Financial Accounting 1 1

FINANCIAL ACCOUNTING 1
Financial Accounting 1 2

Executive Summary
The report is about understanding the application and principles of financial accounting and
management. The report sheds light upon the definition of financial accounting and how it
has become an integral part of the daily course of business. Rimbayu Enterprise has been
selected for which the books of accounts have been prepared. It includes journal entries,
balancing off ledger accounts, drafting of trial balance, preparation of statement of profit and
loss and statement of financial conditions. The next part of the report consists of
understanding of few necessary terminology related to financial accounting it includes
bookkeeping, accounting cycle, importance of depreciation and provision for doubtful debt.
Financial Accounting 1 3

Table of Contents
Introduction ................................................................................................................................ 4

(a) Recording of journal in the Prime Book Entry for Rimbayu Enterprise .......................... 4

(b) Recording of ledger and balancing of ledger accounts..................................................... 9

(c ) Drafting of Trial Balance ............................................................................................... 18

(d) Preparation of Statement of Profit and Loss Statement and Statement of Financial
Position ................................................................................................................................. 19

(e) Define Bookkeeping and Accounting Cycle .................................................................. 21

(f) State who is the users interested in the financial situation of the company ................... 22

(g) Explain in brief the development and history of Accounting Standards of Malaysia with
examples ............................................................................................................................... 23

(h) State the importance of charging depreciation and provision for doubtful debts by the
business in making performance decision ............................................................................ 24

Conclusion ............................................................................................................................... 24

References ................................................................................................................................ 26
Financial Accounting 1 4

Introduction

Financial accounting is an advanced branch of accounting that comprises of procedure of

recording, summarizing and reporting of financial transactions and events of a company
based over the years. The objective of financial accounting is an exhibition of accurate
preparation and presentation of books of accounts of the company for a definite period of
time (Robson, Young & Power, 2017). This report is about understanding and explanation of
theoretical concepts of basis of accounting along with practical implementation of the
knowledge of accounting for preparation of accounting records.

(a) Recording of journal in the Prime Book Entry for Rimbayu Enterprise

Journal Entries

In the books of Rimbayu Enterprise

for the month of December 31 2018

L
Dat .F Dr. Amount Cr. Amount
e Particulars . (RM) (RM)

201
8

1-
Dec Cash Account Dr. 105000

To Capital Account 105000

(Being cash invested into business)

2-
Dec Bank Account Dr. 90000

To Cash Account 90000

Financial Accounting 1 5

(Being cash deposited into the bank)

3-
Dec Purchase Account Dr. 5500

To Cash Account 5500

(Being goods bought for cash)

4-
Dec Purchase Account Dr. 2400

To Kelly Account 800

To Smelly Account 930

To Jelly Account 160

To Bubbly Account 510

(Being goods bought on credit )

5-
Dec Brady Bhd Dr. 89

To Stationery Account 89

(Being stationery bought on credit)

6-
Dec Cramer Account Dr. 170

Bremer Account Dr. 240

Grammer Account Dr. 326

Financial Accounting 1 6

Tramer Account Dr. 204

To Sales Account 940

(Being goods sold on credit)

8-
Dec Rent Account Dr. 220

To Bank Account 220

(Being rent paid by cheque)

10-
Dec Fixtures and Fittings Account Dr. 610

To Clammy Bhd Account 610

(Being fixtures and fittings bought on

credit)

11-
Dec Salaries Account Dr. 790

To Cash Account 790

(Being salaries paid in cash)

14-
Dec Smelly Account Dr. 30

Jelly Account Dr. 42

To Purchase Return Account 72

(Being goods returned)

Financial Accounting 1 7

15-
Dec Van Account Dr. 6500

To Bank Account 6500

(Being van bought by cheque)

16-
Dec Bank Account Dr. 2000

To Barney Account 2000

(Being loan received by cheque)

18-
Dec Sales Return Account Dr. 25

To Cramer Account 5

To Grammer Account 20

(Being goods returned)

21-
Dec Cash Account Dr. 145

To Sales Account 145

(Being goods sold in cash)

24-
Dec Bremer Account Dr. 130

Tramer Account Dr. 410

Financial Accounting 1 8

Pramer Account Dr. 158

To Sales Account 698

(Being goods sold on credit)

26-
Dec Smelly Account Dr. 900

Jelly Account Dr. 118

To Bank Account 1018

(Being cheque paid by the business)

29-
Dec Bank Account Dr. 528

To Pramer Account 158

To Bremer Account 370

(Being cheque received)

30-
Dec Cash Account Dr. 500

To Barney Account 500

(Being loan received by cash)

30-
Dec Cash Account Dr. 500

To Tramer Account 500

Financial Accounting 1 9

(Being loan received by cash)

(b) Recording of ledger and balancing of ledger accounts

Ledger Accounts

In the books of Rimbayu Enterprise

for the month December 31 2018

Cash Account

Dr. Cr.

J Amou Amou J Amou Amou

Dat Particular . nt nt Dat . nt nt
e s F (RM) (RM) e Particulars F (RM) (RM)

1- 2-
Dec To Capital 10500 10500 Dec By Bank
-18 Account 0 0 -18 Account 90000 90000

21- 3- By
Dec Dec Purchase
-18 To Sales 145 145 -18 Account 5500 5500

30- 11-
Dec To Barney Dec By Salaries
-18 Account 500 500 -18 Account 790 790

30- 31-
Dec To Tramer Dec By Balance
-18 Account 500 500 -18 c/d 9855 9855
Financial Accounting 1 10

10614 10614 10614 10614

5 5 5 5

Bank Account
Dr. Cr.
Particular J. Amoun Amoun Particular J. Amoun Amoun
Date s F t (RM) t (RM) Date s F t (RM) t (RM)
2- 8-
Dec- To Cash Dec- By Bank
18 Account 90000 90000 18 Account 220 220
16- 15-
Dec- To Barney Dec- By Van
18 Account 2000 2000 18 Account 6500 6500
29- 26-
Dec- To Pramer Dec- By Smelly
18 Account 158 158 18 Account 900 900
29- 26-
Dec- To Bremer Dec- By Jelly
18 Account 370 370 18 Account 118 118
31- By
Dec- Balance
18 c/d 84790 84790
92528 92528 92528 92528

Purchase Account
Dr. Cr.
Particular J. Amount Amount Particul J. Amount Amount
Date s F (RM) (RM) Date ars F (RM) (RM)
3- 31- By
Dec- To Cash Dec- Balance
18 Account 5500 5500 18 c/d 7900 7900
4- To Kelly 800 800
Financial Accounting 1 11

Dec- Account
18
4-
Dec- To Smelly
18 Account 930 930
4-
Dec- To Jelly
18 Account 160 160
4-
Dec- To Bubbly
18 Account 510 510
7900 7900 7900 7900

Sales Account
Dr. Cr.
Particul J. Amount Amount J. Amount Amount
Date ars F (RM) (RM) Date Particulars F (RM) (RM)
31- To 6-
Dec- Balance Dec- By Cramer
18 c/d 1783 1783 18 Account 170 170
6-
Dec- By Bremer
18 Account 240 240
6- By
Dec- Grammer
18 Account 326 326
6-
Dec- By Tramer
18 Account 204 204
21-
Dec- By Cash
18 Account 145 145
24- By Bremer 130 130
Financial Accounting 1 12

Dec- Account
18
24-
Dec- By Tramer
18 Account 410 410
24-
Dec- By Pramer
18 Account 158 158
1783 1783 1783 1783

Purchase Return Account

Dr. Cr.
Particul J. Amount Amount Particular J. Amount Amount
Date ars F (RM) (RM) Date s F (RM) (RM)
31- To 14-
Dec- Balance Dec- By Smelly
18 c/d 72 72 18 Account 30 30
14-
Dec- By Jelly
18 Account 42 42
72 72 72 72

Sales Return Account

Dr. Cr.
J. Amount Amount Particul J. Amount Amount
Date Particulars F (RM) (RM) Date ars F (RM) (RM)
18- 31- By
Dec- To Cramer Dec- Balance
18 Account 5 5 18 c/d 25 25
18- To
Dec- Grammer
18 Account 20 20
25 25 25 25
Financial Accounting 1 13

Van Account
Dr. Cr.
Particula J. Amount Amount Particul J. Amount Amount
Date rs F (RM) (RM) Date ars F (RM) (RM)
15- 31- By
Dec- To Bank Dec- Balance
18 Account 6500 6500 18 c/d 6500 6500
6500 6500 6500 6500

Fixtures and Fittings Account

Dr. Cr.
Particu J. Amoun Amoun J. Amoun Amoun
Date lars F t (RM) t (RM) Date Particulars F t (RM) t (RM)
31- To 10-
Dec- Balance Dec- By Clammy
18 c/d 610 610 18 Bhd Account 610 610
610 610 610 610

Kelly Account
Dr. Cr.
Particul J. Amount Amount J. Amount Amount
Date ars F (RM) (RM) Date Particulars F (RM) (RM)
31- To 4-
Dec- Balance Dec- By Purchase
18 c/d 800 800 18 Account 800 800
800 800 800 800

Smelly Account
Dr. Cr.
J J
. Amoun Amoun Dat Particular . Amoun Amoun
Date Particulars F t (RM) t (RM) e s F t (RM) t (RM)
Financial Accounting 1 14

14- To Purchase 4- By
Dec- Return Dec- Purchase
18 Account 30 30 18 Account 930 930
26-
Dec- To Bank
18 Account 900 900
930 930 930 930

Jelly Account
Dr. Cr.
J J
. Amoun Amoun Dat Particular . Amoun Amoun
Date Particulars F t (RM) t (RM) e s F t (RM) t (RM)
14- To Purchase 4- By
Dec- Return Dec- Purchase
18 Account 42 42 18 Account 160 160
26-
Dec- To Bank
18 Account 118 118
160 160 160 160

Bubbly Account
Dr. Cr.
Particul J. Amount Amount J. Amount Amount
Date ars F (RM) (RM) Date Particulars F (RM) (RM)
31- To 4-
Dec- Balance Dec- By Purchase
18 c/d 510 510 18 Account 510 510
510 510 510 510

Brady Bhd Account

Dr. Cr.
Date Particulars J. Amount Amount Date Particul J. Amount Amount
Financial Accounting 1 15

F (RM) (RM) ars F (RM) (RM)

5- To 31- By
Dec- Stationery Dec- Balance
18 Account 89 89 18 c/d 89 89
89 89 89 89

Cramer Account
Dr. Cr.
Particula J. Amoun Amoun J. Amoun Amoun
Date rs F t (RM) t (RM) Date Particulars F t (RM) t (RM)
6- 18- By Sales
Dec- To Sales Dec- Return
18 Account 170 170 18 Account 5 5
31-
Dec- By Balance
18 c/d 165 165
170 170 170 170

Bremer Account
Dr. Cr.
Particula J. Amount Amount Particula J. Amount Amount
Date rs F (RM) (RM) Date rs F (RM) (RM)
6- 29-
Dec- To Sales Dec- By Bank
18 Account 240 240 18 Account 370 370
24-
Dec- To Sales
18 Account 130 130
370 370 370 370

Grammer Account
Dr. Cr.
Date Particula J. Amoun Amoun Date Particulars J. Amoun Amoun
Financial Accounting 1 16

rs F t (RM) t (RM) F t (RM) t (RM)

6- 18- By Sales
Dec- To Sales Dec- Return
18 Account 326 326 18 Account 20 20
31-
Dec- By Balance
18 c/d 306 306
326 326 326 326

Tramer Account
Dr. Cr.
Particula J. Amount Amount Particula J. Amount Amount
Date rs F (RM) (RM) Date rs F (RM) (RM)
6- 30-
Dec- To Sales Dec- By Cash
18 Account 204 204 18 Account 500 500
24- 31- By
Dec- To Sales Dec- Balance
18 Account 410 410 18 c/d 114 114
614 614 614

Pramer Account
Dr. Cr.
Particula J. Amount Amount Particula J. Amount Amount
Date rs F (RM) (RM) Date rs F (RM) (RM)
24- 29-
Dec- To Sales Dec- By Bank
18 Account 158 158 18 Account 158 158
158 158 158 158

Clammy Bhd Account

Dr. Cr.
Date Particulars J.F Amoun Amoun Date Particu J. Amoun Amoun
Financial Accounting 1 17

t (RM) t (RM) lars F t (RM) t (RM)

10- 31- By
Dec- To Fixtures and Dec- Balance
18 Fittings Account 610 610 18 c/d 610 610
610 610 610 610

Barney Account
Dr. Cr.
Particul J. Amount Amount Particula J. Amount Amount
Date ars F (RM) (RM) Date rs F (RM) (RM)
31- To 16-
Dec- Balance Dec- By Bank
18 c/d 2500 2500 18 Account 2000 2000
30-
Dec- By Cash
18 Account 500 500
2500 2500 2500 2500

Salaries Account
Dr. Cr.
Particula J. Amount Amount Particul J. Amount Amount
Date rs F (RM) (RM) Date ars F (RM) (RM)
11- 31- By
Dec- To Cash Dec- Balance
18 Account 790 790 18 c/d 790 790
790 790 790 790

Stationery Account
Dr. Cr.
Particul J. Amount Amount J. Amount Amount
Date ars F (RM) (RM) Date Particulars F (RM) (RM)
31- To 5- By Brady
Dec- Balance 89 89 Dec- Bhd Account 89 89
Financial Accounting 1 18

18 c/d 18
89 89 89 89

Rent Account
Dr. Cr.
Particula J. Amount Amount Particul J. Amount Amount
Date rs F (RM) (RM) Date ars F (RM) (RM)
8- 31- By
Dec- To Bank Dec- Balance
18 Account 220 220 18 c/d 220 220
220 220 220 220

(c ) Drafting of Trial Balance

Trial Balance

for the month 31 December 2018

Dr. Amount Cr. Amount

Particulars (RM) (RM)

Bank 84790

Barney 2500

Brady Bhd 89

Bubbly 510

Capital 105000

Cash 9855

Clammy Bhd 610

Financial Accounting 1 19

Cramer 165

Fixtures and
Fittings 610

Grammer 306

Kelly 800

Purchase 7900

Purchase Return 72

Rent 220

Salaries 790

Sales 1783

Sales Return 25

Stationery 89

Tramer 114

Van 6500

111364 111364

(d) Preparation of Statement of Profit and Loss Statement and Statement of Financial
Position

Rimbayu Enterprise
Financial Accounting 1 20

Statement of Profit and Loss

for the month ended 31 December 2018

Dr. Cr.

Amount Amount Amount Amount

Particulars (RM) (RM) Particulars (RM) (RM)

To Purchase 7900 By Sales 1783

Less: Return Less: Return

Outwards 72 7828 Inwards 25 1758

By Gross Loss
c/d 6070

7828 7828

To Gross Loss
b/d 6070 By Net Loss c/d 7169

To Stationery 89

To Rent 220

To Salaries 790

7169 7169

Rimbayu Enterprise

Statement of Financial Position

Financial Accounting 1 21

as on 31st December 2018

Amount Amount Amount

Liabilities (RM) (RM) Assets (RM)

Capital 105000 Bank 84790

Less: Net
Loss 7169 97831 Brady Bhd 89

Barney 2500 Cash 9855

Bubbly 510 Clammy Bhd 610

Kelly 800 Cramer 165

Fixtures and
Fittings 610

Grammer 306

Tramer 114

Van 6500

103039 103039

(e) Define Bookkeeping and Accounting Cycle

Bookkeeping is the act of recording a company’s financial transactions on a daily basis in the
books of accounts. The ct of bookkeeping helps the business in tracking down of all financial
events and transactions so as to ensure important decisions regarding operating activities,
investing and financial decision making. The maintenance of accuracy in bookkeeping
activities remains to be of vital importance, especially to the external users of accounting who
require access to reliable financial information about the company considering a better
Financial Accounting 1 22

investment opportunity and decision-making (Schaltegger & Burritt, 2017). The elimination
of the work of a bookkeeper in the company results in mismanagement of financial data and
information as well as unawareness of the management about the current financial position of
the business. The importance of bookkeeping can be measured in addressing reliability of
business performance. It is a means of paving the way for strategic decisions and standards
set out for estimation of revenue, income and profitability.
Accounting Cycle is an elaborate step followed up during an accounting period for the
purpose of preparation of financial statements. The accounting cycle begins with the
recording of bookkeeping activities designated for recording of financial business
information for the purpose of creating financial statements for the users of accounting. There
are in total 10 steps followed for accounting cycle for the preparation and presentation of
financial statements. As opined by Schroeder, Clark & Cathey (2019), accounting cycle is a
combination from the stage of financial data collection to the closing down of trial balance.
The accounting cycle is commences from the beginning of the financial year and ends when
the books of accounts are closed. The financial team of a business organization goes through
the entire process to ensure accuracy and true and fair view of the financial statements
prepared by them. These reports act as a supporting document to the management for
conducting meetings and decision-making.

(f) State who is the users interested in the financial situation of the company

Financial accounting system is based on the principles of double entry bookkeeping system.
It is used in classification, recording and generation of financial summary results for a
business. The main users of accounting information are distinguished between internal users
and external users. Different parties of the accounting use the accounting information in
catering to different services and depending upon their needs. The internal users of
accounting include management and owners whereas the external users are investors, lenders,
suppliers, government agencies, customers, employees and mass public (Brown & Jones,
2015). The management uses the information to accounting and finance in the evaluation and
analysis of overall financial position and quantitative performance of the company. The
management makes important decision-making process using the accounting information to
improve the overall business performance in up grading the profitability, turnover and flow of
cash into the business. Owners require accurate financial information to understand the how
the capital invested by them are being used by the business in running its operations.
Financial Accounting 1 23

The external users such as investor’s uses accounting information understand how their funds
are being used up by the management of the company in bringing in efficiency. Not the
current but also the potential investors use accounting information in determining the
expected performance of the business in the future course of time. Lenders require accounting
information to have a reasonable opinion about the assurance on the business to receive back
the principle and interest amount. Government authorities verify the accounting information
for the purpose of imposition of taxes, subsidies and regulations of the operations of the
business. Suppliers required business financial information to understand and verify the credit
worthiness of the entity in continuing the business relationship.

(g) Explain in brief the development and history of Accounting Standards of Malaysia
with examples

The Malaysian Association of Certified Public Accountants (MACPA) is the very first
accounting body that has been established in Malaysia in 1958. The organisation was formed
with an aim in developing the profession of accounting in the corporate level as well as to
educate the people in the country using appropriate accounting regulation, practices and
standards for Malaysian businesses. The economic system of Malaysia demanded for an
organisation that will help the country in the development of accounting standards. Therefore,
The Malaysian Accounting Standards Board (MASB) was thus established in Financial
Reporting Act 1997. As mentioned by Callen (2015), it is an independent body that is
entrusted with the job of development and issuance of accounting and financial reporting
standards of Malaysia. The objective of MASB is to contribute actively towards the
improvement of financial reporting standards of the companies based in Malaysia and have
international trading relationship. The MASB works in accordance of maintaining a parity of
maintaining parity with the international accounting standards such as IFRS.
In addition to MASB and MACPA, the Malaysian Institute of Accountants (MIA) was in-
charge of interpretation of accounting standards and policies to the financial accountants of
the country. Though most of the regulations are being framed by MICPA and MIA, the latter
has not been active in recent years in Malaysia with improvement and advancement of
accounting standards in the country. Therefore, MASB governs in the issuance and
implementation of accounting standards mandatorily to the companies in the country. It has
led to convergence of MIA and MICPA into one single organisation who are responsible for
making changes of accounting policies in the country for the companies in accordance to the
Financial Accounting 1 24

economic situation (Klychova, 2015). The development and maintenance of effective

accounting environment in the country is in the hands of MASB. Therefore, it frames out
standards that are required in smooth flow of operations for the business entities.

(h) State the importance of charging depreciation and provision for doubtful debts by
the business in making performance decision

Depreciation is an expense incurred by the business against the specific and prolonged use of
business assets by a company within an accounting period. Companies charge depreciation to
report the current market value of the assets that has been used by the business to its
stakeholders. Depreciation eliminates the historical value of assets and represents them at
present valuation. The information about the amount of depreciation are reviewed by
stakeholders in estimating the expected time period that is required for replacement of assets
that needs to be purchased or leased by the company (Stockenstrand & Nilsson, 2017). When
the value of accumulated depreciation is almost the same as the historical cost of the assets, it
serves as an indication for the replacement of assets to be purchased by the business.
Similarly, gaining the benefits of tax is also an important reason for companies to charge
depreciation and thereby makes decisions based on the performance of the assets.
The provision of doubtful debts is charged against the bad debt expenses which are recorded
in the accounting books prior to knowing the amount of good debtors and bad debtors. It is
not possible for the company know that against which credit sales the customers will not turn
up to pay. However, it makes estimation that few of its customers may not pay an amount
against the credit sales. Therefore, the company makes a provision chargeable against its
profits to safeguard itself from the probable losses that the company may suffer from its
businesses. The provision made against the bad debt expense is an amount to be reported and
recorded as operating expenses for the business in the income statement of the company. The
percentage so determined by the management for provision helps in making an estimation of
the total bad debt expenses in reflecting the true and fair view of the books of accounts and
debtors balance at the end of the year.

Conclusion

It can be concluded that accounting itself has become an integral part of all sorts of business
in today’s time. However, financial accounting has reached a new benchmark of assisting the
business in the form of communicating information externally to the users of accounting. The
Financial Accounting 1 25

financial reports that are generated from the information collected about the various activities
of the company serves as evidence to understand and overview the overall financial health of
the business as well as the well-being of the company to the external users of accounting. The
usefulness of financial accounting information are as follows; it estimates the quantitative
outcome of business operations, determining the financial position of the company for a
definite period of time in comparison to industry standards and competitors and making
management decisions.
Financial Accounting 1 26

References

Brown, R., & Jones, M. (2015). Mapping and exploring the topography of contemporary
financial accounting research. The British Accounting Review, 47(3), 237-261.[online]
https://www.semanticscholar.org/paper/Mapping-and-exploring-the-topography-of-
financial-Brown-Jones/ab52a3c5dda877a3007df6852a3ad6c461779acf
Callen, J. L. (2015). A selective critical review of financial accounting research. Critical
Perspectives on Accounting, 26, 157-167.
https://fardapaper.ir/mohavaha/uploads/2018/12/Fardapaper-A-selective-critical-
review-of-financial-accounting-research.pdf
Klychova, G. S., Fakhretdinova, E. N., Klychova, A. S., & Antonova, N. V. (2015).
Development of accounting and financial reporting for small and medium-sized
businesses in accordance with international financial reporting standards. Asian Social
Science, 11(11), 318.
https://pdfs.semanticscholar.org/5f0a/101dcacff511855ce86551d9d95dd46cf0e0.pdf
Robson, K., Young, J., & Power, M. (2017). Themed section on financial accounting as
social and organizational practice: exploring the work of financial reporting.
Accounting, Organizations and Society, 56, 35-37.
http://eprints.lse.ac.uk/69822/1/Power_Themed%20section.pdf
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues,
concepts and practice. Routledge. https://www.mytrustworth.com/wp-
content/uploads/2019/08/Contemporary-Environmental-Accounting-Issues-Concepts-
And-Practice_Stefan-Schaltegger-Roger-Burritt-www.mytrustworth.com_.pdf
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
https://books.google.com/books?hl=en&lr=&id=oVKsDwAAQBAJ&oi=fnd&pg=PA
1&dq=financial+accounting&ots=1WWinv-
14O&sig=90R4DvbuoVp1O8A02ESPUoBFWTM
Stockenstrand, A. K., & Nilsson, F. (Eds.). (2017). Bank Regulation: Effects on Strategy,
Financial Accounting and Management Control. Taylor & Francis.
http://dlib.scu.ac.ir/bitstream/Hannan/36072/2/9781138680500.pdf