week introduction to accounting

8/3/2019 Week Introduction to Accounting

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LU 1: Introduction to Acconting

Prepared by: Sharifah SabrinaWeek 1

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Learning Objectives:

After studying this chapter, you should be ableto:

Define What is Accounting and Users ofAccounting

Describe Types and Form of Business Describe the Accounting Cycle/ Process

Identify Accounting Principles and Ethical Rules

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Definition of accounting and book-keeping

Accounting is the process of recording andinterpreting financial information pertaining toan organisation.

Book-keeping is a process of recording datarelating to accounting transactions in theaccounting books.

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5 Main branches of Accounting

Accounting

FinancialManagement

ManagementAccounting

TaxationAudit

FinancialAccounting

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Users of Accounting Information Many different people need accounting

information on which to base decision.

Investors, employees, managers, suppliers,financiers, customers, bankers, governmentsectors, etc.

Managers planning, control & running of thebusiness.

Directors and owners how effective the

managers are and to make judgments aboutrisks and return in future.

Employees stability & prospects of their jobs

Identify Internal users and external users. 5EBF 1013SSSA


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Prentice Hall, Inc. 2000 6

Questions Asked by Internal

UsersIs cash sufficient to pay bills?

What is the cost of manufacturing

each unit of product?Can we afford to give employee pay

raises this year?

What product line is most profitable?


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Prentice Hall, Inc. 2000 7

Is the company earning satisfactory

income?

How does the company compare insize and profitability with competitors?

Will the company be able to pay its debts

when they become due?

Questions Asked by External

Users


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Purpose of a Business

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Objective of Business

Everyone involved in business needs a goodunderstanding of accounting, including wherethe numbers come from, what the numbersmea Everyone involved in business needs a

good understanding of accounting, including,what the numbers mean, what accountingreports can be used for. n, what

involved in business needs a goodunderstanding of accounting, including

where the numbers come from, what thenumbers mean, what accounting reports can

be used for.

The objective of most businesses is to earn a profit.Profit is the difference between the amounts receivedfrom customers for goods or services provided and theamounts paid for the inputs used to provide thosegoods or services.

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Financing

Activities in Organizations

Operating

Investing

Operating activitiesAimed at selling products and

services

Result in sales and expenses

Exh.1.5

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Types of Business

Service Businesses provide service rather thanproduct to customers. Example?

Merchandising business sell products theypurchase from other businesses to customers

Examples?

Manufacturing Business change basic inputsinto products that are sold to customers

Examples?

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Form of business

Sole proprietorship is a one-man business, ownedand managed by one person.

Partnership is a business formed by two people but

having not more than 20 partners. Professionalpartnership can have a maximum of 50 members.

A company is an enterprise formed by two or morepersons with a maximum of 50 people for a privatelimited company and no maximum limit for a publiclimited company.

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The Accounting Cycle

Transactionsor events Documents

JournalizeTransaction

Post entries tothe accountsin the general

ledger.

Prepare a trialbalance.

Prepare financialstatements.

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1.An event is a happening of consequence.

2.A transaction is an external event.

3.Documents Receipt, Invoice, Cheques, Purchase order

4.The journal is the book of original entry. .Posting is the

process of transferring information from the journal to theledger.

5. A ledger is a book of accounts

a.The general ledger contains all of the accounts

b.A subsidiary ledger provides detail about one specificgeneral ledger account.

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6.The trial balance is a list of all open accounts inthe ledger and their balances.

a.If the trial balance is prepared immediatelyafter the adjusting entries have been made, it is

called an adjusted trial balance.

b.If the trial balance is prepared immediatelyafter the closing entries have been posted, it iscalled a post-closing trial balance.

7.Adjusting entries are made at the end of anaccounting period to bring all accounts up todate on an accrual basis.

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8 .Financial statements reflect the collection, tabulation, and

final summarization of the accounting data. There are 4financial statements

a.The balance sheet which shows the financial conditionof the enterprise at the end of a period

b.The income statement which measure the results ofoperations for the period

c.The statement of cash flows which reports the cashprovided and used by operating, investing, and financingactivities during the period AND

d.The statement of retained earnings, which reconcilesthe balance of the retained earnings account from thebeginning to the end of the period.

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9. Closing is the formal process by which allnominal accounts are reduced to zero and thenet income or net loss is determined andtransferred to owner's equity.

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Accounting standards

At one time, there used to be quite wide differences inthe ways that accountant calculated profits.

In the late 1960s, a number of cases led to widespreadoutcry against this lack of uniformity in accounting

practice. In response, the accounting bodies formed theAccounting Standards Committee.

Accounting Standards are drafted to ensure that thereis no conflict between the law and accountingstandards.

Starting 1/1/2006 public listed companies in Malaysiawere required to adopt all the Financial ReportingStandards issued by Malaysian Accounting StandardBoard.

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Accounting principles andconventions

Revenue recognition: Revenue must be recordedwhen the four criteriahas been satisfied :

1) Persuasive sales arrangement exists2) Delivery has/will eventually occur or services

already rendered3) The sellers price to the buyer is fixed or

determinable; and4) Collectability is reasonably assured

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Accounting principles andconventions

Accounting entity: each business is a separateentity from its owner.

Going concern: the business entity will continue to

operate indefinitely.

Money measurement: money is used as the basicmeasuring unit for financial reporting.

Historical cost: all transactions of a business entityare recorded at the original cost to the enterprise.

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Accounting principles and conventions

Accounting period: the life of a business is dividedinto specified periods of time for the purpose ofpreparing financial reports.

Objectivity: there must always be objective

verifiable evidence for reporting any accountinginformation.

Consistency: the same accounting method shouldbe applied in each accounting period whenpreparing financial reports.

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Accounting principles and conventions

Prudence: Accounting concept that requiresrecording (recognizing) the expenses andliabilitiesas soon as possible, but the revenuesonly when they are realized or assured. It

implies that only that method of determiningasset value or net income which yields thelesser amount should be used.

Accrual concept: revenue is recognised when it isearned and expenses when they are incurred.

Matching principle: revenue earned during anaccounting period has to be matched with theexpenses associated with earning that revenue.

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Grading

Grades are what you make of them. Not whatthey make of you, unless YOU made it thatway!


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REFERENCE (Main)

Wan Ibrahim, W., Bijoy, K., Kasim, K. (2008).Fundamentals of Business Accounting, OxfordUniversity Press

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