance Network on April 21 2021 for IDR 260,000,000.

How much land should be recorded in the PT Management Finance Network account on April 30 2021?

Question Answer:

On April 30 2021, PT Management Finance Network was listed at Rp. 235,000,000. The value of the land must be documented at exchange cost, as we understand the concept of cost.

How, easy right?

Understanding Accounting Regarding the Concept of Business Entities

The following is an explanation of the accounting concept of business entities, including:

Definition of Business Unit

Business units are business entities that require economic data. This might be the shop, me
chanic shop, car dealer, or manufacturing facility.

Accounting employees need to know which economic data to review, document, and summarize in reports so you can identify business entities.

The introduction of accounting to the Business Entity Concept is very important because this concept limits economic data in the accounting system to that which is directly related to business operations.

In other words, a business is considered a distinct entity from its owners, creditors, or other stakeholders.

For example, an accounting clerk or accountant for a company owned by one person (sole proprietorship) will only record business actions, not the personal activities, assets, or debts of the company owner.

Understanding Accounting About Types of Business Entities

Common types of business entities in Indonesia are companies:

  1. individual.
  2. Federation.
  3. Company.
  4. Cooperative.

How would you characterize the four different types of entities? Let us take turns taking turns.

Private Company

  1. Owned by one individual.
  2. The majority of entities in Indonesia and around the world are owned and operated by a single business.
  3. Low setup and management costs.
  4. The business owner's financial resources are an important consideration.
  5. Implemented by small businesses.

Guild Company

  1. Similar to sole proprietorship but held by two or more people.
  2. The firm and CV are a kind of partnership, as is known in Indonesia.
  3. Combining the skills and resources of more than one individual.

Corporate Company

  1. This is regulated through statutory regulations as a separate legal entity that is subject to tax.
  2. How many shares you own depends on how many are sold to investors.
  3. Issuing shares is a good way to raise a lot of money quickly.
    implemented by large-scale organizations.


When a group of individuals owns a business, you are known as the owner. Cooperatives are governed by and for members only. For example employee cooperatives, shoe and bag business cooperatives, fishermen cooperatives.

Understanding Accounting About Types of Business

What types of businesses can be managed by the four business entities above?

To start, let's take a look at the many types of companies that exist. Types of business can be divided into three broad categories as follows:

  1. Business and Service Industry
  2. Commercial Business and Trade
  3. Manufacturing companies and businesses

Commercial or Service Oriented Companies

Customer service oriented business.


  1. Bank Mandiri, Financial Services.
  2. Telkom, Telecommunications Services.
  3. Hotel Indonesia, Hospitality Services.
  4. PT Kereta Api, Transportation and Logistics Services.

Trading Business

Businesses that sell goods obtained from other parties to clients. Retailers are businesses that bring goods and consumers together under one roof.


  1. Selling consumer goods is Alfa Retailindo Tbk's core business.
  2. Toko Gunung Agung Tbk is a company that sells books and stationery.
  3. The business operating in the clothing sector is Matahari Putra Prima Tbk.

Business or Manufacturing Sector

A business or company that converts basic inputs into goods that are sold to individual clients.


  1. Kalbe Farma Tbk, a manufacturing business that produces medicines.
  2. Krakatau Steel is made by Krakatau Steel Tbk, a business that makes steel.
  3. Gudang Garam Tbk, a manufacturing business that makes cigarettes.
  4. Basically, four forms of business entities, namely individuals, partnerships, corporations and cooperatives, can carry out service, trading and manufacturing businesses.

However, not all types of businesses can manage these three types of entities. Consider a manufacturing business as an example. To run a business in the manufacturing sector, large amounts of cash are required, so most of these companies are limited liability companies.

Likewise, large shops are often operated by business entities in the form of limited liability companies (PT).


The following is a list of frequently asked questions and their associated answers:

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Mention what is included in a business entity?

Individual companies. This type is used on a small business scale on behalf of individuals.
partnership company. In this kind of company, ownership and management of the business are shared by two or more people.

  1. Company.
  2. Cooperative.

What does an entity include?

Individuals or natural persons are examples of entities that are not legal entities. Unbroken succession. To give an idea of what types of legal entities exist, here are some examples:

  1. PT (Limited Liability Company)
  2. CV (Committee Company)
  3. Firm.
  4. Foundation.
  5. Cooperative.


Knowledge and understanding of the concept of costs and business entities is very necessary so that company operations can be carried out well and effectively so that company goals can be achieved.

As was very clear in the previous discussion, we will limit our final statement to reiterating the need to learn the basics of any scientific discipline, including accounting.

That is the information about the concept of business entities in accounting, hopefully the article above can be useful and helpful for all of you.

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