ACCOUNTING GROUP PROJECT 1

ACC406
INTERMEDIATE TO FINANCIAL ACCOUNTING AND REPORTING

PREPARED BY:

FACULTY & PROGRAMME : BACHELOR OF SCIENCE ADMINISTRATION (AM228)

SEMESTER : MARCH – JULY 2020

GROUP MEMBERS :

MOHAMAD RAZLAN ARIF BIN AB RAHMAN (2020984499)

MUHAMMAD SYUKRI BIN FADZULLAH (2020984489)

MUAZZAM SHAH BIN MOHMAD SHAH (2020968049)

AIN KHALILAH BINTI AHMADI (2020984477)

GROUP : N4AM2281A

PREPARED FOR:
PUAN HAJAH SAFLINA BINTI HAJI AZIS
 Table of Contents

Acknowledgment 2
Introduction 3
1.0 Business Background 4
2.0 Characteristic of the Business 5
3.0 Classification of Business Items 6
4.0 Recording Process of the Business 9
5.0 The Advantages & Disadvantages of Accounting Recording Process
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6.0 Reference 15

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Acknowledgment

In the name of Allah, the Most Gracious and the Most Merciful.

All praises to Allah and His blessing for the completion of this group assignment. We
thank you for all the opportunities, trials and strength that has been showered on us to
complete our assignment within the given time by our lecturer Madam Hajah Saflina.

First and foremost, we would like to take this opportunity to thank our lecturer of
Intermediate Financial Accounting and Reporting, Madam Hajah Saflina for her guidance
and understanding in completing this group assignment and also teach us in this course.

This assignment couldn’t be completed without the effort and co-operation of our group
members, Ain, Azzam, Syukri, and Razlan.

Last but not least, we also would like to thank our beloved family and friends who
were, directly and indirectly, guided us in the writing this assignment for their continuous
encouragement are greatly appreciated.

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Introduction

This group project assignment allocates us to form our own business company
that applies accounting principles into the business. Accounting is concerned with the
provision of information, which will be useful to those who are directly or indirectly
affiliated with an organization. The purpose of accounting information is to know the
financial status of the organization whether the business is making a profit or loss and
take the correct action to improve the situation. The information provided will be useful
for both in assessing the performance of those who manage the organization and the
financial position of the organization itself.
In the task given, we are given two choices to form a business whether
partnership or trading. However, we have decided to open a partnership business which
is Clototo, a men clothing line. A partnership is a form of business where two or more
people share ownership, as well as the responsibility for managing the company and the
income or losses the business generates. That income is paid to partners, who then
claim it on their personal tax returns – the business is not taxed separately, as
corporations are, on its profits or losses.
We choose to name our company as Clototo as the words actually came from
the words ‘cloth’. We choose clothing lines because clothes are our daily basis and it
was difficult to find a men clothing shop that offered an affordable price. Based on our
observation and experience, in a mall there will be a lot of women clothing shops but not
men clothing shops. Thus, we choose to open Clototo to help men out there to buy
clothes.

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1.0 Business Background

Clototo was founded in 2017 by Muhammad Syukri and Ain Khalilah. Previously,
Muhammad Syukri is someone who loves to style his cloth and he is the type of person who
will not wear the same clothes more than twice then he realized that it was so hard to find a
men clothes shop that has offered a good quality of clothes with affordable price. Then,
Muhammad Syukri proposed Ain to open a clothing line that was not only offered reasonable
price but a one shop centre where men can have many choices on a cloth whether a shirt,
office wear, sweater, underwear, ties and pants. Clothes are one of the basic needs of a
human being.

Clototo mission is to provide reasonable prices of clothes that can be worn for a very long
time and also comfortable to wear on a daily basis. Our main focus is not just that, but also
we wanted to offer our customer a one shop centre for clothes where our customer do not
need to go to another shop to find anything related to cloth for example for office wear, they
can find ties, blazer, shirt and even socks in our shop. .

At the end of 2017, Muhammad Syukri and Ain Khalilah begins to build the business
using their own money that is RM20,000 as beginning capital. The store is located in No 36,
Jalan Plumbum S7/S, Seksyen, 40000 Shah Alam, Selangor. Clototo stores open daily
starting from 10 a.m. until 10 p.m. The type of the business entity is partnership, on the other
hand, this means there are two or more owners. Clototo business activity is by selling a man
clothing from

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2.0 Characteristic of the Business

The characteristic of business is including liability, no of owner, books and accounts keeping,
business establishment and profit sharing. Clototo is a business under partnership. A
partnership business comes to existence when two or more people decide to run a
company.

Clototo is a company which operates a man clothing line. Clototo has a few liabilities
in hand which are loans from Maybank, trade creditors, and hire purchase creditors. Clototo
also rents a shophouse in Shah Alam where it is the best industrial area with a strategic
place. The address is at No 36, Jalan Plumbum S7/S, Seksyen, 40000 Shah Alam,
Selangor.

Clototo is a partnership business where there are two or more people to run this
business. However, this business is set up by two young people which is Ain Khalilah Bt
Ahmadi and Muhammad Syukri B. Fadzullah. A partnership business has limited liability if it
is a limited liability partnership liability. Each partner is not responsible or liable for another
partner’s wrongdoing or carelessness (Fatimah Abd Rauf, 2019). Furthermore, if the
business fails and the assets are not enough to cover the debt, the payables have a right
against the partner’s personal properties.

There are no legal formalities to start a partnership form of business where everyone
can start a business anytime and everywhere, the business can also be dissolved as per the
owner’s wishes. Owners need to record every financial transaction that occurs in the
business. This method also helps owners to trace every cash flow in the business.

Clototo was registered with the Companies Commission of Malaysia under the
Business Registration Act 1956 and 1957. The owners decided to register the business in
Shah Alam under the Companies Commission of Malaysia located in Kompleks KPPMS, Lot
291, Jalan Ru, 3/9a, Seksyen 3, 40000 Shah Alam, Selangor. The Clototo was set up on 23
December 2017 and registered on 4 March 2018. The reason why owners want to run up
this business is because they wanted to create one shop centre for men to buy their clothes
at affordable prices, gain new knowledge in business, express themselves to be more
creative, and earn unlimited income.

The profit or loss will be shared by the partners according to their profit-sharing ratio.
Owners agreed to have a fair ratio which is 50-50 due to their work division. The owners of
Clototo came up with an idea to have a fair ratio due to the equal contribution towards the
business where they contributed RM 10,000.00 per person to set up the business.

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3.0 Classification of Business Items

1. Assets

An asset is any resource which the company owns. Any tangible or intangible things
that can be owned or controlled to produce positive economic value that can be
measured and expressed in Malaysian Ringgit (Averkamp, n.d.). There are two types
of assets:

i. Current Assets

Current assets represent all the assets of a company that are expected to be

conveniently sold, consumed, used, or exhausted through standard business
operations within one year. Current assets appear on a company's balance sheet,
one of the required financial statements that must be completed each year. It
includes cash, cash equivalents, account receivables, stock inventory, prepaid
expenses and others liquid assets. Clototo current assets are inventory, debtors or
accounts receivables, bank and cash.

ii. Non – current Assets.

Non – current assets are the company’s long – term investment for which the full
value will not be realized within the accounting year. Non – current assets cannot be
converted to cash easily. Non – current assets may include items such as, land,
building, machinery, office equipment, franchise, goodwill, trademark and others.
There are three categories under non – current assets which are tangible non –
current asset, intangible non – current asset and investment. Clototo non – current
assets are office equipment, fixtures and fitting and vehicles.

2. Liabilities

Liability can be characterized as current obligations that a corporation plans to fulfill

in the future at any time. Such responsibilities derive from legal or administrative
requirements which place limitations on the company’s use of assets for its own
purposes. Liabilities are the resulting from past transactions requiring the company to
pay money, provide products or carry out services in the future. The existence of past

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 transactions is an important element in the definition of liabilities. There are two types
of liabilities which are current liabilities and Non-current liabilities.

i. Current Liabilities

Current liabilities also known as short-term liabilities are debt or obligations that need
to be paid within a year. Current liabilities should be closely controlled by
management to ensure that the company has adequate liquidity from existing assets
to ensure that the debts or commitments can be fulfilled. It includes bank overdrafts,
creditors or accounts payable, short – term debt and accrued expenses (Bragg,
2018). Current liabilities in Clototo is creditors or accounts payables and wages
payables.

ii. Non – current Liabilities.

Non-current liabilities also known as long-term liabilities that are due more than a
year. Long-term liabilities are an important part of a company long-term financing.
Companies take on long-term debt in order to raise immediate capital to finance the
purchase of capital assets or to invest in new ventures. Long-term liabilities are
decisive in determining the long-term solvency of a company. If companies cannot
repay their long-term liabilities as they become due, then the company will face a
crisis of solvency. Clototo non – current liabilities are bank loans which are due after
12 months.

3. Drawings

Drawing occurs by withdrawing cash from a business account, but it also can include
anything that is considered a business asset, such as products or equipment that is
removed from the business for personal use. Drawing needs to be recorded in the
balance sheet as a reduction in the assets and a reduction in the owner’s equity.
Accounting records need to be maintained to track money withdrawn from the
business. Clototo did not make any drawings yet but the money can be used if there
is an emergency matter or anything related to the owners.

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4. Capital

Capital is a term for financial assets, such as funds held in deposit accounts and
funds obtained from special financing sources. Capital can also be associated with
capital assets of a company that requires significant amounts of capital to finance or
expand. Capital can be held through financial assets or raised from debt or equity
financing. It is important to distinguish money from capital because they are not the
same thing where capital lasts longer than money and used to develop something
and build profits.
In partnership business, the capital is contributed by the owners where they spent
RM 10,000.00 per person as a start to run the business.

5. Revenue

Revenue earned from providing services and the amount of merchandise sold
(Averkamp, Revenue Definition, n.d.). It is the top line or gross income figure from
which costs are subtracted to determine net income. A few examples of revenue
include sales of goods or services, the commission received, and interest received.

6. Expenses

Expenses are the cost of assets consumed or services used in the process of
earning revenues. In other words, it costs money to make money. A business must
incur expenses items which are necessary for the continuing operation of the
business. The owners of Clototo spent for rent, stock and staff salaries under
expenses. For rent and stock, owners spent RM 3,000.00 roughly per month and for
staff salaries, Clototo had 4 full time workers and they were paid by RM 1,100.00 per
month. The owners spent around RM 4,400.00 to 5,000.00 a month to pay for
salaries.

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4.0 Recording Process of the Business
Accounting is the recording, analysis and reporting of events that are materially significant to
a company. Accounts contain records of changes to assets, liabilities, shareholders' equity,
revenues and expenses. The usual sequence of steps in the recording process includes
analysis, preparation of journal entries and posting these entries to the general ledger.
Subsequent accounting processes include preparing a trial balance and compiling financial
statements.

Source of Documents

● Invoices

A client went to Clototo to overview the goods and services which are dressed for men that
are given by the company. The client purchase the products by credit and company give
invoices to the client inside 2 weeks with respect to to the invoices date

● Receipts

A receipt could be a record issued to a client after they have paid in full sum of the products
or services sold to them. Clototo goes along with the recording process of the trade and has
recorded a receipt issued to the client after they have paid the sum of the goods sold to
them.

● Cheque

In recording a transaction, cheque is one of the vital sources of records. Cheque is one of
the critical sources of record in recording a transaction. Clototo has issued a cheque upon
installment to the supplier to purchase sewing machines, fabrics, strings, clothes cop
machines and computers in order to supply products and services to customers.

● Invoices

Clototo has invoices recorded in their records. The invoices are recorded once customers
buy goods and services by account credit. The owner only shares with us a blank invoice
and does not want to share the rest. So, we can assume the company has invoice as one of
their sources of documents but with improper records.

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● Receipts

Receipts are found as one of the sources of documents for Clototo. The owner is likely
wanting to disclose their receipts with us and a black receipt is given to us for our
references. Clototo follows the recording process of the business and has recorded a receipt
issued to customers after they have paid the amount of the goods sold to them. So, we can
assume the company has receipts as one of their sources of documents but with improper
records.

● Cheque

Clototo has a cheque book in recording a transaction and used in company’s expenses. The
owner only shared with us a blank cheque as our reference and do not want to disclose
further. Clototot has issued a cheque upon payment to suppliers to buy the air conditions
and pumps in order to provide goods and services to customers. We can assume that the
company has a cheque records but with improper records.

Journals

● Petty Cash Journal

A journal which records how much cash in hand was kept to pay small expenses Clototo has
recorded cash in hand to pay small expenses such as courier charges, water bills and
electrical bills. For the records, the owner does not disclose to us and only verbal
explanations are given to us. So, we can assume that the company does not have a proper
record of the journal.

● Purchase Journals

Purchase journals is a record that keeps all of the purchasing transactions occurred in a
company. Clototo has a record of their purchase transactions in their purchase journal such
as computers and sewing machines. The owner does not share with the records of the
journals and only gives verbal explanation to us. So, we can assume the company has a
purchase journal but do not keep it in a proper way.

● Sales Journal

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Sales journal or sales day book is a record which stores all the sales transactions in credit
and for easy tracking of the sales of items that customers (debtors) have purchased on
account by allocating a receivable on the debit side of an accounts receivable account and
crediting revenue on the credit side. The sales journal in Clototo is not disclosed to us by the
owner and only given a general amount for our reference. We can assume that the company
does not have a proper record of the sales journal.

Books of Prime Entry

● Purchase Journals

Purchase journals is a record that keeps all of the purchasing transactions occurred in a
company. Clototo had recorded their purchase transactions accordingly in their purchase
journal such as computers.

• Petty Cash Journal

A journal which records how much cash in hand was kept to pay small expenses. Clototo
has recorded cash in hand to buy small expenses such as courier charges, water bills and
electrical fees.

● Sales Journal

Sales journal or sales day book is a record which stores all the sales transactions in credit.
The sales transactions in Clototo are recorded accordingly.

Transaction

• Revenues

Clototo’s revenue is likely to be recorded due to owners not wanting to share the records
with us. We can assume that the company has a revenue but with improper records.

● Cash

Clototo has cash as their current asset which is cash in hand and cash at the bank. The
amount of the cash and the record were not shared to us by the owner. We just assume that
the company has a cash transaction with improper records.

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● Expenses

Clototo’s has recorded an amount of expenses during the whole accounting cycle. The
records of expenses are not being shared with us by the owner and explained verbally and
informally. So, we just assume that the company has an expense but with improper records.

• Drawing

Clototo is recorded to have drawings in their company’s account. This is due to the owner
buying some personal thing during the mid-year of the cycle.

Journal

A journal entry is the recording of a business transaction in the journal. A journal entry shows
all the effects of a business transaction as expressed in debit and credit. For example in
Clototo, On May 28, 2019, Ain Khalilah purchased RM 3500 for his business by cash. So
their transaction on the debit column is furniture (3500) and their credit is cash (3500)
(purchased furniture by cash).

Ledger

A ledger is a collection of accounts sustained by a business. After all transactions are

recorded in journals, an appropriate account in the ledger will be posted based on the total of
transactions in the journal. For instance, ledgers for Clototo are sales ledger and debtor
ledger. Sales ledger is where a customer purchases goods and services from Clototo with
credit account and debtor ledger debit invoice credit cash. An invoice is created on the same
day the purchase has been made.

Trial Balance

Process done after completion of journals called as Trial balance. The trial balance for
Clototo found many errors due to the owner refusing to give cooperation with information
asked. Adjustments at the end of trial balance are difficult to make and cannot be done for
the end of this accounting period.

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Financial Statement

The most important thing for a business to determine the performance and financial position
of an organization which is Clototo is Financial Statement. This is done in line to the end of
an accounting period and must not exceed twelve months. The Statement of Profit or Loss is
measured through the result of operation cost and expenses being deducted from the sales
revenues and other revenues will result in either profit or loss for Clototo.

Statement of Financial Position for Clototo is measured based on the company’s assets,
liabilities and owner’s equity and lastly financial statement for Clototo company is inaccurate
due to unwanted of the owner to share data with us.

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5.0 The Advantages & Disadvantages of Accounting Recording
Process

The advantages of the accounting recording process are, first, continuance of business
records. The existence of books of accounts will record all the transactions happening in the
business. Besides, it is impossible for the management to remember every transaction due
to the complexity of the business. Second, act as legal proof. Every transaction that has
been recorded inside books of accounting will be the evidence just in case there will be any
legal disputes happening. Third, the accounting recording process will help in taxation
matters. Annually, the books of account will assist the management to submit the annual
report to the Inland Revenue Board (IRB). Fourth, the performance of the business can be
comparable by using accounting recording as the benchmark. The performance of the
business can be analysed by the management by using monthly or annual accounting
records for future business strategy.

Next, the disadvantages of the accounting recording process are, first, business information
may be inclined. The accountant's personal mastery may influence the data of the business
as each accountant may have different methods of calculation (such as depreciation value
and capital expenses) for measurement of income of the entity. Second, the monetary
system as an evaluation unit changes in value. The stability of the value of the monetary
system is impossible. Thus, if the changes in price level of an item is not considered, it will
show fabricated financial position. Third, recording of fixed assets at the original cost. There
may be a difference among the original cost and current replacement cost of a fixed asset
due to various reasons (changes in time, improvement of technology) Thus, the balance
sheet might not display the true financial status of an entity. Last but not least, accounting
information based on approximation. There are some accounting data which are based on
estimates. Thus, imprecision in estimates is possible.

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6.0 Reference

Averkamp, H. (n.d.). Asset Definition. Retrieved from Accounting Coach:

https://www.accountingcoach.com/terms/A/assets

Averkamp, H. (n.d.). Revenue Definition. Retrieved from Accounting Coach:

https://www.accountingcoach.com/terms/R/revenues

Bragg, S. (2018, December 31). Current Liabilities. Retrieved from Accounting CPE Courses
& Books: https://www.accountingtools.com/articles/2017/5/5/current-liability

Fatimah Abd Rauf, A. A. (2019). Financial Accounting. Mc-Graw Hill.

Advantages and Disadvantages of Accounting: Videos, Examples. (2019, December 9).

Retrieved May 12, 2020, from https://www.toppr.com/guides/accounting-and-
auditing/theoretical-framework-of-accounting/merits-and-demerits-of-accounting/

Sethy, V. (2015, July 12). Top 9 Advantages of Accounting – Discussed! Retrieved May 12,
2020, from http://www.yourarticlelibrary.com/accounting/top-9-advantages-of-accounting-
discussed/62802

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