BBFA1103

INTRODUCTORY ACCOUNTING

TOPIC 1 ACCOUNTING ENVIRONMENT

Zulaihan Ismail
 LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define accounting and its four components;
2. Explain the importance of accounting;
3. Identify users and disciplines of accounting;
4. Discuss the qualitative characteristics of accounting
information;
5. Describe the purpose of financial statements; and
6. Describe the components of financial statements.
 1.1 Importance of Accounting
• Play important role whether directly or
indirectly in daily life
• Provides valuable financial information
for better decision making
• Individuals or business

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 Information flow in
Accounting System
Business
A company/
transaction
someone make
take place
decisions
Accountants
prepare reports

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 1.2 Definition of Accounting

• A system or a process that

provides economic transactions
for users to make better decision.

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4 Components in Accounting

1. Recording 2. Summarising

4. Interpreting 3. Analising

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 1.3 Users of Accounting Information

External Users Internal Users

Financial accounting provides Managerial accounting provides

external users with financial information needs for internal
statements. decision makers.
 External Users Internal Users

•Creditors •Managers •Sales Staff

•Shareholders
•Investors •Officers •Budget Officers
•External Auditors
•Governments •Internal Auditors •Controllers
•Customers
Differences Internal and External

Internal Users External Users

Types of Help planning of Depend on the

information the entity types of decision

Information Use the status or Limited to the

been obtained position availability

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1.4 Branches of Accounting
 1.5 Qualitative Characteristics of
Accounting Information
USEFUL FINANCIAL INFORMATION

RELEVANCE COMPARABILITY MATERIALITY

FAITHFUL CONSISTENTCY
REPRESENTATION TIMELINESS

UNDERSTANDABILITY

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Fundamental Quality—Relevance

Relevant financial information is capable of

making a difference in the decisions made by
users.
Fundamental Quality— Faithful Representation

Faithful representation means that the information

accurately depicts what really happened; the numbers and
descriptions match what really exist.
Enhancing Quality— Comparability

• Comparability helps the users to identify and

understand the similarities and differences of the
information given.
Enhancing Quality— Consistency

• Consistency refers to the requirement that

companies are to maintain consistency in the
treatment of various items for all accounting periods.
Enhancing Quality— Materiality

• Materiality states that an entity must account for

items that are significant to the entity’ financial
statements.
Enhancing Quality— Understandability

• Understandability means that the information given

to them must be as clear as possible and can be
easily understood.
Enhancing Quality— Timeliness

• Timeliness means that information that is to be

presented to the users must be in time to enable
them to make better decisions.
 1.6 Financial Statements
PURPOSE
1. Provide information about the financial position, performance and cash
flow of enterprise that is useful to a wide range of users in making
economic decisions

2. Show the results of management’s stewardship of the resources

entrusted to it.

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Financial Statements

COMPONENTS
1. Income Statement
2. Balance Sheet
3. Statement of Owner’s Equity
4. Statement of Cash Flows

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 TZ Company
Income Statement
Net income is the
For Month Ended 31 December 2022 difference
RM between
Revenues:
Consulting revenue 3,000 Revenues and
Less:Expenses Expenses.
Salaries expense 800
Net income 2,200

The income statement describes a

company’s revenues and expenses
along with the resulting net income or
loss over a period of time due to
earnings activities.
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 TZ Company
Income Statement
The net income
For Month Ended 31 December 2022
RM of RM2,200
Revenues: increases TZ’s
Consulting revenue 3,000
Less Expenses:
capital by
Salaries expense 800 RM2,200.
Net income 2,200

The Statement of TZ Company

Owner’s Equity Statement of Owner's Equity
explains changes in For Month Ended 31 December 2022
equity from net RM
income (or net loss) Capital, 1 Dec. 2022 0
and from owner Add: Investment by owner 20,000
investments and Net income 2,200
withdrawals for a Less: Withdrawals 500
period of time. Capital, 31 Dec. 2022 21,700

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 TZ Company
Statement of Owner's Equity
For Month Ended 31 December 2022
The Balance Capital, 1 Dec 2022
RM
0

Sheet Add: Investment by owner

Net income
20,000
2,200
Less: Withdrawals 500
describes a Capital, 31 Dec.2022 21,700

company’s
financial
position at a
point in time.

Owner’s Equity in Balance Sheet

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 TZ Company
Balance Sheet
31 December 2022
RM
Non Current Assets:
Equipment 16,000

Current Assets:
Cash 9,700
Supplies 1,200
10,900
Less: Current Liabilities:
Accounts Payable 1,200
Notes Payable 4,000
Working Capital 5,700
21,700
Financed by:
Owner's Equity
Capital 21,700
21,700

From Statement of Owner’s Equity

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 TZ Company
Statement of Cash Flows
For Month Ended 31 December 2022

Cash flows from operating activities:

Cash received from clients 3,000
Purchase of supplies (1,000)
Cash paid to employees (800)
Net cash provided by operating activities 1,200
Cash flows from investing activities:
Purchase of equipment (15,000)
Net cash used in investing activities (15,000)
Cash flows from financing activities:
Investment by owner 20,000
Borrowed at bank 4,000
Withdrawal by owner (500)
Net cash provided by financing activities 23,500
Net increase in cash 9,700
Cash balance, 1 Dec 2022 -
Cash balance, 31 December 2022 9,700
The Statement of Cash Flows identifies cash inflows and cash outflows over a
period of time.
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