INTRODUCTION TO ACCOUNTING

N U R S H A H I D A A B F ATA H

BP12103 PRINCIPLES OF ACCOUNTING

F A C U LT Y O F B U S I N E S S , E C O N O M I C S A N D A C C O U N TA N C Y

U N I V E R S I T I M A L AY S I A S A B A H
LEARNING OUTCOMES
At the end of this module, students should be able to:
1. Explain the definition of accounting.
2. Distinguish between bookkeeping and accounting.
3. Explain briefly the accounting cycle.
4. Identify the users of accounting information.
5. Identify and explain the accounting assumptions and principles.
6.Explain the branches of accounting.
7. Explain the roles of accountants.
8. Discuss the forms of business organisations.
9. Explain the different types of business operations.
 DEFINITION OF ACCOUNTING

Accounting involves the four (4) processes of:

Identifying Measuring Recording Communicating

the economic events of an organisation to interested users of

the information.
DEFINITION OF ACCOUNTING (cont.)
1. Identifying: involves the selection of data that are
considered evidence of economic activity relevant to a
particular organisation.

2. Measuring: involves the translation of economic events or

transactions into financial terms.

3. Recording: the stage in which the business transactions are

recorded to provide a permanent history of the financial
activities of the organisation.

4. Communicating: involves communicating the financial

information to various parties through ‘financial statements’.
BOOKKEEPING
Limited scope, involving
only the processes of
identifying and recording of SCOPE
transactions in financial
terms.
To provide financial
information to enable the
accountant to proceed with PURPOSE
the remaining stages of the
accounting process.
ACCOUNTING
Wider scope, where including
bookkeeping scope plus
analyzing, interpreting,
communicating, planning and
making decisions.
To produce financial
statements to enable users
and interested parties to
make comparisons, plan,
forecasts, and decisions.
ACCOUNTING CYCLE
Accounting cycle
 is a sequence of accounting procedures performed
during a financial period

 begins with the analysis of business transactions

through source documents and ends with the
preparation of financial statements

 Figure 1: Accounting Cycle

 USERS OF ACCOUNTING INFORMATION

Investors
Owners

External
Internal
Creditors/Bankers
Management
Government
agencies
Employees
Customers
USERS OF ACCOUNTING INFORMATION (cont.)
Internal users are the parties inside a company who manage
the company and work for the business.
 Owners use accounting information to assess how well
their business is performing and level of stability in business
over the years to decide if they should invest any further in
the business or if they should use their financial resources
elsewhere in more promising business ventures.
 Managers use accounting information to set goals for their
organisations, evaluate and monitor progress, and to take
corrective action if necessary.
 Employees use financial information to see if the company
is profitable and whether they should expect a salary
increment.
USERS OF ACCOUNTING INFORMATION (cont.)
External users are the parties outside the business who have either a
present or a potential interest in the business, direct or indirect.
 Investors use accounting information to evaluate the wisdom of
buying, holding or selling their financial interests in the company.
 Creditors/Bankers use accounting information to evaluate the
risks of granting credit or lending money to businesses.
 Government agencies:
 The Inland Revenue Board use accounting information to know
the amount of profits made by a company every year for tax
audit and collection, and whether the company has complied with
tax regulations.
 Securities Commissions Malaysia and Bursa Malaysia use
accounting information to know if the company is operating
within the prescribed rules.
 Customers use accounting information to know if the business will
continue to serve and honour warranties given on their products.
ACCOUNTING ASSUMPTIONS
1. Separate Entity
 A business is treated as a separate entity, distinct from its owner(s).
2. Accounting Period
 Accounts must be prepared at the end of the accounting period, as
determined by the organization. Eg. One-year period, 1 January until
31 December.
3. Ongoing Concern
 Accounts are prepared with the assumption that the entity will
continue to operate for a foreseeable future.
4. Consistency
 Businesses must practice and adhere to rules, assumptions or
principles consistently. They cannot change their practices without
concrete reasons.
5. Objectivity/Reliability
 Only transactions based on complete evidence and supported by
authorised business documents with relevant and complete information
should be recorded.
ACCOUNTING PRINCIPLES
1. Money measurement
 Data must be presented in a monetary value, eg. Ringgit and Sen in
Malaysia.
2. Historical cost
 Financial data must be recorded at cost, ie. The amount originally paid
when the transaction was made.
3. Duality
 All transactions that occur must have at least two effects in the
financial statements. Eg. Double entry (debit and credit) system.
4. Materiality
 Only data which affect, and influence decision making is considered
material and should be accounted for.
5. Matching
 Expenses incurred in the revenue generated must be matched to
determine the profit or loss in that period. It has to be noted that the
expenses matched to the respective revenue must correspond with the
same accounting period.
Accounting has several interrelated branches, and they have
been developed to serve different sets of objectives.

Branches of Accounting

Auditing Taxation Forensic

accounting Government
accounting
Cost accounting
Financial Management
accounting accounting

Figure 2: Branches of Accounting.

Adapted from Fundamentals of Accounting for Non-Accounting Students by Wan Ibrahim, Palil, Che Abdul Rahman, 2017, p. 64.
BRANCHES OF ACCOUNTING (cont.)
Financial Accounting
 The original form of accounting, related to the preparation of
financial statements for the use of external user.
 The main objective is to determine the profit or loss made by a
business during the year.

Cost Accounting
 Cost accounting is the process of gathering the operating cost
information which will help the managers in identifying,
measuring and controlling expenditure.
 The main function is to provide information to determine the
total cost of the product or service.
 The objective is to help in cost control.
BRANCHES OF ACCOUNTING (cont.)
Management Accounting
 Includes activities to gather and prepare information intended
for management, for the purpose of planning, controlling,
decision making, performance evaluation, and generally
managing the organisation as a whole.
 The summarized management accounting reports are in the
form of budgets and performance reports.

Taxation
 Tax accountants are responsible for calculating individual or
business taxes for purpose of tax assessments.
 Also act as tax planners and advisors.
BRANCHES OF ACCOUNTING (cont.)
Auditing
 Examination and verification of financial statements that have
been prepared to ensure that they are accurate and fair.
 Two types of auditors:
 External: independent audit firms that examine company’s
accounts; give an opinion on whether its financial statements
conform to accounting standards, and present a true and fair
view of its financial performance & position
 Internal: company’s own accountant to evaluate its
performance & operations; make suggestions for continuous
improvement
BRANCHES OF ACCOUNTING (cont.)
Government Accounting
 Also known as Public Sector Accounting.
 Includes accounting for legislative bodies and government
departments.

Forensic Accounting (Investigative Accounting)

 A new branch of accounting which applies accounting, auditing
and investigative skills to detect financial wrongdoing and fraud.
 Evidence collected from the investigation will be presented in
court during trial.
ROLES OF ACCOUNTANTS
 Accountants prepare annual reports and financial statements
for planning and decision-making and provide advise on
taxation and investment opportunities.

 Under the Law of Malaysia, Accountants Act 1967, no one can

practice as an accountant unless he is registered as a member
of the Malaysian Institute of Accountants (MIA).

 Figure 3: Roles of accountants

FORMS OF BUSINESS ORGANISATIONS
A business is a separate entity and is distinct from its owner(s). There are three
types of business organisations:

Figure 3: Difference between three types of business organisations.

Source: Fundamentals of Financial Accounting by Haniff, Nawawi, Abd Samad, and Mohamed, 2018, p. 13.
 FORMS OF BUSINESS ORGANISATIONS (cont.)
Private Limited Company Public Listed Company
(Sendirian Berhad) (Berhad)
The number of shareholders range The number of shareholders range
between two and 50 only. from two to unlimited.

Shares can only be sold to other

Shares can be sold to any members
individuals by invitation and is
of the public.
circulated among members.

The company cannot be listed in The company can be listed in the

the Malaysia Stock Exchange. Malaysia Stock Exchange.

Figure 4: Difference between a private company and a public company.

Adapted from Fundamentals of Accounting for Non-Accounting Students by Wan Ibrahim, Palil, Che Abdul Rahman, 2017, p. 64.
 TYPES OF BUSINESS OPERATIONS

• Sells products or goods

• Provide service rather to its customers. • Converts inputs (raw
SERVICES

MANUFACTURING
MERCHANDISE/TRADING
than sells products or • Not manufacture the materials, labour, and
goods to its customers. products it sells, overheads) into finished
• Eg. Telecommunication, instead, it buys from products, often with
transportation, hotel, other business the use of machinery
catering, banking and (suppliers). and computers.
financial, legal, and • Purchase goods that • Eg. Canned goods
accountancy. are ready for sale and manufacturer (Ayam
reselling them for a Brands, Adabi), motor
certain amount of vehicles manufacturer
profit. (Perodua, Proton)
• Eg. Grocery stores,
supermarket (Bataras,
Tesco), online stores
(Shopee, Lazada).
THANK YOU.