Accounting WK1 Intro

8/10/2019 Accounting WK1 Intro

1/97

Nur Aniza Q.Jusoh 1

Principles of AccountingBPA 11403

Prepared by:

Nur Aniza Quantaniah binti Jusoh

Fakulti Pengurusan Teknologi dan Perniagaan

Universiti Tun Hussein Onn Malaysia

Room:J701-13

Tel : 07-4533930

E-mail: [email protected]


2/97

Nur Aniza Q.Jusoh 2

LEARNING OBJECTIVES

At the end of this class, you should beable to:

1. Defineaccounting

2. Identify business goals and activities

3. Describe the role of accounting inmaking informed decisions.


3/97

Nur Aniza Q.Jusoh 3

LEARNING OBJECTIVES

(cont)4. Identify the various users of accounting

information in society and thecharacteristics of such informationnecessary to meet their objectives

5. Describe the three forms of businessorganization.

6. Understand the accounting principles,concepts and ethics

7. Identify the financial statements


4/97

Nur Aniza Q.Jusoh 4

Introduction to Accounting History of Accounting

Business & Accounting Users of Accounting Information Types of Business Organizations Accounting Bodies Accounting Concepts and Principles Types of Financial Statements


5/97

Nur Aniza Q.Jusoh 5

Accounting as a Business

LanguageWhat is Accounting?

Accounting is ..

The art of identifying, measuring,recording, interpreting andcommunicatingthe results of economicactivities

The language of business used byinvestors, managers and decision makers.


6/97

Nur Aniza Q.Jusoh 6

Activities in Accounting

IdentificationSelect economic events relevant to business

(transactions)

RecordingKeeping a systematic, chronological diary of

events (double entries, ledger & journals)

CommunicationPreparation of accounting reports

Analyzing and interpreting for users

(Financial statements, ratio analysis)


7/97

Nur Aniza Q.Jusoh 7

to provide decision makers with

information usefu l in making econom icdecis ionsconcerning the allocation anduse of scarce economic resources.

The Purpose of Accounting


8/97

Nur Aniza Q.Jusoh 8

The Purpose of Accounting

Collects andprocessfinancialinformation

Internal users

External users

Reportsinformationto decision maker


9/97

Nur Aniza Q.Jusoh 9

Fields of Accounting

Accounting is usually divided into twomain categories:

1. Management accounting.2. Financial accounting.

The two may be distinguished by theprincipal users and focus of theirinformation.

Other categories are :Auditing,Taxation, Financial Management


10/97

Nur Aniza Q.Jusoh 10

Financial Accounting versus

Management Accounting

(Users)

Accounting

Internal External

ManagementAccounting

FinancialAccounting

Users


11/97


Financial Accounting versus

Management Accounting

(Focus)

Financial

accounting

Managementaccounting

ProfitabilitySolvencyLiquidity

EfficiencyProductivityQuality

Focus

Focus


12/97


History of Accounting 3500 B.C-Babylonian & Sumerian

civilizationAgricultural & small industries Transaction recorded on clay boards Earliest banks, gold & silver, credit facilities

Egyptian civilization Taxation matters Papyrus documents Internal inspection by government treasury

600 B.C- Greek civilization Coins introduced Improvised banking system-saving accounts,

monetary exchange, loans, cash transfer


13/97


History of Accounting Roman civilization

Statement of assets and liabilities

Cash books for record of expenses

Yearly budget for coordination of incomeand expenses

7thto 11thcentury Numeral system developed by Indians

Simplifications of business computation

12th-15thcentury Bookeeping based on double entry

system commenced in Italy


14/97


The Double Entry Onset

Luca Pacioli(14thcentury)-Summa de Arithmetica

Geometrica Proportioni et

Proportionalita Book keeping and double entry

method

Double entry-Venice Method

Profit determined at end ofbusiness period

1605Profit determined at endof accounting period


15/97


The Development of the

Modern Accounting System Industrial Revolution of

England

Ledger accountsProduction of scale, various costCost accounting

Partnership, corporationFinancial accountingStewardship reporting

Management accounting


16/97


Distinction between

Bookeeping and Accounting

Bookkeepingrefers to the daily

activities of recording and classifyingroutine transactions in an accountingsystem. It is based on the double entry

method.


17/97


Distinction between

Bookeeping and Accounting Accounting involves the designing of

accounting and internal control

systems, identifying and measuringtransactions and events to be recorded,interpreting and communicatinginformation to decision makers in ameaningful manner, and encompassesbookkeeping.


18/97


Business Whats it all

About

A businessis an economic unit that aims to sell

goods and services to customers at prices that

will provide an adequate return to its owners.


19/97


Business Whats it all

About

Financial

Material

Goods &ServicesOwners

ConsumersProfit

Value

FinancialResources


20/97


Business Goals

Profitability.A business must take in enough

money to pay all the costs of doingbusiness, with enough left over asprofit for the owners to want to stayin business.


21/97


Business Goals(cont)

Liquidity.

A business must have enoughfunds available to pay debtswhen they are due.


22/97


Business Activities

Companies do three basic things.

They invest in assets to conductbusiness.

They raise money to finance theseassets.

They use the assets and the money they

raise to operate the business. These transactions can be classified into

one of three categoriesoperating,investing, and financing activities.


23/97


Business Activities

1.Financing Activities. Obtaining capital from owners and creditors.

Repaying creditors and a return to owners.

2.Investing Activities. Spending the capital it receives in ways that are

productive and will help the business achieve itsobjectives.

Buying and selling assets to be used in the business.

3. Operating Activities. Selling of goods and services to customers.

Employing managers and workers, buying and producinggoods and services, and paying taxes.

B i G l d


24/97


Business Goals and

Activities

Profitability

Liquidity

Business Goals

InvestingOperating

Financing

Business Activities


25/97


Business and

Accounting

Business is about making decisions.

Accounting information plays asignificant role in decision making.


26/97


Business and Accounting

Accountings role of assisting decision

makers are by measuring,

processing, and communicatinginformation.


27/97



The users of the accounting informationis interested in the relationshipbetween the financial results and the

events which have created them asthis will help them to select the bestplan of actionfor them or their

business.


28/97



Business Transaction

Record

Accounting Data

Reports

Internal users External users

Decision MakingDecision Making

Effects Effects

Wh d ti


29/97


Who needs accounting

information?

A) ManagementB) Employees

C) Those with direct financial interestl Current or potential investors

l Currentor potential creditors

D) Those with an indirect financial interest Tax Authorities

Regulatory Agencies

Economic Planners Labor unions, financial advisors, others.


30/97


Various users of accounting

information

INTERNAL USERS

Management and supervisory staff within

the organizationThe informational needs of each person or

category of staff will differ.

Frequent and detailed information of

areas that concernthem and notnecessarily of the whole business


31/97


Various users of

accounting information

Internal

AccountantsMarketing managersSalespersonsProduction managersOperation supervisors

Strategic plannersCompany presidentCompany engineers


32/97


Various users of accounting

information

EXTERNAL USERS

Individuals or groups of individual

outside the organizationInterest in the financial reportsof a

business.

Purpose and financial needs differs.


33/97


Various users of

accounting information

ExternalStockholders (present and potential)Bondholders (present and potential)

Government & Regulatory BodiesBanks and other Lending InstitutionsSuppliersCreditorsDebtorsCustomersCompetitorsLobby groupsPublic


34/97


Proprietorships

Partnerships

Corporations

Forms of Business

Organizations


35/97


Forms of Business

Organizations

Sole Proprietorship--a singleowner business

Partnership--a multiple-ownerbusiness

Corporation--a business whoseownershipis divided into"shares" and may be owned by alarge number of people


36/97


Forms of Business

Organizations

Sole Proprietorship

individual engaged in a business orprofession on his/her own account

Smallest and simplest form of businessorganization with minimal legal

requirements total control, single main capital

contributor


37/97


Forms of Business

OrganizationsSole Proprietorship all the risks and benefits arising from the

business are taken by the owner unlimited liabilities for owners

Examples-street vendors, small shops &retail, beauty saloons, car workshops,

internet cafes and professionalbusiness-(doctors, lawyers,accountants, architects etc)


38/97


Forms of Business Organizations

Sole Proprietorship

What are some advantages?

easy and inexpensive toestablish

total control

What are some disadvantages?

unlimited liability

limited access to capital

f


39/97


Forms of Business

Organizations

Partnership

2 persons or the maximum of 20 personspool their capital and agree to carry on a

business in common with a view to profit. Utilizations of different skills

Wider capital base, moderate size

Partner is jointly and severally liable for thepartnership's obligations.


40/97


Forms of Business

Organizations

Partnership Unlimited liability

Sharing of risks, profit and losses

Partnership agreements-rights, duties, andobligations of the partners, and also provide rulesand procedures for partnership matters;

otherwise- governed by the Partnership Act 1961 Examples of partnerships are family retail

businesses, professional based services such aslawyer, accountant, architect, engineers firms andetc


41/97


PartnershipsWhat are some advantages?

easy to establish

access to more capital

What are some disadvantages?

unlimited liability

sharing of profits


f


42/97


Forms of Business

Organizations

Corporation A legal entity that is separate and

distinct/independent from its members and

shareholders Company is formed, it is "incorporated" under

the Companies Act 1965.

Continuity of succession

Capable of owning property, makingcontracts, employing people and being suedor of suing


43/97


Forms of Business

OrganizationsCorporation Company limited by shares- most common

structure in Malaysia.

Two categories - Public limited companies(Berhad) and Private limitedcompanies(Sdn.Berhad)

Examples of limited company - banks and

financial institutions, consumer and industrialproducts manufacturers, transports andshipping companies, construction companiesand etc.


44/97


CorporationsWhat are some advantages?

limited liability

greater access to capital

What are some disadvantages?greater tax burden

greater government regulations

easy transferability of ownership


Characteristics of Different


45/97


Characteristics of Different

Forms of Business

OrganizationIssues in deciding between soleproprietorship, partnership, or

corporation

Personal liabilityTaxationTransfer of ownership

Ability to raise capitalGovernment regulation

ORGANIZATION INFLUENCING


46/97



ACCOUNTING PRACTICES

In the 19th century, the accounting fieldhad achieved a professional standardand accounting bodies was formed :to determine the minimum qualification

and standards for the accountingprofession;

to shape and develop the accountingcodes of ethics and;

to ensure members ethical conducts andcompliance to the codes


47/97




International Accounting StandardsBoard(IASB)

1973,Sydneyencourage usage ofbasic standard in accounting work

amongst members Purpose- to ensure quality and

professionalism of accountingprofession & methodical and

regulated preparation of accounts andstatements


48/97




Malaysian Accounting Standard Board(MASB)

Established under Financial Reporting Act1997

Independent authority to develop and issueaccounting & financial reporting standards inMalaysia

Mission: to develop and promote high qualityaccounting and reporting standards that areconsistent with international best practices for

the benefit of users, preparers, auditors andthe public in Malaysia


49/97




Malaysian Institute of Accountant(MIA) Established under Accounting Act 1967

Authoritative body regulating the accountingprofession

Member body of regional and internationalprofessional bodies

Helm of MIA stewardship is the Council

represented by the Accountant General, theRegistrar and accountants in the publicpractice, private sector and from theacademia.



50/97




The Malaysian Institute of CertifiedPublic Accountant (MICPA)

The Association of CharteredCertified Accountant (ACCA)

Chartered Institute of ManagementAccountant (CIMA)

Accounting Concepts and


51/97



Principles

Rules in which the activities of the businessare recorded to achieve objectivity inaccounting

Focuses on the users of accounting

information. Define the assumptions on which financial

accounts of a business are prepared.

Determine the interpretations given in

financial reports of the events and resultswhich they potray

A ti C t d


52/97



Principles

Accounting conceptsserve two mainpurposes.

Provide descriptions of existing accountingpractices which act as guidelines that help usersunderstanding and use of the accountinginformation.

Use by the local Accounting Standards Boardwhen developing acceptable practices for

financial reporting in the respective countries andimproving the quality of such reporting.


53/97


54/97



Principles

Business Entity Concept Keep Business and Personal Assets Separate

Historical Cost Concept All business transaction is to be recorded

based on the actual value of the acquisition atthe date of purchase.

Money Measurement Concept Accounting is only concerned with those facts

that are measurable in monetary terms with afair degree of objectivity


55/97


Accounting Concepts

and Principles Going Concern(Continuity)

Principle

A business will continue inoperation for an indefinite period orfor the foreseeable future and willnot be terminated or dissolved in ashort period

Matching principle Expenses are recognized at the same

time that the related revenue isrecognized.


56/97


Accounting Concepts

and Principles Revenue Recognition Concept

Revenue is recognized when

earned Materiality Concept An item is "material" if its

knowledge might influence thedecisions of users of financialstatements.

Accruals Concept

Expenses are only those sumswhich are due and payable.


57/97


Accounting Concepts

and Principles Consistency Concept

Accounting methods must remain thesame so that one periods statements

may be reasonably compared withanother.

Periodicity Concept Results of activities are evaluated in

their related periods. Implies thedivision of the endless life span ofcompanies into specific periods and thedetermination of the results of each

period independent from others.


58/97


Ethical Conduct in the

Accounting Profession What are Ethics?

the moral principles that govern individualbehaviour

Professional Code of Ethics

basic purpose is to provide members with

guidelines for conducting themselves in amanner consistent with the responsibilities ofthe profession.


59/97



Accounting Profession Some Key Principles

Independence o r Ob ject iv i ty

must not be perceivedas being underthe company's influence or control, oras having any vested interest in theresults reported in the financialstatements.


60/97



Accounting ProfessionIntegrity

shall not knowingly misrepresent facts

Confident ial i ty

does not relieve a professional accountant

from his or her professional obligation tocorrectly and fully disclose facts infinancial statements or accountingdocuments

The Challenge of Adhering


61/97


The Challenge of Adhering

to a Code of Ethics

Codes of ethics consist of broad, generalguidelines; it is not often possible to "lookup" the solution to a specific ethicaldilemma.

"Ethical conduct" means an "unswervingcommitment to honourable behaviour,even at the sacrifice of personaladvantage."

In deciding when an ethical problemexists, and in determining what constitutesethical behaviour, accountants must oftenrely upon their own professional judgment.


62/97


Financial

Statements...are the finalproduct of the

accounting process.

tell how the

business is performingand where it stands.


63/97


Financial

Reports

Return on Investment

Risk

Financial Flexibility

Liquidity

Operating Capability

BuyHold

Sell

Extend CreditContinue

Credit

Deny Credit

CommunicationDocuments

Types of Useful Information External DecisionMaking

Interrelationship of Final Reports,

Useful Information and Decision Making


64/97


Financial

Statements... income statement

balance sheet

statement of owners equity or

retained earnings

statement of cash flows

Four Basic Financial


65/97

Four Basic Financial

Statements

Income Statement/Profit & Loss

Revenues - Expenses = Net Income

Balance Sheet

Assets = Liabilities + Equity Statement of Changes in Owners Equity/Retained

earnings

Beginning equity +

Owners Contributions/Capital + Net income -

Distributions to owners= Ending equity Statement of Cash Flows

Cash inflow - Cash outflow + Beginning Cash =Net cash flow (Ending cash)

What is an Income


66/97


What is an Income

Statement?

Income Statement- a report of allrevenues and expenses pertainingto a specific time period

Net income- the remainder after allexpenses (including income taxes)have been deducted from revenue

Often seen as the bottom line Net loss- the excess of expensesover revenues

What is an Income


67/97


What is an Income

Statement?

The income statement must always

indicate the exact periodcovered

(month ended, quarter ended, year

ended) because statements areoften prepared for different time

periods..

Income statement is FOR THEPERIOD ENDING

January 2012


68/97


69/97


The Income Statement

Net Income

Revenues Expenses

MAXIDRIVE CORP.1. Name of


70/97


Income Statement

For the Year Ended December 31, 2012

(in thousands of dollars)

Revenues

Sales revenue 37,436$

Expenses

Cost of goods sold 26,980$

Selling, general and administrative 3,624

Research and development 1,982

Interest expense 450

Total expenses 33,036

Pretax income 4,400$

Income tax expense 1,100

Net income 3,300$

entity

2. Title of

statement

3. Specific

date

(Unlike the

balance

sheet, this

statementcovers a

specified

periodof

time.)

4. Unit of

measure

The Income Statementreports the revenues

less expenses of the accounting period.


71/97


What Is A Balance

Sheet? The balance sheet shows the financial

position of a company at a particular

point in time. The balance sheet is sometimes

referred to as the statement of

financial position or the statement of

financial condition. The left side lists assetsthe right side

lists liabilities and owners equity

What Is A Balance


72/97


What Is A Balance

Sheet? Elements of the balance sheet:

Assets- resources of the firm that are

expected to increase or cause future cash

flows (everything the firm owns)

Liabilities- obligations of the firm to

outsiders or claims against its assets by

outsiders (debts of the firm)

Owners Equity- the residual interest in, or

remaining claims against, the firms assets

after deducting liabilities (rights of the

owners)

Balance Sheet


73/97


Balance Sheet

Transactions The balance sheet is affected by

every transaction that an entityencounters.

Each transaction hascounterbalancing entriesthat keeptotal assets equal to total liabilitiesand owners equity, i.e., the balance

sheet equation and the balancesheet mus t alwaysbebalanced.


74/97


Balance Sheet

Transactions Transactions are recorded in

accounts, which are summary

records of the changes inparticular assets, liabilities, or

owners equity.

The account balanceis thetotal of all entries to the

account.


75/97


Balance Sheet

Transactions Abalance sheet could be prepared after

every transaction, but this practice would

be awkward and unnecessary. Therefore, balance sheets are usuallyprepared monthlyor onsome otherperiodic schedule

Balance sheetis AS OFor AS ATa particular date, sometimes called asnapshot in time.

Th B l Sh t


76/97


The Balance Sheet

Assets

Owners EquityLiabilities

The balance sheet equation:


77/97

Relationship Between


78/97


pIncome Statement and

Balance Sheet The balance sheet provides a

snapshot of an entitys financial

position at an instant in time.

The income statement provides a

moving picture of events over a span

of time and explains the changes that

have taken place between balance

sheet dates.


79/97


The Statement of Owners

Equity/Retained Earnings A statement o f changes in equ i ty

summarizes the changes in a

companys equity for a period.



80/97



Equity/Retained Earnings

A statement of changes in equitycontains two elements:

Investments by ownersare increases inequity resulting from transfers ofsomething valuable to the companyfrom other entities in order to obtain orincrease ownership interest.

Distr ibut ion to ownersare decreases in

equity of a company caused bytransferring assets, rendering services,or incurring liabilities to owners.


81/97



Equity/Retained Earnings The Statement of Owners Equity

cover a period of time, and thus are

FOR THE PERIOD ENDING



82/97





83/97


MAXIDRIVE CORP.

Statement of Retained Earnings

For the Year Ended December 31, 2012(in thousands of dollars)

Retained earnings, January 1, 2012 6,805$

Net income for 2012 3,300Dividends for 2012 (1,000)

Retained earnings, December 31, 2012 9,105$

1. Name of entity

2. Title of

statement3. Specific date

4. Unit of

measure

The Income Statementreports the revenues

less expenses of the accounting period.

What is a Statement


84/97


of Cashflow? Income does not measure an entitys

performance in generating cash,especially if the income is measuredusing the accrual basis.

In a way, accountants use both theaccrual and cash bases.

The accrual basis is used in the

income statement. The cash basis is used in the

statement of cash flows

What is a Statement


85/97


What is a Statement

of Cashflow?

The statement of cash flows gives a

direct picture of where cash came from

and where cash went.

Statement of cash flowsreports the

cash receipts and cash payments of an

entity during a particular period

What is a Statement


86/97


of Cashflow?

It summarizes activity over a period

of time, so it must be labeled with

the exact period covered. It details the changes in the cash account,

much like the income statement which

shows changes in retained earnings.

What is a Statement of


87/97



Cashflow?

Because

revenuesreported

do not always equal

cash collected. . .

. . . and expenses

reported do not

always equal

cash paid . . .

net income is

usually not equal

to the changein cash for

the period.

What is a Statement


88/97


of Cashflow? Preparation of the statement of

cash flows

List the activities that increased

(inflow) or decreased (outflow) cash. Place each inflow or outflow into the

proper categories.



89/97


Cashflow?

The elements of a statement of cash flows are:o Operat ing cash f lowsare the flows of cash from

acquiring, selling, and delivering goods for sale,as well as providing services.

o Invest ing cash f low sare the flows of cash fromacquiring and selling investments, property, plant,and equipment, as well as from lending money andcollecting on loans.

o Financing cash f low sare the flows of cash to andfrom the owners and long-term creditors includeobtaining resources and repaying amountsborrowed

.

Th St t t f


90/97


The Statement of

Cashflow The Statement of Cashflowcover a

period of time, and thus are FOR

THE PERIOD ENDING

Th St t t f


91/97


The Statement of

Cashflow

MAXIDRIVE CORP.

Statement of Cash Flo s

1. Name of


92/97


Statement of Cash Flows

For the Year Ended December 31, 2012

(in thousands of dollars)

Cash flows from operating activities: Cash collected from customers 33,563$

Cash paid to suppliers and employees (30,854)

Cash paid for interest (450)

Cash paid for taxes (1,190)

Net cash flow from operating activities 1,069$

Cash flow from investing activities:

Cash paid to purchase equipment (1,625)$Net cash flow from investing activities (1,625)

Cash flow from financing activities:

Cash received from bank loan 1,400$

Cash paid for dividends (1,000)

Net cash flow from financing activities 400

Net decrease in cash during the year (156)$Cash at beginning of the year 5,051

Cash at end of the year 4,895$

The Statement of Cash Flowsreports the inflows and outflows

of cash during the period in the categories of operating,

investing, and financing.

entity

2. Title of

statement

3. Specificdate

4. Unit of

measure

Relationships Among the


93/97


Statements:

Income StatementRevenue:

Fees earned $8,500

Expenses:Salary expense $1,200

Utilities and telephone expense 400

Equipment rental expense 600

Office rent expense 1,100 3,300

Net income $5,200

e a ons ps mong eStatements:


94/97


Statements:

Statement of Owners


G. Gillen, capital, June 1, 2012 $ 0Contribution of capital 30,000

Net income $ 5,200Cash distributions/Dividend 2,000G. Gillen, capital, June 30, 2012 $ 33,200

Relationships Among


95/97


Relationships Among

the Statements:

Balance Sheet

AssetsCash $19,900

Accounts receivable 2,000Supplies 500Land 11,000Total assets $33,400

Liabilities

Accounts payable $ 200

Owners equity,G. Gillen, capital 33,200Total liabilities andowners equity $33,400


St t t


96/97


Statements:

Statement Of Cash Flows Cash flows from operating activities:

Cash receipts from services rendered $6,500

Cash payments:

Supplies $ 300

Operating expenses 3,300 3,600

Net cash flows from

Operatingactivities $2,900 Cash flows from investingactivities

Purchase and sale of land ($11,000)



97/97

Cash Flows from Financing Activities:

Investment by Owner $30,000Withdrawals 2,000

Net Cash Flows from

FinancingActivities $28,000

Cash at Beginning of Year 0Cash at End of the Year $19,900


Statements:

Statement Of Cash Flows

Date post:	02-Jun-2018
Category:	Documents
Upload:	chee-wai-wong
View:	224 times
Download:	0 times