TOPIC 1:

INTRODUCTION TO
ACCOUNTING
ACC 106
 TOPIC CONTENT
You will learn…

ü DEFINITION
ü DIFFERENCES BETWEEN BOOKKEEPING &
ACCOUNTING
ü FINANCIAL STATEMENTS:
• FUNCTIONS/OBJECTIVES/USES
• MAIN USERS
ü ACCOUNTING CYCLE
ü FORMS OF BUSINESS
 WHO WAS ACCOUNTANT?
KNOW THESE PEOPLE?

ü Tan Sri Tony Fernandes - Associate Member of the

Association of Chartered Certified Accountants
ü Dato’ Rohana Rozhan-Fellow of the Chartered Institute of
Management Accountants, UK, a Member of the Malaysian
Institute of Accountants
ü Tan Sri Dato’ Sri Wahid Omar - fellow of the Association of
Chartered Certified Accountants (ACCA), United Kingdom
 ACCOUNTING
Account – To Count ( a word)
Adding ‘ING’ – activates the word into a doing word

ü ACCOUNTING is an art of Classifying, Recording,

Summarizing business events and transactions into
monetary terms and Interpret them to enable the
result to be communicated to end users for them to
make economic decision
ü the process of identifying, measuring, recording and
communicating business events and transaction to
users
 Situation 1:
Look at the scenario…

If we used RM30,000 of the RM100,000 we had at the

beginning to buy van and pay the bills, then we'd have
RM70,000 cash left. If we collected RM50,000 from our
customers, then we would have RM????.

What if we have thousands of transactions?

Article source: https://www.accountingverse.com
 PHASES IN ACCOUNTING
CLASSIFYING Create accounts for different kinds of revenues,
assets, debt. Group similar items together.
RECORDING Keeping records by writing down in books

SUMMARIZE Presenting the already classified data into

summarized form [ Financial Statements]
INTERPRET Analyzing results for further action
[not explaining what has happened but why it
happened/what is likely to happen]

With accounting, you know how much you made, how much you spent, how much is
left and value of your assets
1.4 DIFFERENCE BETWEEN BOOKKEEPING AND
ACCOUNTING

Accounting

Bookkeeping
 BOOKKEEPING VS ACCOUNTING
BOOKKEEPING ACCOUNTING
Meaning Bookkeeping is an activity of Related to summarizing, interpreting
recording the financial & communicating financial
transactions of the company in a transaction
systematic manner.
Process It is the beginning stage & acts as Accounting begins where
base for accounting bookkeeping ends
Objective To keep record of all financial To show financial situation of the
transaction company
Decision Management cannot make Management can make decision
decision based on bookkeeping based on accounting
Skills Bookkeeper doesn’t require any Accountant requires special skill i.e.
special skills as it is mechanical in Analytical skills
nature
 FINANCIAL STATEMENTS
• Components of FS
• Functions:
• Summarize key financial info about financial health, success and profitability
• Evaluate the efficiency and performance of various departments within the
organization
• Keeping track of routine business activities
• Maintaining documentary evidence of the company’s business activities

Components Function
Statement of Can determine if a company is making money & its net worth.
Financial Position Report on the financial position
Statement of Profit Can determine whether business operations are profitable.
or loss Report on the financial performance
Cash Flow Summarize the money generated & spent by business
Statement
Statement of Report on how effects of business operation affect owner’s
Changes in Equity wealth, how wealth are utilized & the flow of such wealth
 Users & Functions
USERS FUNCTION OF FS TO THE USERS
1. Management Guide management on:
(Internal) -Effective use of capital,
-Formulating policy
-Examining the result of different activities and efficiency
of employees
-Business expansion

2. Employees -Workers are entitled to bonus depending upon the profit size
(Internal) - Profitability also relevant in any wage negotiation
2. Government -Useful to assess tax liability
(External) -Enable to identify nation’s economic condition
- Provide a basis for framing new law or amending existing law

3. Banker - Ability to meet debt obligations

(External) - Enable to make analysis of customer’s plan i.e. The extent of loan
 FINANCIAL STATEMENTS
Objectives/Purpose/Uses:

1. To provide info about the result of business

operation, financial position and cash flow of an
organization

1. To provide financial information to users to help

them make the correct decision
ACCOUNTING CYCLE

Image source: depositphotos.com

 TYPE OF BUSINESS

ü Service – Offer professional skills, expertise, advice i.e.

Salon, Workshop, Accounting firms
ü Merchandising – Buy products at wholesale price and
sells the same at retail price i.e. Grocery store,
distributors
ü Manufacturing – Purchase products with intention to
use them as raw materials in making a new product and
sell them to customers
 FORM OF BUSINESS OWNERSHIP
SOLE PROPRIETORSHIP CONVENTIONAL PARTNERSHIP COMPANY
Ownership One owner Two or more people share ownership Large number of
of a single business [2-20]/[2-50] members [2-50 for
Sdn Bhd]

Separation of You and business are one You and business are one A separate entity from
Ownership & those who owns it
Management

Incorporation Registered under Business Act Registered under Business Act 1957 Registered under Co.
1957 Act 2016

Capital Owner contributes capital Partner contributes according to the Raise fund through
Contribution [personal savings + loans] agreement sale of stocks

Sharing of Profit & Owner entitles to profits and Partners share profits and bear losses Paid to the
Loss bear losses according to profit-sharing ratio shareholders in
dividends
 FORM OF BUSINESS OWNERSHIP
SOLE PROPRIETORSHIP
Liability Unlimited personal liability.
Business and personal assets
are at risk
Audit of Accounts -No legal obligation to
prepare accounts
-Not to be audited
CONVENTIONAL PARTNERSHIP COMPANY
Unlimited personal liability. Business Limited liability to
and personal assets are at risk. One the extent of capital.
partner is liable for the act of Beyond that amount,
another partner members cannot be
held liable personally
No legal obligation to prepare -Accounts need to be
accounts prepared and send to
-Not to be audited SSM
-To be audited
THE END