1) Pre-Intro:

In this 21th century we live in right now, we are evolving into the technological world where
accounting has become the number one growing profession. Based from the basic that are show below
from the introduction till the reference, my team and I have simplified the summary about the
accounting. The main purpose of accounting is to give or provide information (financially) that is
needed for the sound economic decision making. As accountants, its important to follow each and
every procedure including the formulas and laws of accounting to provide sufficient and proper
information to people who requests for it.
<http://www.quickmba.com/accounting/fin/>
2) Introduction:
For those who are new to accounting, accounting was first found or said to be created by the famous
Italian Luca Pacioli. Known as The Father of Bookkeeping and Accounting and was further
thought, advanced illustrated by Leonardo Da Vinci cited from Wikipedia. As it is for today, in the
21th century, accounting is needed to provide users; financial information for making any decision.
Gilbertson, Lehman, Gentine, (2006, p. intro). Generally, accounting is the recording of financial
transactions plus storing, presenting the information in various reports and analyses, summarizing,
sorting and retrieving.
<http://en.wikipedia.org/wiki/History_of_accounting>
<http://www.accountingcoach.com/blog/what-is-accounting>
3) Content
3.1 Accounting Equation
The accounting equation must always be in balance whereby the total amount on the left side must
always be equal to the total amount on the right side. Gilbertson, Lehman, Gentine, (2006, p. 13). As
for the basic of accounting or to those who are new to accounting, the first and most important general
formula is Asset = Liabilities + Owners Equity. When further expending the equation it is,
Asset = Liabilities + Owners Equity Owners Drawing + Revenue Expenses. Explaining the
equation where, Assets are resources a business own, Liabilities are claims against the asset that is;
existing debts and obligation, and the ownership claims on the total assets are owners equity known
as the capital. Drawing are withdrawal made by owner for personal use, expenses are resources that
have been consumed in running the business and revenue is the income received by the business from
doing the business activities. Jerry, Paul, Donald, (2010, p. 12). Refer to the table,
Accounting Equation
Basic Equation
Expended Equation

Explanation
Asset = Liabilities + Owners Equity/ Stockholders
Asset = Liabilities + Owners Equity Drawings + Revenue
- Expenses

Based from the table, Assets and Liabilities can further be broken down into two categories Current
and Non-Current. Non-Current Assets are, assets acquired for continuous use more than a year e.g.
(motor vehicles and fixtures and fittings) while Current Assets are for short term used within a year
e.g.(Deposits and trade receivables). Meanwhile, Non-Current Liabilities are amount payable for
more than a year e.g. (bank loan and mortgage loan) while Current Liabilities are amount payables
within a year e.g. (Payables and bank overdrafts)

Asset

Liabilities

Current Liabilities
Non-CurrentCurrent Asset Non-Current Liabilities
Asset

3.2 Profit Determinations

Profit determinations, known as the accounting income (profit). Every business has its profits and
losses. How to determine ones profit from the business? Well, profit is determined when the total
expenses that were made for the business over a period of time is subtracted from the revenue that
was earned from the business. Generally, it is Profit = Revenue Earned Expenses Incurred.
Revenues are the amount or value of cash earned by the company or an individual gained from
running the business either from selling goods or the products and services. Types of revenues are
sales revenue, commission revenue, rent revenue and discount received. Expenses refer to the using
up of asset in earning revenues or the amount that has been spent on buying goods or services for the
business use. Andrew, Wong, (2005, p. 10) Types of expenses are wage expenses, salaries expenses,
discount allowed and etcetera
When expended and added
together with the general
formula,
asset + expenses = liabilities +

Profit = Revenue - Expenses

Asset + Expenses = Liabilities + Owners Equity +

Revenue

3.3 Accounting Cycle

Stage 1: The Source Documents else better known as identifying
and analyzing business transactions. The very first step is to include
the preparation of all the business documents (source documents).
A business document serves as basis for recording a transaction.
Then, identify the transaction through an original business
document which provides date, amount, description account, name
and address of other party. The transaction is analyzed to determine
which account are effected, how increase or decrease and how
much.

The accounting process

known as the accounting
cycle in other words. It is the
circular procedures in where
involving the collection,
processing, and
communication of financial
information. As what we have
learned and seen earlier,
accounting involves
summarizing, interpreting,
classifying, recording and
stating financial information.
As shown from the picture
above, there are 7 stages in
accounting cycle

Stage 2: The journal is known as book of original entry and is the

first place that the transaction is listed. The second step is making
the journal entries. The transaction in the journal is recorded as
both a debit and a credit. Enter the journal entries in chronological order and the debits are entered
before credits.
Stage 3: Ledger is a book of all the account that a company has. The third step in the accounting cycle
is post to ledger that transfers information to the ledger from the journal. The ledger is kept by
account and the account may be in the T-account form. After that, the balances of the account are
extracted in the ledger.
Stage 4: In the fourth step, an pre-adjusted trial balance is prepared from balances in the ledger preadjusted trial balance is the trial balance that is prepared before making an adjusted journal entries. All
the information comes currently from the ledger. In a trial balance, the total sum of debit balance must
be equal to the total sum of credit balance.
Stage 5: The fifth step is preparing an adjusted journal entry. Adjusted entries are the journal entries
that convert a businesss accounting records to the accrual basis of accounting. An adjusted entry is
recorded in the journal and then posted to the ledger by transfer from the journal. Then, the balances
of accounting is extracted in the ledger, this is similar to stage 3 above.
Stage 6: An adjusted trial balance will prepared after an adjusted entries is posted to the ledger.
Adjusted trial balance is a content of all balance in the account after the adjustment have been
completed. Same with the stage 4, transfer the balance of all account to trial balance, next make sure
the total debit balance and credit balance is equal. Then a financial statement is prepared by using the
information in the adjusted trial balance. The finance statement that including profit statement and
statement of financial position is prepared by using the correct balance of the trial balance.

Stage 7: Closing the General Ledger is the final step of the accounting cycle. Transferring the total
balance to the Statement of Profit or Loss (SPL) at the end of all the expenses and income accounts in
the General Ledger. Then, carried down (c/d) all the equity, liabilities and assets accounts in the
General Ledger at the end of the accounting period. Before close the capital account, the drawings
account and net profit must transferred to the capital accounting from the Statement of Profit or Loss.
<http://study.com/academy/lesson/accounting-cycle-definition-steps-process.html>
<http://www.dummies.com/how-to/content/the-eight-steps-of-the-accounting-cycle.html>
<http://www.myaccountingcourse.com/accounting-cycle/>
<http://www.college-cram.com/study/accounting/accounting-cycle/accounting-cycle-overview/>
3.4 User of Accounting Information
1)Management of the company
They provide a management accounting reports to know the exact budgeted amount thats needed the
expenses and revenue of a plan.
2)Prospective Partner
When the ownership wants to be shared with someone, partners would be formed and they will need
to know the financial status of the company before becoming partners.
3)Bank
The bank would determine the companys ability to repay the amount of the loan and interest.
4)Government Agencies
To calculate the taxes for example IRS, Securities and Exchange Commission (SEC), Interstate
Commerce Commission (ICC) and Federal Trade Commission (FTC).
5)Stockbroker and Financial Analyst
They use financial report to advise their client on investment decision.
(Norton, Porter, 20111, p. 12)
3.5 Types of business
There are four type of businesses that are operated for profit example, Manufacturing, wholesale,
retail and service. The unique characteristics of each type of business are explained in Table 5 the next
page: Alan, Frank (2005, p. 7)

Table 5: Types of Businesses

Manufacturing businesses is any business use raw materials to make a finished good .These
Finished goods will be sold to customers at margin. Below are some of the example:
Manufacturing Business
Product
-Ford
-Automobile, Trucks, Buses, Tractors
-Samsung
-Television, Mobile Phone,
Wholesale business is the business of selling goods to retailer s in large quantities at low
prices
Wholesale business
-Kenanga Wholesale City

Product
-Handbags, Fashion accessories, Shoes

-Yong Ziu Wholesale

-Toys, Stationery, Hardware
Retail business is the process of selling goods direct to the public, normally in small
quantities through multiple channels.
Retail business
-H&M

Product
-Ladies fashion, Mens fashion, Kids wear

-Starbuck Coffee Company

-Drinks, Food
Service business is provided in a planned and organized way by government or an official
body which is something that public needs.
Service Business
-Prudential Assurance Malaysia

-Insurance

Berhad

-Sound system, Stage lighting

-Communications Facilities

-Lodging

Product

Company
-The Royale Chulan
3.6 Financial Statements
Financial Statement is a formal record of the financial status of a company. The purpose of doing
financial statement is to present information about the financial position and performance clearly of
an enterprise. Financial statement included income statement, balance sheet, statement of cash flow,
statement of owners equity.
Income Statement
The income statement shows revenues, expenses, profit and losses of the enterprise. Revenue is the
money earned of the business. Revenue is an increase in assets of a business and decrease in the
liabilities of ones business. When an enterprise sells products or provide service to customers, this
will produce income to the business.

Income = Revenue Expenses

Profits of a business are the amount remaining after deducting the expenses from the business. These
retaining profits will be kept as business assets to support further growth of the business in the future.

Other than that, when excess of expenses spend over revenues will cause a loss to the business.
Balance Sheet
A balance sheet records on a companys assets, liabilities and the equity of the business owner.
Assets = equity + liabilities
Liabilities of the business show the owner owing something to the payable. Two types of liabilities
included current liabilities and non-current liabilities. Liabilities can be settled down through transfer
money, goods and services. Equity refers to the total cash that contain in the business. Equity is also
known as the capital or initial injection of cash to start a business from the owner or the stakeholders.
Cash Flow Statement
A statement of cash flow records the cash flows activities of the business. The statement of cash flow
contains operating activities, investing activities and financing activities. Operating activities is the
cash flow of primary activities of the company relation to the business operations. Investing activities
is the money that spends on capital investments. Financing activities shows the inflow and outflow of
the cash of the business which is related to the financial activities of the enterprise.
Statement of Owners Equity
The statement of owners equity record the change in the equity between owner and the partner. These
changes include capital, drawings and profit of the business.
Ending Equity = Beginning Equity + Investment Withdrawals + Income
Stockholders equity remains unchanged although the stock price changes.
<http://accounting-simplified.com/financial/statements/types.html>
<http://www.quickmba.com/accounting/fin/statements/>
<http://smallbusiness.chron.com/basic-features-four-financial-statements-interrelationships24250.html>
<http://artsandcrafts.about.com/od/accountingandpricing/tp/finstmt.htm>
<https://en.wikipedia.org/wiki/Financial_statement>
Conclusion
Coming to the conclusion, my team and I had learned the very basic and its importance of
accounting. As accounting students, this is the stepping stone to further more into accounting and
going even further to ACCA or CIMA. A special gratitude to all my friends and tutor that helped me
in this assignment that was given. We had learned a lot from this assignment, gaining lots of
teamwork and time to get to know each other better in this learning process.