FA HO 1 Intro 20224

MASTER IN ENGINEERING
MANAGEMENT
MEM 772: Accounting, Finance and
Engineering Economics
UPDATED 20224
Prof. Dr. Syed Noh Syed Ahmad, CA(M)

FINANCIAL ACCOUNTING
HANDOUT 1
MEM 772 HANDOUT 1 1

PROF DR SYED NOH SYED AHMAD
Prof. Dr. Syed Noh Syed Ahmad
Mobile Ph: 016 362 0309
E-mail: mem772uitm@gmail.com
(preferred for this class)
Alternative:
syednohahmad@gmail.com (my
personal email account)
Please do not sent to both!!!
MEM 772 HANDOUT 1 2

MY EXPECTATIONS AND LEARNING
OUTCOMES FOR MEM772
• You are expected to have and practice a high
level of integrity – academic and personal.
• Students are expected to be aware of what is
happening “in the real world”, thus you must be
up-to-date with current business conditions,
nationally and internationally.
• You are expected to be able to express yourself
in English at a level befitting a post graduate
student. There is no excuse for an MEM to have
a poor command of English.
MEM 772 HANDOUT 1 HO1 - 3
• Do not postpone learning – you must be
self motivated to learn and must pace
yourself during this intensive semester.
No last minute learning or doing last
minute work.
• All assignments must be submitted on the
due date. Do not embarrass yourself by
asking me for extensions as none will be
given.
• You are expected to “attend” (virtually) all
on line lectures – I will check during the
video conferencing session.
Outcomes expected from the
MEM 772
• Students must be able to articulate and
communicate the analytical procedures as well
as the results in accounting, finance, and
economics case studies and individual company
analysis.
• Students must be able to synthesize, and “think
outside the box” in reading and doing case
studies and focused problems in accounting.
• Must be able to demonstrate a working
understanding of the accounting terms and
processes as well as the analytical tools and
methods.. PROF DR SYED NOH SYED AHMAD
Mahatma Gandhi said that seven
things will destroy us.
1.Wealth Without Work
2.Pleasure Without Conscience
3.Knowledge Without Character
4.Commerce (Business) Without
Morality (Ethics)
5.Science Without Humanity
6.Religion Without Sacrifice
7.Politics Without Principle
MEM 772 HANDOUT 1 6

What is Accounting?
• An information system that provides reports
to stakeholders about the economic activities
and conditions of a business
• Art of classifying, recording and summarising
of financial events
• Art and science of recording business
transactions in a methodological manner so
as to show:
– the financial position
– the profit or loss of organizations
MEM 772 HANDOUT 1 7

A Brief History of Accounting
MEM 772 HANDOUT 1 8

• The first accounting book was written by Luca Pacioli
in a section of a book on mathematics entitled
“Summa de Arithmetica, Geometrica, Propotioni et
Proportionalita”, (trans: "Everything about
Arithmetic, Geometry, and Proportions."
published in 1494 (printed on Nov 10, 1494!).
• This book was written as a digest and guide to
existing mathematical knowledge, and bookkeeping
was only one of five topics covered.
• However, accounting historians agree that Luca
Pacioli did not invent the accounting system, as
accounting records based on the double entry system
have already existed as long as two centuries before
it was written by Luca Pacioli – but he was attributed
to be the first to write about this system.
• The precise origin of the accounting records and
reports outlined by Pacioli and used in the Italian city
states is presently unknown.
MEM 772 HANDOUT 1 9
• Ever since the book written by Luca
Pacioli, accounting practitioners in public
accounting, industry, and not-for-profit
organizations, as well as investors, lending
institutions, business firms, and all other
users for financial information are still
using the double entry system of
accounting as written by Luca Pacioli.
MEM 772 HANDOUT 1 10

Accounting Principles and
Concepts
• In order to have a good understanding of
financial accounting and the information
provided in the financial statements, it is
important to know the basis of how these
financial statements are prepared.
• Similar to other fields, accounting has its
own principles used in preparing the
financial statements

• The following slides are brief explanations
of the accounting principles and concepts
used in the double entry bookkeeping
system. Collectively, these are also
known as the “Generally Accepted
Accounting Principles (GAAP)”.
• Accountants are expected to refine their
knowledge of these GAAPs by referring to
the Accounting Standards.

ENTITY CONCEPT
• Entity concept: all transactions are
recorded in the accounting records from
the point of view of the business or the
accounting entity and not from the point of
view of the business owners (shareholders
or proprietor or partners, etc). Thus, in
accounting, the business is considered as
a separate entity from the owners of the
business.

Monetary Concept
• Due to its nature, accounting can only
consider information that is stated in
monetary forms (ringgit and sen) – the
common denominator in financial
transactions. Thus the value of the
assets, liabilities, revenues, expenses
must be stated in monetary amounts or is
capable of being translated into monetary
amounts.
Going Concern Concept
• In accounting, it is assumed that a business has an
indefinite life span. This is important as the valuation of
the assets (mainly fixed assets) of the business is based
on the book value – the value that is recorded in the
books (accounting record) of the entity. If this
assumption is not used, then the proper valuation of the
assets should be based on market value. Market value
is ignored because, from an accounting perspective, the
assets of the business are retained to enable the
business to earn profits in the future and not for
purposes of selling these assets. This is a very
controversial aspect especially if the book value is vastly
different from the market value.

Accounting Period
• Because it is assumed that the business is
going to operate indefinitely (going
concern concept), it is necessary to divide
the life of the business into artificial time
period, in order to check on the progress
of the business (such as the amount of
profit). This artificial time period is known
as the accounting year or the financial
year. For example 1 Jan to 31 December,
1 May to 30 April, etc.
Cost Concept
• All transactions are recorded at their
historical cost – that is, the cost that is
supported by objective evidence – such as
receipts, contracts, etc. Thus, the entity
cannot just record at any value that they
like…

Conservatism Concept
• This concept required that accountants
must be prudent (cautious) when
preparing the financial statements. For
example, they must not recognised profits
until it is realised. Given two valuations,
the lower valuation is always used (lower
of cost or market value). Being
conservative has a psychological aspect –
credibility of accounting and accountants!
Matching Concept
• In order to arrive at the amount of profits that a
business earns, it is important to match the
revenue with the expenses to earned that
revenue. In most case, for example trading
business, this does not posed too much of a
problem. However, in other businesses such as
construction, property development and those
involved in long term contracts, application of
this concept is important to arrive at the profit
figure. Another controversial issue in
accounting.
Consistency Concept
• Transactions and preparation of the financial
statements must be recorded and the estimates
used must be applied in a similar (consistent)
manner. This is important when comparison and
analysis of the business is to be meaningful –
the use of similar basis in the recording and
preparation process. For example, the same
depreciation method must be used. The entity
can change the estimate, methods and rates but
it must be for a good reason and approved by
the auditors.
Materiality Concept
• Only those items that are considered as
material (important or have a major
impact) are disclosed in the financial
statements. The concept of materiality is
relative: for example RM1,000 is material
for a small business but not for a multi-
million ringgit business. As a general rule,
an item is considered material if it
constitutes between 5% - 10% of an item.
What is the Double Entry System
Accounting?
ASSETS = LIABILITIES + EQUITY

ACCOUNTING (BALANCE
SHEET) EQUATION
ASSETS: Things owned by the business; these
represents the resources of the business
LIABILITIES: Amounts owed by the business
OWNER’S EQUITY: In accounting terms, after all
liabilities are paid, ownership equity is the
remaining interest in assets representing the
amounts invested by the owner in the business.
Depending on the type of business, owners’ equity
can be in the form of Owner’s or Partnership
Capital, or for companies Share Capital

Accounting Equation
• Please do: The Accounting Equation
Exercise 1

Extended Accounting Equation
• This extended version is to take into
account the classification of Assets into
Current and Non- Current Assets; and
Liabilities into Current and Non-Current
Liabilities.
NCA + CA = CL + NCL + OE
The mathematical operations remain the
same
Extended Accounting Terms
Explained

EXTENDED ACCOUNTING
EQUATION
ACCOUNTING
EQUATION
A=L+E
ASSETS
= LIABILITIES
+ EQUITY
NON- NON- CURRENT

CURRENT
CURRENT CURRENT LIABILITIES
ASSETS
ASSETS LIABILITIES

Classification of Assets
ASSETS
Non-Current CURRENT
INTANGIBLE TANGIBLE INVENTORY
ACCOUNTS
GOODWILL PLANT
RECEIVABLE
PATENTS PROPERTY CASH
TRADEMARKS EQUIPMENT BANK
PREPAID
FRANCHISE LAND
EXPENSES
LICENCES MACHINERY ETC
ETC FURNITURE
ETC

Classification of Liabilities
LIABILITIES
NON-CURRENT CURRENT
ACCOUNTS
BANK LOANS
PAYABLE
MORTGAGES BANK OVERDRAFT
LOAN FROM
SHORT TERM
FUNDING
LOANS
AGENCIES
CURRENT
OTHER LONG PORTION
TERM LOANS OF LONG TERM
DEBTS
ACCRUED
EXPENSES
ETC

•
Fixed Assets and Current Assets
Non-current Assets: Those assets of a permanent nature required
for the normal conduct of a business, and which will not normally
be converted into cash during the ensuring fiscal period. For
example, furniture, fixtures, land, and buildings are all fixed assets.
In published financial statements these are classified as Non-
Current Assets.
– Tangible Assets: Physical and material assets that have shape and
form, and can be touched. Examples are the current assets (explained
below), land, buildings, plant, equipment.
– Intangible Assets: These assets that do not have a physical, tangible
existence. Assets that cannot be physically touched . Examples of
intangible assets could include goodwill, brand value, patents,
franchises, trademarks, patents, copyrights, Intellectual Property
(Patents, Copyright, Trade Marks), licenses
• A current asset is an asset on the balance sheet which is expected
to be sold - turned into cash - or otherwise used up in the
operations of the company within one year usually Generally
includes cash, accounts receivable (debtors), inventory and prepaid
expenses.

Non-Current Liabilities and Current
Liabilities
• Non-Current Liabilities (Long term Liabilities)
are debts that are due to be paid or settled after
more than one year such as bank loans,
mortgages, loans from MARA, etc.
• Current Liabilities are considered liabilities of
the business that are to be settled in cash within
the financial year. Briefly, these are debts a
business expects to pay within one year. These
include accounts payable (creditors), short-term
debts such as bank overdraft, interest on long-
term debt or current portion of long term debt.
Please do the Extended
Accounting Equation: Exercise 2
Please do the Identifying Assets

Liabilities and Equity: Exercise 3

What is Revenue
• Basically an inflow of assets as a result of
sales of goods or providing of services to
customers; (also called income; which is
not really accurate). Sale of a non-current
asset is NOT revenue!
• E.g of revenues are : sales, commissions
received (or earned), rent income, interest
income, dividends received from
investment, etc

REVENUE
COMMISSIONS INTEREST RENT

SALES OTHERS
RECEIVED INCOME INCOME

What is an Expense
• As opposed to revenue, an expense
represents an outflow of assets (usually
cash) in order to generate (or earn)
revenue. Or put simply, a revenue
represents expenditure made to earn the
revenue.
• Examples of expenses: salaries,
advertising, rent expense, utilities, etc.

EXPENSES
Rent
Advertising Salaries Depreciation Utilities Others
Expenses

An important point to understand
concerning expenses!
• In accounting Expenditure can be classified in two types,
which will have important consequences to the financial
statement:
– Revenue expenditure: Expenses incurred as a result of day-to-
day operations.
These are also called operating expenditure (OPEX). Example:
all selling and general & administrative expenses, depreciation,
interest expense (interest is also classified as a financial
expense). These are used as deductions from revenue to
obtain the profit that is used in the preparation of the Income
statement.
– Capital expenditures (CAPEX) are expenditures creating future
benefits, that is, capital expenditure is incurred when a business
spends money either to buy fixed assets: land building, plant
equipment, vehicles, furniture and fittings, etc or to add to the
value of an existing fixed asset with a useful life that extends
beyond a financial year. These capital expenditure are
recorded in the financial statement that is the Balance Sheet.
TYPES OF EXPENDITURE
EXPENSES
REVENUE OR CAPITAL
OPERATING EXPENDITURE
EXPENSES [OPEX] [CAPEX]
INCOME BALANCE
STATEMENT SHEET

What is Profit/(Loss)
• In Accounting, profit is defined as the difference
between Revenue and Expenses, the amount
left over when expenses are subtracted
revenues (if expenses is more then revenue, this
will result in a Loss!)
Revenue – Expenses = Profit/Loss
R>E = Profit
R<E = Loss
PLEASE DO EXERCISE 4
CALCULATION OF PROFIT
Calculation of Profit
• The profit (or loss) of a business is
calculated in a statement called
(imaginatively!), the Profit and Loss
Account or Profit and Loss Statement or
Income Statement.

Mathematical Insight of the Profit and
Loss Account and the Balance Sheet
• ASSETS = LIABILITES + EQUITY
• ASSETS = LIABILITES + [EQUITY ± (PROFITS/LOSS)]
• ASSETS = LIABILITIES + [EQUITY ± (REVENUES – EXPENSES)]
Figure obtained from the Income Statement

(Profit and Loss Account)

Please Do Exercise 5: Classifying
Items Into Assets, Liabilities, Equity,
Revenue And Expenses

DREADED DUO:
DEBITS AND CREDITS
Or
Why Engineers and Others Hate
Accounting and Accountants

A One Slide Explanation Of The
Double Entry System
DOUBLE
ENTRY
SYSTEM
DEBIT (Dr) CREDIT (Cr)
LEFT SIDE RIGHT SIDE
LIABILITIES
ASSETS
EQUITY
EXPENSES
REVENUE
INCREASE DECREASE INCREASE DECREASE

DEBIT CREDIT CREDIT DEBIT

ANALYSIS OF TRANSACTIONS
• The following steps should be followed in analysing
the transactions:
• Determine the impact of the transaction on the two
items involved
• Determine whether an asset, a liability, owner’s
equity, revenue, or expense account is affected by
the transaction
• For each item (“account”) affected by the transaction,
determine whether the account increases or
decreases.
• Then determine whether each increase or decrease
should be recorded as a debit or credit

THE DEBITS AND CREDITS:
PUTTING IT ALL TOGETHER
• In recording the transactions into the accounts of
the business (‘accounting or bookkeeping” part),
the analysis of a transaction is important. It is
not the intention of this course to turn the
participants into bookkeepers; however an
appreciation of the process will no doubt
increases your knowledge of the accounting
processes that result in the end product: the
financial statements.

Balancing of Accounts and the
Trial Balance
• At the end of a period (usually a month) the
accounts are balanced; that is the debit and
credit entries are totaled and the difference is
then entered as the balancing figure or simply
called (imaginatively of course, the “balance”)
• The balance of all the accounts are listed in a
statement called the Trial Balance; which lists
the accounts according to the “balance”, in other
words, the balance is listed on the debit side and
the credit balance is listed on the credit side

• The Trial Balance is an important
document in that it checks the accuracy
of the entries in the recording process;
although this list does not detect all the
inaccuracies, and errors – thus a
prefect opportunity for fraud.
• The Trial Balance is the main source
of information in preparing the
Financial Statements – the Income
Statement and the Balance Sheet

Please do Exercise 6: Debits
and Credits and Trial Balance
(Excel file)

The Trial Balance Then Serves
As A Basis For Preparing The:

Income Statement
• The Income Statement of a Merchandising
(Retailing) business consists of two
components:
– The Trading Account (for calculating the gross
profit); and
– Expenses and Other Income

A Basic Income Statement
• Sales RMxxxxx
• Less Cost of Goods Sold xxxx
• Gross Profit xxxx
• Add other income xxxx
• Total xxxx
• Net profit (income) xxxx

What is the Cost of Goods Sold
• The cost of goods sold figure,as the name
suggest is the cost of the goods that the
business purchased and was then sold to the
customers.
• Eg. If the business purchased a particular item
for RM10 and then sold the item for RM14; the
cost of the good sold is RM10. The gross profit
is then RM4 (Sales RM14 less the cost of goods
sold RM10)

Cost of Goods Sold
• A Cost of Goods Sold section of the Income
Statement is:
• Opening Stock RMxxxx
• Purchases RMxxxx
• Purchase returns ( xxx) (xxx)
• Cost of Goods available for sale xxxx
• Less Closing stock (xxx)
• Cost of Goods sold xxxx

A Basic Income Statement
• Sales RMxxxxx
• Less Cost of Goods Sold (xxxx)
• Gross Profit xxxx
• Total xxxx
• Less Expenses xxxx
• Operating Income xxxx
• Net profit (income) xxxx

Please do the Simple Income
Statement: Exercise 7 With Answer
– See what a generous person I
am!!!
• Note: Hover above the cells with the red
tap on the upper right hand corner to read
my comments and explanations

Link between P & L A/c and
Balance Sheet
• An important point to note is that the link of
the Profit and Loss account and the
Balance Sheet is that the net profit
increases the capital of the business and
therefore the amount from the Profit and
Loss account is added to the capital of the
business if not the Balance Sheet will not
balance!!

The Whole Mini Picture!
Profit and Loss Statement
Sales RM xxxx
Cost of Goods Sold (x)
Gross Profit xxx
Expenses (x)
Operating income xxx
Other income x
Net Profit xx
Balance Sheet
Assets RMxxx Capital RMxxxx
Net Profit for the year xxxx
xxxx
Liabilities xxx
XXX XXX

Please do the Simple Example to
Illustrate the “Link Between the IS
and BS Exercise 8, With Answer”

Please do the
Comprehensive Example:
“From TB to FS Exercise 9”

STATEMENT OF CASH
FLOWS

• In financial accounting, a cash flow statement or
statement of cash flows is a financial statement that
shows a company's flow of cash.
• The money coming into the business is called cash
inflow, and money going out from the business is called
cash outflow.
• The statement shows how changes in balance sheet and
income accounts affect cash and cash equivalents, and
breaks the analysis down to operating, investing, and
financing activities.
• As an analytical tool, the statement of cash flows is
useful in determining the short-term viability of a
company, particularly its ability to pay bills.

The Three Sources of Cash Flows
CASH
FLOWS
OPERATIN
INVESTING FINANCING
G
ACTIVITIES ACTIVITIES
ACTIVITIES

Operating Activities
1. Income Statement Items
1. Receipts from the sale of goods or services
2. Receipts for the sale of loans, debt or equity
instruments in a trading portfolio
3. Interest received on loans
4. Dividends received on equity securities
5. Payments to suppliers for goods and services
6. Payments to employees or on behalf of employees
7. Payments for the sale of loans, debt or equity
instruments in a trading portfolio

2. Items which are added back to [or subtracted from, as
appropriate] the net income figure (which is found on
the Income Statement) to arrive at cash flows from
operations generally include:
1. Depreciation (loss of tangible asset value over time)
2. Deferred tax
3. Amortization (loss of intangible asset value over time)
4. Any gains or losses associated with the sale of a non-current
asset, because associated cash flows do not belong in the
operating section. unrealized gains/losses are also added back
from the income statement)

Investing Activities
• Generally Investments and Long-Term Assets
• Examples of Investing activities are :
1. Purchase of an asset
2. Assets can be land, building, equipment marketable
securities,
3. Loans made to suppliers or customers

Financing Activities
• Generally Long-Term Liability and
Stockholders’ Equity
• Financing cash flows include:
1. Proceeds from issuing shares
2. Proceeds from issuing short-term or long-
term debt
3. Payments of dividends
4. Payments for repurchase of company
shares
5. Repayment of debt principal, including
capital leases
• Items under the financing activities
section include:
1. Dividends paid
2. Sale or repurchase of the company's stock
3. Net borrowings
PLEASE LOOK AT THE CASH FLOW STATEMENT OF THE COMPANY

THAT YOU ARE EVALUATING

Format of the Statement of Cash Flows

Usefulness of the Statement of Cash
Flows
The cash flow statement is intended to:
1. Provide information on a firm's liquidity and
solvency and its ability to change cash flows in
future circumstances
2. Provide additional information for evaluating
changes in assets, liabilities and equity
3. Improve the comparability of different firms'
operating performance by eliminating the effects
of different accounting methods
4. Indicate the amount, timing and probability of
future cash flows
5. Entity’s ability to generate future cash flows.
6. Entity’s ability to pay dividends and obligations.
7. Reasons for difference between net income and
net cash provided (used) by operating activities.
This indicates the “quality” of the reported
earnings figure” – the less the difference
between the two, the higher the quality of the
reported earnings
8. Cash investing and financing transactions during
the period.

Inventory Systems
Perpetual Inventory Periodic Inventory

System System
Records inventory purchase

Updates inventory accounts
or
after each purchase or sale
sale in "Purchases"
account.
Inventory quantities are

Inventory quantities are updated
updated continuously. on a periodic basis. (stock
taking).
Example: Retail goods: Can

Example: Jewelry, Vehicles,
foods,
Machinery,
Bottle Drinks, Inexpensive
Furniture, Unique Items, Etc
Items

Inventory Valuation Methods
Inventory Valuation
Methods
First-in First-out Last-in First-out Average

(FIFO) (LIFO) Methods
Under FIFO, it is assumed Under LIFO, it is assumed

that items purchased last Average Cost are
that items purchased
are sold first. assigned to the inventory
first are sold first.

• An important point to note is that after the
inventory amount is obtained from the
records (depending on the system used),
the amount to be recorded in the financial
statement is “the lower of cost or market
value”!

Depreciation
• In accounting, depreciation is a term used to describe
any method used for allocating the cost of a fixed asset
over its useful life, roughly corresponding to normal wear
and tear.
• The yearly allocated amount is considered as an
expense. This amount is then added to an account
called the “Accumulated Depreciation Account” – and will
be used as a deduction of the cost of the asset in the
Balance Sheet. The longer the asset is with the
company, the higher will be the amount accumulated in
the account. The cost of the asset less the accumulated
depreciation account is the “Net Book Value” of the
assets.
• The amount of depreciation expense is
dependent on the method used and in this
course, two methods will be taught: Straight
Line Method and the Reducing Balance Method.
FYI, these two methods cover about (my
judgment!) 95% of the methods used by
companies.
• There are two other terms that you should be
familiar which is similar to depreciation but
depends on the assets:
– Amortization: refers to depreciation (reduction in the
value of the assets) for intangible assets such as
goodwill, patents, trade marks.
– Depletion: refers to depreciation (reduction in the
value of the assets) for productive land such as
mines, oil fields etc.
Methods of Depreciation:
(1) Straight Line Method
• Straight-Line Method:
Example : a vehicle that depreciates over 5 years, is purchased at a

cost of RM17,000, and will have a salvage value of RM2000, will
depreciate at RM3,000 per year: ($17,000 - $2,000)/ 5 years =
$3,000 annual straight-line depreciation expense.

Example of Straight Line Method
• Example:
• Cost of Vehicle= RM17,000
• Salvage Value = RM2,000
• Estimated Life (yrs) = 5 yrs
– Annual Depreciation Expense =
(17,000 – 2000)/2 = 5 yrs.
• Alternatively, the rate (%) can easily be
calculated: (100/(Estimated Life), In the example
above, the rate = (100/5) = 20%.
– Rate x (Cost – Salvage Value) = (17,000 – 2000) x
20% = RM3,000

Methods of Depreciation:
(2) Declining-Balance Method
• Depreciation methods that provide for a higher
depreciation charge in the first year of an asset's life and
gradually decreasing charges in subsequent years are
called accelerated depreciation methods. This may be
a more realistic reflection of an asset's actual expected
benefit from the use of the asset: many assets are most
useful when they are new.
• One popular accelerated method is the declining-
balance method. Under this method the Book Value is
multiplied by a fixed rate.
– Annual Depreciation = Depreciation Rate * Book Value at
Beginning of Year
[Book Value = Cost – Accumulated Depreciation]
• The most common rate used is double the straight-line
rate. For this reason, this technique is referred to as the
double-declining-balance method – but there are
other more sophisticated method!
• Example: Cost of the asset is RM50,000 and the
depreciation rate is 20% per year.
– Depreciation Expense 1st Yr = 50,000 x 20% = 10,000 (The
RM10,000 is the accumulated depreciation)
– Depreciation Expense 2nd Yr = (50,000 – 10,000) x 20% = RM
8,000
– Depreciation Expense 3rd Yr = (50,000 – 18,000) x 20% =
RM6,400
Note: the rate is applied to the Net Book Value.

COMPARISON BETWEEN STRAIGHT LINE AND
REDUCING BALANCE METHODS
30000
25000
20000
Straight Line
15000
Reducing Balance
10000
5000
0
1 2 3 4 5 6 7 8 9 10

BAD DEBTS
• In financial accounting, bad debt is the portion of
receivables that can no longer be collected, typically
from accounts receivable or loans. Bad debt in
accounting is considered an expense. There are two
methods to account for bad debt:
1. Direct write off method
A receivable which is not considered collectible is charged
directly to the income statement. In this case the specific
debtor is identified and his account is “written off”.
2. Allowance method
An estimate is made at the end of each fiscal year of the
amount of bad debt. This is then accumulated in a provision
which is then used to reduce specific receivable accounts as
and when necessary.
Management Decisions Affecting
the Bottom Line
• As you can see from the above
illustrations, management can (and most
times they do!) make decisions that will
affect how profits (the “bottom-line”) are
reported.

Please Refer to the Excel
document:
Illustration of Dep Methods and
Bad Debts: Exercise 10
In this file, I have used the formula

function in the relevant cells. Why
don’t you try to do it manually!!!

TERIMA
KASIH
Accounting Professor
A=L+ E


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MASTER IN ENGINEERING

Prof. Dr. Syed Noh Syed Ahmad, CA(M)

MEM 772 HANDOUT 1 1

Please do not sent to both!!!

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ASSETS = LIABILITIES + EQUITY

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NON- NON- CURRENT

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INTANGIBLE TANGIBLE INVENTORY

PATENTS PROPERTY CASH

TRADEMARKS EQUIPMENT BANK

LICENCES MACHINERY ETC

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MORTGAGES BANK OVERDRAFT

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Please do the Identifying Assets

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COMMISSIONS INTEREST RENT

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• ASSETS = LIABILITES + [EQUITY ± (PROFITS/LOSS)]

• ASSETS = LIABILITIES + [EQUITY ± (REVENUES – EXPENSES)]

Figure obtained from the Income Statement

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DEBIT (Dr) CREDIT (Cr)

LEFT SIDE RIGHT SIDE

INCREASE DECREASE INCREASE DECREASE

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