INTRODUCTION TO ACCOUNTING & CONCEPTUAL

FRAMEWORK
Noor Lela Ahmad
FPE UPSI

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 is a
Accounting
Accounting Identifies
Identifies
system that

Records
Records

information
Relevant
Relevant Communicates
Communicates
that is

Reliable
Reliable
to
tohelp
helpusers
usersmake
make
Comparable better
betterdecisions.
decisions.
Comparable
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 C1

Accounting

Identifying
Select transactions and events

Recording
Input, measure and classify

Communicating
Prepare, analyze and interpret

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 C2

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 C3

Beliefs that Accepted standards

distinguish right of good and bad
from wrong behavior

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 Users of Accounting
Information
External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers/Directors •Budget Officers

•Governments •Customers •Internal Auditors •Controllers

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 External Users Internal Users

Financial accounting provides Managerial accounting provides

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

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 Financial
Financial accounting
accountingpractice
practice is
isgoverned
governedbyby
concepts
conceptsandandrules
rulesknown
known asas generally
generallyaccepted
accepted
accounting
accountingprinciples
principles(GAAP).
(GAAP).

Relevant
Relevant Affects
Affectsthethedecision
decisionof
of
Information
Information its
itsusers.
users.

Reliable
Reliable Information
Information Is
Istrusted
trustedby
by
users.
users.

Comparable
Comparable Used
Usedin
incomparisons
comparisons
Information across
acrossyears
years&&companies.
companies.
Information
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 Setting Accounting Principles
International Malaysia
 The International Accounting  Malaysian Accounting Standards
Standards Board (IASB) issues Board (MASB) is established
under the Financial Reporting Act
International Financial 1997 (the Act) as an independent
Reporting Standards (IFRS) authority to develop and issue
that identify preferred accounting and financial
reporting standards.
accounting practices.  The Financial Reporting
 If IFRS are adopted worldwide, Foundation (FRF), as a trustee
a company can potentially use body, has responsibility for the
oversight of the MASB's
a single set of financial performance, financial and
statements in all financial funding arrangements, and as an
markets. initial source of views for the
MASB on proposed standards and
pronouncements. It has no direct
responsibility with regard to
standard setting. 

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 IFRS
• More than 100 countries and more than 40% of Global
Fortune 500 companies are already using IFRS.
– Blue areas: countries that require or permit IFRS.
– Grey areas: countries pursuing adoption of IFRS.
– ASIA: Adopted or in-process:
Singapore, Malaysia, Taiwan, China, Hong Kong, Australia, India
and South Korea

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 C4

Malaysian
Malaysian Accounting
Accounting Standards
Standards
Board
Board is
is the
the private
private group
group that
that sets
sets
both
both broad
broad and
and specific
specific principles.
principles.

The Securities Commission is the government agency that

establishes reporting requirements for companies that issue
stock or shares to the public.

The Malaysian Accounting Standards Board (MASB) issues

Malaysian Financial Reporting Standards that identify
preferred accounting practices to create harmony among
accounting practices of different countries.
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 MFRS
• From Jan 2005, all standard issued by the MASB are
call financial Reporting Standards and
renumbered. The numbers assigned are changed to
coincide with the numbers assigned to IASs.

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 Principles of Accounting

Objectivity Principle Cost Principle

Accounting information is Accounting information is
supported by independent, based on actual cost.
unbiased evidence.

Now Future
Going-Concern Principle
Reflects assumption that the business
will continue operating instead of
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 Principles of Accounting
Monetary Unit Principle
Express transactions and events in
monetary, or money, units.
Business Entity Principle
A business is accounted for
separately from other business
entities, including its owner.
McGraw-Hill/Irwin
Revenue Recognition Principle
1. Recognize revenue when it is
earned.
2. Proceeds need not be in cash.
3. Measure revenue by cash
received plus cash value of items
received.
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 Sole
Sole Partnership
Partnership Corporation
Corporation
Proprietorship
Proprietorship

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 Characteristic
Characteristic Proprietorship
Proprietorship Partnership
Partnership Corporation
Corporation
Business
Businessentity
entity yes
yes yes
yes yes
yes
Legal
Legal entity
entity no
no no
no yes
yes
Limited
Limited liability
liability no*
no no
no* yes
yes
Unlimited
Unlimited life
life no
no no
no yes
yes
Business
Businesstaxed
taxed no
no no
no yes
yes
One
One owner
owner allowed
allowed yes
yes no
no yes
yes

**Proprietorships
Proprietorshipsandandpartnerships
partnershipsthat
thatare
areset
set up
upas
as
limited
limitedliability
liabilitycorporations
corporations(LLC)
(LLC)provide
providelimited
limitedliability.
liability.

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 Owners of a corporation are called
shareholders (or stockholders).

When a corporation issues only one

class of stock, we call it common stock,
ordinary shares or capital stock.

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 Assets
Assets = Liabilities
Liabilities + Equity
Equity

Liabilities
Assets & Equity

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 Cash
Cash
Accounts
Accounts Notes
Notes
Receivable
Receivable Receivable
Receivable
Resources
Resources
owned
owned oror
Vehicles controlled
controlled
Vehicles Land
by
by aa Land
company
company
Store
Store Buildings
Buildings
Supplies
Supplies Equipment
Equipment
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 Accounts
Accounts Notes
Notes
Payable
Payable Payable
Payable

Creditors’
Creditors’
claims
claims on
on
assets
assets
Taxes
Taxes Wages
Wages
Payable
Payable Payable
Payable

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 Contributed
Contributed Retained
Retained
Capital
Capital Earnings
Earnings

Owner’s
Owner’s
claim
claim on
on
assets
assets

Dividends
Dividends
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 Assets
Assets = Liabilities
Liabilities + Equity
Equity

Common
Common _ Dividends _
Stock
Stock
Dividends
+ Revenues
Revenues Expenses
Expenses

Retained Earnings

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 Transaction Analysis Equation
The accounting equation MUST remain in balance
after each transaction.

Assets
Assets = Liabilities
Liabilities + Equity
Equity

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 Transaction Analysis
Pink Ltd. invests $20,000 cash to start
the business in exchange for stock.
The accounts involved are:
(1) Cash (asset)
(2) Common Stock (equity)

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 Pink invests $20,000 cash to start the
business in return for stock.

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 Purchased supplies paying $1,000 cash.

The accounts involved are:

(1) Cash (asset)
(2) Supplies (asset)

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 Purchased supplies paying $1,000 cash.

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 Purchased equipment for $15,000 cash.

The accounts involved are:

(1) Cash (asset)
(2) Equipment (asset)

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 Purchased equipment for $15,000 cash.

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 Transaction Analysis
Purchased Supplies of $200 and
Equipment of $1,000 on account or on
credit (i.e. will pay cash in the near
future).

The accounts involved are:

(1) Supplies (asset)
(2) Equipment (asset)
(3) Accounts Payable (liability)
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 Purchased Supplies of $200 and
Equipment of $1,000 on account.

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 Borrowed $4,000 from Mei Bank.

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 The balances so far appear below. Note that the
Balance Sheet Equation is still in balance.

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 Transaction Analysis

Now, let’s look at transactions

involving revenue, expenses and
dividends.

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 Transaction Analysis
Provided consulting services receiving
$3,000 cash.

The accounts involved are:

(1) Cash (asset)
(2) Revenues (equity)

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 Provided consulting services receiving
$3,000 cash.

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 Transaction Analysis
Paid salaries of $800 to employees.

The accounts involved are:

(1) Cash (asset)
(2) Salaries expense (equity)

Remember that the balance in the salaries expense

account actually increases.
But, equity decreases because expenses reduce
equity.
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 Paid salaries of $800 to employees.

Remember that expenses decrease equity.

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 Transaction Analysis
Dividends of $500 are paid to shareholders.

The accounts involved are:

(1) Cash (asset)
(2) Dividends (equity)

Remember that the Dividend account actually increases.

But, equity decreases because dividends reduce equity.

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 Dividends of $500 are paid to shareholders.

Remember that dividends decrease equity.

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 Financial Statements
Let’s prepare the Financial Statements reflecting the
transactions we have recorded.

1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet (Statement of
Financial Position)
4. Statement of Cash Flows

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 Net income is the
difference
between
Revenues and
Expenses.

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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 The net income of $2,200
increases Retained
Earnings by $2,200.

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 The
TheBalance
BalanceSheet
Sheetdescribes
describes
aacompany’s
company’sfinancial
financialposition
position
at
ataapoint
pointin
intime.
time.

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McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2010
 Tips of the week
Organization

Make to do list. Prepare your to do list

the night before. In doing so, you will
know exactly what tasks you have to
accomplish the next day.

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 A CULTURE FOR LEARNING
FRAMEWORK

1. RIGHT ATTITUDE
2. RESPECT
3. RESPONSIBILITY

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