Topic

Accounting in
Business

100 Shares

Accounting
Environment

$1 par value

1. Definition of accounting.
2. Purposes of accounting, fields of
accounting, accounting professional
bodies, ethics and regulations.
3. Types of business.
4. Characteristics of qualitative accounting
information
5. Users of accounting information.
6. Generally accepted accounting principles
* Accounting assumptions.
* Accounting principles.
* Accounting constraints.

Nature of Business and

Accounting

o A business is an organization in which basic

o
o

resources (inputs), such as materials and

labor, are assembled and processed to
provide goods or services (outputs) to
customers.
The objective of most businesses is to earn a
profit.
Profit is the difference between the amounts
received from customers for goods or
services and the amounts paid for the inputs
used to provide the goods or services.

c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

TYPES OF BUSINESSES
Service Business

Service

Delta Air Lines

Transportation services

The Walt Disney Company

Entertainment services

Merchandising Business

Product

Walmart

General merchandise

Amazon.com

Internet books, music, videos

Manufacturing Business

Product

Ford Motor Company

Cars, trucks, vans

Dell, Inc.

Personal computers

Business
Business Entity
Entity Forms
Forms
Proprietorship
Proprietorship

Partnership
Partnership

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Corporation
Corporation

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PROPRIETORSHIP
A proprietorship is
owned by one
individual.

70% of business
entities in the
Malaysia. are
proprietorships.

They are easy and

cheap to organize.

Resources are

limited to those of
the owner.

Used by small
businesses.

PARTNERSHIP
A partnership is
similar to a
proprietorship
except that it is
owned by two or
more individuals.

10% of business

organizations in the
Malaysia.
(combined with
limited liability
companies) are
partnerships.

Combines the skills

and resources of
more than one
person.

CORPORATION
A corporation is
organized under state
or federal statutes as
a separate legal
taxable entity.

Corporations generate
90% of business
revenues.

20% of the business

organizations in the
Malaysia are
corporations.

Ownership is divided
into shares, called
stock.

Can obtain large

amounts of resources
by issuing stocks.

Used by large
businesses.

LIMITED LIABILITY COMPANY

(LLC)
A limited liability
company (LLC)
combines the
attributes of a
partnership and a
corporation.

10% of business

organizations in the
Malaysia(combined
with partnerships).

Often used as an
alternative to a
partnership.

Has tax and legal

liability advantages
for owners.

Role of Ethics in Accounting and

Business

o The objective of accounting is to provide

relevant, timely information for user
decision making.

o Accountants must behave in an ethical

manner so that the information they
provide users will be trustworthy and,
thus, useful for decision making.

o Ethics are moral principles that guide

the conduct of individuals.

c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

The Role of Accounting in

Business
o Accounting can be
defined as an information

system that provides reports to users about the

economic activities and condition of a business.

o The process by which accounting provides

information to users is as follows:

Identify users.
Assess users information needs.
Design the accounting information system to meet

users needs.

Record economic data about business activities and

events.

Prepare accounting reports for users.

c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Users
Users of
of Accounting
Accounting Information
Information

Financial Accounting
EXTERNAL USERS

investors
creditors
regulators
customers
competitors

Managerial Accounting
INTERNAL USERS

owners
managers
employees

C1 - 12

THE ROLE OF ACCOUNTING IN

BUSINESS

Importance
Importance of
of Accounting
Accounting
Accounting
Accounting

is a
system that

Identifies
Identifies
Records
Records

Relevant
Relevant

information
that is

Communicates
Communicates

Reliable
Reliable
Comparable
Comparable
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

to
tohelp
helpusers
usersmake
make
better
betterdecisions.
decisions.
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Accounting
Accounting Activities
Activities
Identifying
Business
Activities

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Recording
Business
Activities

Communicating
Business
Activities

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USERS OF ACCOUNTING INFORMATION

External Users

Internal Users

Lenders
Consumer Groups Managers
Sales Staff
Shareholders External Auditors Officers
Budget Officers
Governments Customers
Internal Auditors Controllers

USERS OF ACCOUNTING
INFORMATION
External Users

Financial accounting provides

external users with financial
statements.

Internal Users

Managerial accounting provides

information needs for internal
decision makers.

Opportunities
Opportunities in
in Accounting
Accounting
Financial
Financial
Preparation
Preparation
Analysis
Analysis
Auditing
Auditing
Regulatory
Regulatory
Consulting
Consulting
Planning
Planning
Criminal
Criminal
investigation
investigation

AccountingAccountingrelated
related

Managerial
Managerial

Taxation
Taxation

General
Generalaccounting
accounting
Cost
Costaccounting
accounting
Budgeting
Budgeting
Internal
Internalauditing
auditing
Consulting
Consulting
Controller
Controller
Treasurer
Treasurer
Strategy
Strategy

Preparation
Preparation
Planning
Planning
Regulatory
Regulatory
Investigations
Investigations
Consulting
Consulting
Enforcement
Enforcement
Legal
Legalservices
services
Estate
Estateplanning
planning

Lenders
Lenders
Consultants
Consultants
Analysts
Analysts
Traders
Traders
Directors
Directors
Underwriters
Underwriters
Planners
Planners
Appraisers
Appraisers

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FBI
FBIinvestigators
investigators
Market
Marketresearchers
researchers
Systems
Systemsdesigners
designers
Merger
Mergerservices
services
Business
Businessvaluation
valuation
Human
services
Human services
Litigation
Litigationsupport
support
Entrepreneurs
Entrepreneurs
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Generally
Generally Accepted
Accepted Accounting
Accounting
Principles
Principles
Financial
Financialaccounting
accounting practice
practiceis
isgoverned
governedby
by
concepts
conceptsand
andrules
rules known
known as
as Generally
GenerallyAccepted
Accepted
Accounting
AccountingPrinciples
Principles(GAAP).
(GAAP).
Relevant
Relevant
Information
Information
Reliable
Reliable Information
Information

Comparable
Comparable
Information
Information
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

Affects
Affectsthe
thedecision
decisionof
of
its
itsusers.
users.
Is
Istrusted
trustedby
by
users.
users.
Is
Ishelpful
helpfulin
incontrasting
contrasting
organizations.
organizations.
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Generally Accepted Accounting

Principles

Financial accountants follow generally

accepted accounting principles (GAAP) in
preparing reports.

Within the Malaysian the Financial

Accounting Standards Board (FASB) has
the primary responsibility for developing
accounting principles.

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Generally Accepted Accounting

Principles

o The Securities and Exchange Commission

(SEC), an agency of the Malaysia
government, has authority over the
accounting and financial disclosures for
companies whose shares of ownership
(stock) are traded and sold to the public.

o Many countries outside the Malaysia use

generally accepted accounting principles

adopted by the International Accounting
Standards Board (IASB).
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Professional
Professional Accounting
Accounting Bodies
Bodies and
and
Standard
Standard Setting
Setting in
in Malaysia
Malaysia
Malaysian Institute of Accountant (MIA)
http://www.mia.org.my
Malaysian Institute of Certified Public Accountant
(MICPA)
Malaysian Accounting Standards Board (MASB)
http://www.masb.org.my
Financial Reporting Foundation (FRF)

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The McGraw-Hill Companies, Inc., 2007

Business Entity Concept

o Under the business entity

concept, the activities of a

business are recorded
separately from the activities
of its owners, creditors, or
other businesses.
c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Cost Concept
o

Under the cost concept, amounts are initially recorded in

the accounting records at their cost or purchase price.

The objectivity concept requires that the amounts

recorded in the accounting records be based on
objective evidence.
Only the final agreed-upon amount is objective enough
to be recorded in the accounting records.
The unit of measure concept requires that economic
data be recorded in dollars.

o
o
o

For example, Aaron Publishers purchased a building on

February 20, 2012, for $150,000. Other amounts related
to this purchased are shown on the next slide.
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Cost Concept
Price listed by seller on January 1, 2012

RM160,000

Aaron Publishers initial offer to buy on

January 31, 2012

140,000

Purchase price on February 20, 2012

150,000
Estimated selling price on
December 31, 2014

220,000

Assessed value for property taxes,

December 31, 2014

190,000

Under the cost concept, Aaron Publishers records the purchase of

the building on February 20, 2012, at the purchase price of

RM150,000
The other amounts listed above have no effect on the accounting

c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Accounting
Accounting Assumptions
Assumptions
Now

Future

Economic Entity
The business is accounted for
separately from other business
entities, including its owner

Going-Concern Principle
Reflects assumption that the
business will continue operating
instead of being closed or sold

Monetary Unit Principle

Express transactions and events in
monetary, or money, units

Time Period
The economic life of business can be
divided into artificial time period for
the purpose of financial reporting

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

The McGraw-Hill Companies, Inc., 2007

Accounting
Accounting Principles
Principles
Revenue Recognition
1. Recognize revenue when it is
Historical Cost
earned.
Accounting information is based
2. Proceeds need not be in cash.
on actual cost.
3. Measure revenue by cash
received plus cash value of items
received.

Matching
Expenses are matched against
revenues, and recorded in the
same period in which the related
revenues are earned
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Full Disclosure
Report enough information for
users to make knowledgeable
decisions about the company
The McGraw-Hill Companies, Inc., 2007

Accounting
Accounting Constraints
Constraints

Conservatism
Income and assets be reported at
their lowest reasonable amounts (i.e.
minimizing the assets and
understating the income)

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Materiality
Accountants are required to
accurately account for significant
items and transactions

The McGraw-Hill Companies, Inc., 2007

The
The Operating
Operating Guidelines
Guidelines of
of Accounting
Accounting
ASSUMPTIONS

PRINCIPLES

CONSTRAINTS

Economic entity

Historical costs

Conservatism

Monetary unit

Revenue recognition

Materiality

Going concern

Matching

Time period

Full disclosure

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

The McGraw-Hill Companies, Inc., 2007

End of Topic 1

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Wan N -2008