Topic 1

Introduction to Accounting

Objectives:
• Define what is accounting • Briefly describe history and development of accounting • List prospect of accounting profession & professional bodies in Malaysia • Outline the development of accounting standard • Discuss the function of accounting • Outline the components of financial statements and their function • Accounting principle, assumption and conventions

What is accounting?
Accounting is an information system that provides quantitative, financial information to stakeholders about the economic activities and condition of a business so that they can make business/economic decisions.

Accounting System The procedures and processes used by a business to analyse transactions. and structure information so it can be used to evaluate the performance and health of the business . handle routine bookkeeping tasks.

Use summary information to evaluate the financial health and performance of the business.What are the functions of an accounting system? Analysis Analyze business events to determine if information should be captured by the accounting system. Day-to-day keeping track of things. Bookkeeping Evaluation .

Statement of cash flows . classification 5. Report summaries Balance sheet. and 4. Income statement. Record. Analyze business event 2. sale. Classify. purchase. or transaction 3.Describe The Accounting Cycle 1. amount. Investment. Summarize transaction Account.

The Accounting Cycle .

recording. and interpreting the result thereof” (AICPA. of a financial character. transactions and events which are.The different between accounting and bookkeeping: Accounting: “a process of identifying. in part at least. 1961) Bookkeeping: “ only involves activities of collecting and recording financial data” . classifying and summarizing in a significant manner and in terms of money.

What is the Nature of Accounting? Quantitative Deals with numbers. Past information can only be useful if it impacts decisions about the future. Financial Decision Making . Focused on the financial dimension of business.

3 PHASES OF ACCOUNTING DEVELOPMENT Stewardship accounting Financial accounting and reporting Management Accounting .

. Wealthy men employed “stewards” to manage their property. These stewards will provide periodical account of their management of the resources to their master It involves the orderly recording of business transaction Based on the concept of give and take.Stewardship accounting The accounting activity concerned with simple record keeping and the discharge of stewardship.

(Large amount of capital is needed) Led to the introduction of the joint stock company (many people invest in one company) and also the UK‟s Joint Stock Companies Act (1844) „financial account‟ must be audited before it is presented to their owners (shareholder) and creditor .Financial accounting and reporting  Started from the Industrial Revolution (IR) in Britain The size of business has increase and more complex  Results to the need for more sophisticated methods by which business was financed.

The age of scientific accounting Fixed Asset Industrial Revolution Large Capital •Capital vs Expenses •depreciation Reporting •Creative accounting •New accounting practice •Recognition •Measurement •Accounting concepts Professional Society Various Sources of Capital (Owner + SH) Large Scale Business failure SH Trust Research .

The introduction of management accounting shows the ability and capacity of accounting to develop and meet changing socio-economic needs .Management accounting Associated with the introduction revolution (IR) in 18th century. Business more concern to reduce cost of industrial delopment of cost accounting technique and use as a guide to management decisions.

Introduction to Financial Statements Definition: FRS 101 (MASB 1) • Financial statement is a structured financial representation of the financial position of an enterprise and the transaction undertaken by an enterprise .

Show the results of management‟s stewardship of the resources entrusted to it 3. Provide information about the financial position. . performance and cash flow of an enterprise 2.Objectives and purposes of Financial Statement 1. Assists users in predicting the enterprise‟s future cash flow and the timing and certainty of the generation of cash and cash equivalents.

Components of FS 1. Cash Flow Statement. Balance Sheet 2. and 5. A statement showing: • All changes in equity • Changes in equity other than those arising from capital transaction with owners and distribution with owners 4. Accounting policies and explanatory notes . Income Statement 3.

Primary Financial Statements These financial statements answer basic questions: What is the company’s current financial status? What were the company’s operating results for the period? How did the company obtain and use cash during the period? .

equipment. inventory. buildings. Sometimes referred to as a • Liabilities: accounts Statement of payable. land. Summary of the financial position of a company at a particular date. accounts receivable. notes payable. Financial and mortgages payable. . and intangible • What are the resources of the company? items.The Balance Sheet • Assets: cash. Position • What are the company’s existing obligations? • What are the company’s net assets? • Owners’ Equity: net assets after all obligations have been satisfied.

134 in time Prepaid expenses 62.726 Inventories 512.147 Accounts receivable is a specific point 361.901 Intangibles 429.247.534.Balance Sheet Hershey Foods Corporation Balance Sheet December 31.595 Property. and equipment 1.799 Total assets $3.128 Other assets 212. plant.430 Continued . 2001 (in thousands) Assets Cash Note that the date $ 134.

333 (1.213 2.204 $3.430 Matches total assets .901 1.226 $ 183.337 $2.049 462.939 258.342) $1.247.245.Liabilities Accounts payable Accrued liabilities Notes and other debt Income taxes Total liabilities Stockholders’ Equity Capital stock Retained earnings Repurchased stock and other equity items Total stockholders’ equity Total liabilities and stockholders’ equity $ 133.147.100.755.791.

Assets recorded at historical value.Describe Three Balance Sheet Limitations. Only recognizes assets that can be expressed in monetary terms. Owners’ equity is usually less than the company’s market value. .

Expenses Shows the results of a company’s operations over a period of time.The Income Statement Revenues Assets (cash or AR) created through business operations Expenses Sometimes Assets (cash or AP) referred to consumed through business operations as a Statement of Net Income or (Net Loss) Earnings Revenues . • What goods were sold or services performed that provided revenue for the company? • What costs were incurred in normal operations to generate these revenues? • What are the earnings or company profit? .

Income Statement
Hershey Foods Corporation Income Statement
For the Year Ended December 31, 2001

Revenues: Sales Expenses: Cost of sales Selling and administrative Other expenses Interest Net income (-)Income taxes Net income after tax

$4,557,241 $2,665,566 1,269,964 209,077 69,093

4,213,700 $ 343,541 (136,385) 207,156

Income Statement
Hershey Foods Corporation Income Statement
For the Year Ended December 31, 2001

Revenues: Sales Note that the time Expenses: Cost of sales period for the $2,665,566 Selling and administrative statement is in the1,269,964 Other expenses 209,077 heading. Interest 69,093 Net income (-)Income taxes Net income after tax

$4,557,241

4,213,700 $ 343,541 (136,385) 207,156

Statement of Cash Flows
Reports the amount of cash collected and paid out by a company in the following three types of activities:
1. Operating activities

2. Investing activities
3. Financing activities

757) $(480. plant.Hershey Foods Corporation Statement of Cash Flows For the Year Ended December 31.322) (315. 2001 $ 706.969 $ 134.405 $(187.240) $ 102. 2001 Cash as of December 31. and equipment Proceeds from sale of property.178 31.987) $ 30. plant.042 $(123. and equipment Net cash flows used in investing activities Cash flows from financing activities: Cash receipts from financing activities. including debt Dividends paid to stockholders Repurchase of stock Other. 2001 (in thousands) 1-46 Net cash flows from operating activities Cash flows from investing activities: Investments in property.029) 63.589 (154.750) (40. including repayment of debt Net cash flows used in financing activities Net increase in cash during 2001 Cash as of January 1.147 .

Limited to information which can be expressed in quantitative terms. Accounting is not an exact science.Limitations of Financial Statements 1. Largely confined to an analysis of past events. Most information monetary units expressed in . 4. 3. 2.

Role of Accounting? .

Accounting role in business As business language • use accounting knowledge to interpret accounting number • to understand financial information of a business As an information system •Acctg. gather information and communicate them to the user •Business transaction will be processed and analyzed to make it useful to the user •From raw data financial statement .

Accounting role in business As a decision making tool •We use accounting information to make decision. As a planning and control tool •Manager are important users of financial information •Accounting help them to plan and control business activities . •Each user will have different decision and will used different type of accounting information.

Identify the primary users of accounting information. .

Their interest is on the report produce by a business before they can make sound decision .Business Stakeholders A business stakeholder is a person or entity that has an interest in the economic performance and wellbeing of a business.

What are the Two Types of Reports from Accounting Information? Internal Reports (Management Accounting) External Reports (Financial Accounting) Management Lenders Investors Suppliers/Customers Employees Competitors Government Agencies The Press .

• Balance sheet • Income statement • Statement of cash flows .What Are Accounting Reports Used For? Used by management for • • • • planning implementing plans controlling costs making decisions Used by external parties who have an economic interest in the firm.

not required by law  Management accounting can be split into cost accounting and decision-making . balance sheet and cash flow statement Management Accounting  Internal needs of business  Unlike financial accounting.Financial Accounting & Management Accounting Financial Accounting  Provision of financial information on a business‟s recent financial performance targeted at external users such as shareholders  Backward-looking  Double-entry bookkeeping  Profit and loss account.

User Information Requirements .

Overview of Financial and Management Accounts .

Qualitative Characteristic Of Financial Information .What are the characteristics? .

helps users to make decisions about the future Has confirmatory value – helps users to evaluate their past decisions Reliability Complete information and free from significant error and bias .Qualitative Characteristic Of Financial Information Relevance The information has predictive value.

The information is ready when it is needed .Qualitative Characteristic Of Financial Information Comparability The information can be comparable with: •Information produced in the previous year •Information produced by other businesses Understandability Means that the users should understand and can make a good decision from such information Timeliness Cost effective and.

Accounting Professional bodies in Malaysia .

com.micpa.my) . • has relevant working experience. • To become a member : • must pass all the examinations set by the body. • Sole professional accounting body in Malaysia. • (http://www. • Function : • Provides training and sets professional examinations.MICPA • Established in 1965 under Company Act 1965.

mia. Functions : • To oversee development and growth of the accounting bodies. • http://www. • Sole body where the accountants must register.MIA A regulatory body formed in 1969 under Sec 23 Accountant Act 1967.org.my . • Conducts training and courses for members to ensure they remain with developments in the profession.

• Has met other requirements set by his/her state. • Not a government agency. MICPA: Malaysian Institute of Certified Public Accountants • The national organization of CPAs in the Malaysia. .What is a CPA? CPA: Certified Public Accountant • Has taken a minimum number of college-level accounting classes. • Has passed the exam administered by the MICPA.

• To issue statements of principles for financial reporting. • To change the structure or contents of proposed accounting standards. Functions : • To issue accounting standards. • To review or to adopt existing accounting standards.MASB • • A statutory body established under the Fin. • To issue technical pronouncements.org. • To develop conceptual framework. Rep Act 1997. • (http://www.my) .masb.

Functions : • Oversees MASB performance. financial & funding requirement • Reviews proposed standard by MASB .FRF • • A statutory body established under the Fin. Rep Act 1997.

training & examination to accountants •Adopt international accounting standard o •Develop new accounting standard . financial & funding requirement •Reviews proposed standard by MASB APB MASB •Adopt international accounting standard o •Develop new accounting standard MICPA MIA •Advance the accounting theory & practice •Provide education.Accounting Professional Bodies FRF •Oversees MASB performance.

ACCOUNTANTS JOB SCOPE .

(Law) Controller IRS. State and Local Internal Auditor Agencies Management M.Accounting Opportunities Public Accounting Industry Government or Nonprofit Graduate Education Government Agencies: GAO. Services Financial Schools. FBI Tax Consultant Ph.Acc. Advisory Hospitals.D.D. Nonprofit Executive MBA Organizations Consultant . Auditor J.

What types of decisions? Budge ting Inves ting .Why Study Accounting? Everyone makes financial decisions.

ACCOUNTING STANDARD. CONCEPT AND CONVENTION .

. which should be reported and which is not. A guideline in preparing the financial statement. (satu kerangka berkonsep dan aturan yang perlu dipatuhi oleh semua entiti perniagaan dan perakaunan) Purpose: 1.Accounting Standard Accounting Standard is a set of rules to guide the application of accounting principles in a specific situation while preparing the financial statement. Define and explain the concept of reporting entity. 2. To improve the quality of financial reporting 3.

5.4. . Identifying the common information needs of the various users of financial reports. Determine a qualitative characteristics of financial information.

Financial Reporting Act 1967 FRF MASB Leading businessman KLSE SEC Senior members Accounting Profession Financial Analysts Senior Rep BNM Accountant ROC Accounting Profession Financial Analysts Finance Directors .

Fair presentation – presentation fairly the financial position. an enterprise should disclose the four reasons outlined by MASB (refer MASB 1 page 7 para 14). .Compliance with MASB – comply with all the MASB Standard and other technical pronouncements issued by MASB. a) that management has concluded that the FS fairly present the enterprise’s financial position.If departure from requirements to achieve fair presentation. financial performance and cash flows. performance and cash flows of an enterprise by application of appropriate MASB Standards. . . Fair presentation and compliance with MASB Standards.OVERALL CONSIDERATION IN PREPARING FINANCIAL STATEMENT: 1. .

c) the Standard from which the enterprise has departed. equity and cash flows for each period presented. liabilities. . and d) the financial impact of the departure on the enterprise’s net profit or loss. the nature of departure.b) that it has complied in all material respects with applicable MASB Standards except that it has departed from a Standard in order to achieve a fair presentation. including the treatment that the Standard would require. the reason why the treatment would misleading in the circumstances and the treatment adopted. assets.

3. rules and practices adopted by the enterprise in preparing financial statements.2.Management should select and apply an enterprise’s accounting policies so that it’s comply with MASB Standard. . . convention. Going Concern . . neutral. free of bias. a) Relevant b) Reliable – represent faithfully. Accounting Policies . bases.Definition: Accounting policies are the specific principles. prudent and complete.assuming that the business will continue to operate for the foreseeable future.If there is no specific requirement management should develop policies to ensure the financial statement is.

presentation and classification of items should be applied consistently from one accounting period to another.4.transaction and events are recognized when they are occur (not as a cash received or paid) and they are recorded in the accounting recorded in the accounting record and reported in financial statements of the period to which they are relate. A significant change in the nature of the operation and the changes could demonstrate more appropriate presentation of events or transaction.Expenses are recognized on direct association basis between cost and income (matching).Changes are allowed if. . . Accrual Basis of Accounting . A change is required by MASB Standard. Consistency in Presentation . 5. .

.the importance of a material item toward the overall financial information. aggregated with amount of a similar nature or function and need not be presented separately. . presented separately in the financial statement. Materiality and Aggregation . .materiality depends on: • size of the items • nature of the items.material items.immaterial items. . (the item are material if it’s non-disclosure could influence the economic decision of users).6.

2. Historical cost Concept (Kos sejarah) assets should be shown in balance sheet at their original cost (at the time they bought) to the business. 3. Business Entity Concept (Entiti Berasingan) a business is to be treated as an independent entity.Other Accounting Concepts: 1. 4. Duality Concept (Double Entry) every entry for each transaction should reflect twofold in financial position of the business. Matching Concept (Pemadanan) expenses should be matched against the revenue to which they relate (the same accounting period) . separate from its owner.

(Konsep Berhati-hati) the need to make estimates and form judgments when preparing financial statement. a prudent accountant will tend to: understate revenue. In other words. 7. 6. . Some practical consequences of this convention are. losses and liabilities. Accruals 5.In other word the revenue is recognized when it is earned not when is received and the expenses is recognized when it is incurred not when the payment is made. Prudence/Conservatism Concept. Monetary Unit it all the transactions are recorded in monetary unit of measurement. Prepayment Accounting Period produce financial statement at yearly intervals. profit and assets and overstate expenses. RM and cent.

Amir Enterprise tidak dapat akur kepada salah satu piawaian perakaunan yang telah ditetapkan oleh MASB. 3. 4. Bagaimanakah piawai perakaunan digubal di Malaysia? Berikan 2 fungsi Lembaga Piawaian Perakaunan Malaysia (MASB)? General Purpose Financial Reports(Laporan kewangan untuk tujuan am) are designed to satisfy the needs of many different type of users. Does this mean the general purpose report will be of little used to individual users? Di atas sebab-sebab yang tak dapat dielakkan.Example of questions on Accounting Standard: 1. . 5. Apakah maklumat-maklumat yang perlu Amir Enterprise dedahkan kepada pengguna-2 maklumat perakaunan sepertimana yang dikehendaki oleh MASB dalam keadaan ini? Mestikan persembahan penyata kewangan tekal (consistent)dari satu tempoh ke satu tempoh yang lain?Dalam keadaan bagaimanakah ia dibenarkan tidak tekal? Mengapakah penting andaian ini dipatuhi? 2. Apakah piawai perakaunan? Namakan badan yang bertanggungjawab dalam penggubalan piawaian perakauanan di Malaysia.

Maklumat ini walaubagaimanapun tidak direkodkan. Anda dikehendaki mengkaji setiap situasi dan nyatakan samada anda bersetuju atau tidak dengan cara ianya direkodkan di dalam akaun. a. Perbelanjaan pembaikan Perniagaan XYZ termasuk belanja pembaikan rumah pengarah syarikatnya sebanyak RM12000 telah direkodkan ke dalam akaun perniagaan XYZ. Berikut adalah beberapa situasi yang berasingan. Salmah telah membeli mesin kira yang berharga RM50 untk kegunaan pejabat yang dijangkana boleh digunakan untuk tempoh 4 tahun.Example of questions on Accounting Concept 1. dengan merujuk kepada andaian/prinsip/konsep/konvesyen perakaunan yang relevan. b. Jelaskan jawapan anda. Perniagaan Selamat mempunyai pekerja yang mahir dan reputasi yang baik dari segi penjagaan kualiti barangan yang dikeluarkannya. c. Mesin tersebut telah direkod sebagai satu belanja. .

d. Perniagaan Perabut Hasan telah menerima tempaha set meja makan dari En. 2001 apabila ianya dibayar. Urusniaga tersebut hanya direkod dalam bulan Mac. Wlaubagaimanapun maklumat ini tidak dimasukkan ke dalm penyata kewangan Perniagaan Enak. . Harga pasaran baru ini telah direkodkan di dalam penyata kewangan. Set meja makan tersebut dihantar kepada pada bulan Februari dan ia membayarnya pada awal bulan Mac 2001. Khairil pada akhir bulan Januari 2001. f. Disebabkan oleh kepesatan pembangunan nilai tanah ini telah meningkat kepada RM110000 seekar. Seorang pelanggan yang berhutang sebanyak RM4500 dengan Perniagaan Enak mungkin akan muflis. yang dibeli pada tahun 1980 pada harga RM20000 seekar. Usia hutang tersebut telah lebih daripada 90 hari. e. Syarikat Hijau mempunyai 2 ekar tanah berdekatan dengan Litar Formula 1 Sepang.

c. Farhan only takes into account all the transaction that relate to his business. Pemilik perniagaan keliru dengan maklumat ini kerana sejak perniagaannya ditubuhkan .2. Irfan Bhd only paid RM3000 in September that year. sole trader or a company. ignoring transaction made for himself. jelaskan kenapa perbezaan ini boleh terjadi. 4. b. Identify the accounting conceptsfor each situation: a. Farhan still takes into account the RM4000. Farhan’s business made credit sales to Irfan Bhd amounted RM7000 in July 1997. 3. akaun bank perniagaannya hanya bertambah sebanyak RM2. Explain your answer. . he has no intention to sell off the business. He prepared the accounts of the business showing profit of RM25. With this situation.000. What is a different between business entity and accounting entity concept.000 untuk tempoh yang terkini. Penyata Kewangan sebuah perniagaan menunjukkan untung sebanyak RM20.000 sahaja dalam tempoh berikut. Dengan merujuk kepada prinsip/andaian perakaunan yang relevan. In your opinion which are catogerised in these both catogeries. the balance will be paid early next year. Farhan owns a small business in Shah Alam.

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