Introduction

Accounting is a process of recording and summarizing financial information and business-

related financial transactions. Accounting helps to provide useful information for decision-
making, improve the transparency of enterprises and standardize corporate behaviour.
Through its reflection function, it provides information about the financial status, operating
results and cash flow of the enterprise and the basis for decision-making in various aspects
including investors’ creditors. In addition, modern accounting has penetrated into the
enterprise, so it helps the enterprise to strengthen its operation and management, improve
economic efficiency and promote the sustainable development of the enterprise. Besides,
accounting also can help to assess the performance of corporate management’s economic
responsibility. The first step that we do in accounting is collecting source documents, then
recording in books of prime entry. Next, summarising from books of prime entry and
transferring to the ledgers. After that, communicate the accounting information to users and
prepare the financial statements. In this report, we are going to cover the importance of
accounting, the users of accounting information, accounting equation and source document.
Via this report, it can give us a better understanding of the basic knowledge of accounting.
For example, we can explain the meaning of assets, liabilities and equity and understand the
accounting equation. Besides, it can explain the meaning of profit, revenue and expenses and
understand the profit determination equation. Of course, this is not just an assignment,
actually it can be a reference to help us in the future.  

Importance of Accounting
Accounting is an important system for any company to run business activities. It is because
accounting helps a lot of businesses to collect the business data, sales or purchased records,
business reports, accounting analysis, accurate information about assets, debts such as
payables, liabilities and profit. It is because management cannot make decisions without
reasonable information and this information helps to let a management easily make the
business decision.

Accounting gives management information regarding the financial position of the company
when we start a business. It can let a company know where the business has enough money to
run the business or not. When a company does not have an accounting report, it may cause a
business face with unnecessary debts. Well the main object of accounting is to find out the
profit-loss and financial position of a business.

Accounting prevents the abuse of assets, production and profit, controls costs and helps to
increase the efficiency of the management. It also prevents a company from losing the data of
business such as invoice, cash bill, credit note, debit note and the others data so that
management can do the analysis as fast as soon by using the accounting report. Accounting is
a continuous system that shows the financial position of a business entity by identifying the
economic events.

Users of Accounting Information

There are two types of users of accounting information which are internal users and external
users. (Musbau Kolawole Kayode (author), 2015)

Internal users considered as primary users to the company. Internal users are responsible for
managing the day-to-day activities in the inside area of the organisation. 

The first internal user is the owner of an organisation. With the accounting information, the
owners can evaluate the performance of their business. Furthermore, they can decide whether
they need additional capital. Also, they can monitor their investment with the accounting
information. 

Next user is the manager. With the accounting information, they are able to perform their
task and make business decisions. For instance, managers make momentous decisions after
analysing the accounting data. Moreover, managers can get wise into a specified industry by
knowing its performance benchmark and comparing the current performance of the business
with its past performance.

The following internal users are employees. Employees are preparing and reviewing
numerous financial reports such as financial statements. (2017) They see the accounting
information to know about the financial position of the company. For instance, administrative
staff will make sure that the company has enough funds to pay them their salary every
month. 

External users are the people who are not part of the organisation’s managerial process. They
are in the outside area of the organisation but they receive interest in the account information
of the organisation.

Creditor is one of the most common external users, also known as finance providers or
lenders such as banks. The lenders will refer to the accounting information to know the
company’s financial situation before they lend out their money. Besides, they have to ensure
that the company has capability to repay the outstanding amount within the period given.

Subsequently, investors and shareholders are also external users. Investors are the capital
provider of a business. They will read the financial statements of the company to evaluate the
potentialities of the business. Accounting information also helps them to ensure their
investment is safe and the risk level is acceptable. 
Lastly, suppliers use it for assessing the repayment capability of their customers who
purchased goods on credit. Suppliers will analyse the accounting information of the buyer’s
company before getting into the trade. Suppliers have to make sure that the company has
sufficient cash in hand to pay the debts after the goods are delivered.
Accounting Equation

The accounting equation is a basic principle of accounting and proposed to be the foundation
of the double-entry accounting system. Accounting equation also states a company’s balance
sheet which the total of all the company’s assets equals the sum of the company’s liabilities
and equity. An accounting equation is remaining in balance of a company’s financial
statements. The balance sheet reflects this equation. When a company’s financial statements
show one side of the equation unequal to another, then the balance has been lost and an error
has been made.

As specified, accountants must keep the equation in balance. Therefore, they utilize a system
called a double-entry system to record every business transaction of both sides. Consequently,
every journal entry contains two parts either an equal impact increase or decrease to both
sides of the equation or it notes an equal and opposite impact to a single side.

For example, if your company received a loan of RM10,000, then your assets on one side of
the equation would increase by RM10,000 your liabilities on the other side of the equation.

Dr (RM) Kr (RM)

Bank 10000  

Loan 10000

Received loan RM10000

If you purchased sport equipment for RM2,000, then your cash assets on one side of the
equation would decrease by RM2,000 but your sport equipment assets on the same side would
equally increase keeping the balance.

  Dr (RM) Kr (RM)
 Sport Equipment 2000  

Cash 2000

Bought a sport equipment for RM2000

The last example is if you purchase a machine by cash, then your debit side assets would
increase by RM200. However, in credit side cash assets would decrease by RM200. In
conclusion, this system can let both sides be balanced.

  Dr (RM) Kr (RM)

Machine 200  

Cash 200

Purchase a machine by cash RM200

Revenue is income that a business earns from selling a product or service, or from interest and
dividends. Besides, profit is revenue minus expenses. Income accounts are temporary or
nominal accounts because their balance will reset to zero at every beginning of each new
accounting period, usually a year. Expenses incorporate a part of operating activity of a
company, and expenses would be recorded as an impact to retained earnings. Examples of
expenses are travel, utilities, rent, supplies, and entertainment. Like revenue accounts,
expense accounts are also temporary accounts that gather data for every accounting period
and reset to zero at every beginning of each new accounting period.

Meanwhile, profit is also the net amount after adding up all the revenue and minus all the
expenses. If expenses are more than revenue, then the business makes a loss. On the other
hand, if expenses less than revenue, then the business makes a profit.

Source Document

Source documents are valid written or printed letters to provide information about
transactions that occur. Source documents will be recorded in the accounting system for easy
access and archiving. In addition, source documents are often identified by a unique number
in order to distinguish it in the accounting system. Source document is very important in
accounting. When the auditor checks the company’s annual financial statements, it can ensure
the accuracy. Besides, source documents from accounting voucher and ledger to final
financial report can be used as evidence of the amount precisely recorded in subsequent
accounting periods.

1.MEMO

Memo is a transaction business document that arises between business owners and business.
It used to be informing businesses of a transaction that does not have a supporting document.
It can be used to avoid risk of malpractice. Therefore, only certain individuals can sign up for
a memo. Memo only in one copy. For example, when owners take merchandise or cash for
their own use, an advertiser or a donation, we must use a memo to record it. In addition, when
traders carry personal or cash assets into business also record in memo. “Kindly refer to
Appendix 1.”

2.INVOICE

Invoice is issued by business to purchasers for sale of merchandise in credit. It sends to the
consumers to notify the amount due, amount of discount given, whether cash term or credit
term and interest charges for late payment. There were two copies of the invoice when a
business transaction happened. Original copy invoice is sent to the buyer and other copy used
by the seller as reference. For example, when consumers buy something without paying for it,
consumers will receive an invoice. In addition, the seller will give the invoice when the
consumers do not make payment. “Kindly refer to Appendix 2.”

3.CHEQUE COUNTERFOIL

Cheque counterfoil is a confirmation of payment made by cheque. It used to record the

amount paid on a particular numbered cheque and a proof for consumers. When a cheque is
issued to a payment recipient, the cheque is kept by the merchant as proof that payment has
been made. For instance, when purchase of merchandise, pay the creditor, pay expenses, cash
transfer to the bank and cash withdrawn from the bank, we will receive a cheque counterfoil
as evidence. “Kindly refer to Appendix 3.”

4.OFFICIAL RECEIPT

Official receipt is a commercial legal document that is used for sale of goods and services
after the payment has been received. An official receipt is issued by the seller to the buyer to
act as the proof after the payment has been made. The details in the official receipt are
quantity, price, amount, total amount paid, taxes, discount, date of payment, receipt number
and the signature of the supplier. “Kindly refer to Appendix 4.”

5.DEBIT NOTE

Debit note is a document that is sent by a customer to a supplier while the customer returns
goods on credit to the supplier for certain reasons. Debit note is normally used in business to
business transactions. The supplier will send a credit note as an acknowledgement to the
customer. Example, when the goods received by the customer are damaged or defective, the
customer will issue a debit note to the seller. In addition, debit notes in the exchange of credit
notes. At the end, the total amount needed to be paid by the customer will be deducted as the
customer returns the goods to the supplier. Debit note represents the source document for the
purchase return journal. The journal entry for the customer is debit in purchases return
account and credit in trade payables account. “Kindly refer to Appendix 5.”

Conclusion
As a conclusion, the accounting skill help us in many ways and play an important role in our
daily life .We will become more brilliant of gaining the knowledge in accounting for our daily
expenses.We learn how to make our budget for the personal financial planning.For example,
we analyze ours income and expenses wisely due to the fewer resources in our earth.Besides,
the effects of macroeconomic make some uncertainty to us . We need to plan for our future
that required the accounting skills.

Financial accounting also vital for business company.Accountants help the company to look
over the performance , financial statement, and cash flow of the company.In order to improve
the company sales , the top management need to analyze the financial statement that provided
by accountant.Furthermore, stakeholders of the company are also need the financial
information for investment.

Lastly, primary accounting is a very valuable certificate. but also lifelong benefits. When we
learn accounting, our future jobs are not limited to a certain industry, but also can involve in
the financial industry. For example, insurance, banking, risk management, corporate finance
and etc.