CHAPTER 1: INTRODUCTION TO ACCOUNTING

Question 1

(i) Explain the definition of accounting

Accounting is a process of identifying, recording and communicating the
economic events (business transactions) of a business to interested
users of information. It also involves analysing and interpreting the
reported information, designing and implementing system to produce
useful reports and to control operation of the business.
(ii) Name three (3) accounting professional bodies in Malaysia and
their main functions.

 Malaysian Institute of Accountants (MIA)

To determine the qualifications of persons for admission as
members
 The Malaysian Institute of Certified Public Accountants (MICPA)
To advance the theory and practice of accountancy in all its
aspects
 Malaysian Accounting Standard Board (MASB)
To review, revise or adopt existing accounting standards

(iii) List the differences between accounting and bookkeeping.

 Scope: Book keeping is a preliminary process of accounting.
Accounting is more extensive and thorough process book keeping.
 The person in charge for book keeping is called an accounting clerk,
accounting is in charged by accountants.
 Book keeping only involves the recording of economic events
(transactions) either manually or with computers. Accounting
involves identifying, recording transactions, analysing, interpreting
and communicating the reported information to interested users. It
also involves designing and implementing systems to produce useful
reports.
 Bookkeeping is performed by individuals with limited skills in
accounting. While accounting is performed by individuals who have
professional skills and knowledge in accounting.
Question 2
(i) Give two (2) examples of internal users and the importance of
accounting information for each user.
 Marketing managers need the information to plan, organize, and run
the business + managing business
Nak senang paham, siapa dapat gaji daripada syarikat, dia tu internal
 Accountants (include internal auditors) need the information in
order to ensure the accounting process follows the business acts and
standards

(ii) State two (2) examples of external users and the importance of
accounting information for each user.

 Creditors (suppliers and bankers) need information to decide

whether the company has enough strength and profits to pay its
debts or loan and interest
 Inland Revenue needs financial information to carry out the
responsibility for determining and collecting income taxes.

Question 3
(i) Kaisara starts a book distribution business worldwide with a capital
contribution of RM50,000. Kaisara offers Aisyah to invest in her business
by offering benefits in accordance with the amount of capital contributed
by Aisyah.
a) What type is Kaisara’s business?
Sole proprietorship

b) If Aisyah accepts the offer, what is the type of their business?

Partnership
c) State two (2) business characteristics by referring to (b).
Characteristics of partnership
 Profit or loss will be shared by partners according to their profit-
sharing ratio as stated in the partnership Agreement or Partnership
Act 1961
  Unlimited liability: If the business fails and the assets are not enough
to cover the debt, the creditors have a right against the partner's
personal properties.

(ii) List three (3) types of business ownership. State an advantage of each
type of business ownership.
 Sole proprietorship
o You're the boss
o It's easy to get started
o You keep all profits
o Income from business is taxed as personal income
o You can discontinue your business at will.
 Partnership
o Two heads are better than one
o It's easy to get started
o More investment capital is available
o Partners pay only personal income tax
o High-calibre employees can be made partners
 Company
o Stockholders have limited liability
o Corporations can raise the most investment capital
o Corporations have unlimited life
o Ownership is easily transferable
o Corporations utilize specialists

(iii) Explain two (2) advantages and two (2) disadvantages of sole
proprietorship.
ADVANTAGES
 Easier to set up than other business entities. A person becomes a sole
proprietor simply by running a business
 The owner maintains 100% control and ownership of the business by
being entitled to the profits and control of the business.
DISADVANTAGES
 Unlimited liability: If the business fails and the assets are not enough to
cover the debt, the creditors have a right against the owner's personal
properties
  Lack of staffs can effect slowness of company’s going process

(iv) Explain three differences between sole proprietorship, partnership

and company.

Type Sole proprietorship Partnership Company

Number Of 1 2-20 2 – Unlimited

Owners
Laws and Business Act 1956 Partnership Act Companies Act
Regulations 1961 1965
Distributions of Wholly owned by Among partners Allocated
profits/ losses proprietor according to
shares of capital

Question 4
State four (4) types of financial statements.
 Statement of Profit or Loss (Statement of Comprehensive Income)
 Statement of Financial Position (Balance sheet)
 Statement of Owner’s Equity
 Statement of Cash Flows