ABFA 1013 INTRODUCTION TO ACCOUNTINGDIPLOMA IN BUSINESS STUDIES (ACCOUNTING)

YEAR 1 – SEMESTER 1 (2011/2012)COURSEWORK 1

NAME :

WONG SOON HAW

GAN KEAN HOE

MAVERICK NG SHUNG SERN

CHOO YUNG TENG

SEBASTIAN GOH SZE PAN

TUTORIAL GROUP : 1 DAC27

DAY :

TIME :

DATE OF SUBMISSION :

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TABLE OF CONTENT

No. Title Page

1 Plagiarism Statement Declaration Form 3

2 Safe Assign Plagiarism Report 4

3 Summary 5

4 Introduction 5

5 Content:

5.1 Accounting Equation

5.2 Profit Determination

5.3 Accounting Cycle

5.4 Users of Accounting Information

5.5 Type of Business in Malaysia

5.6 Format of Financial Statements

5-6

6

7

8

8

9-10

6 Conclusion 10

7 Appendix 11-12

8 Reference 13

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1. Plagiarism Statement Declaration Form

Semester: ________________ Course Code &Title: _____________________________

DeclarationWe confirm that we have read and shall comply with all the termsand condition of TAR College’s plagiarism policy.We declare that this assignment is free from all forms of plagiarismand for all intents and purposes is my/our own properly derived work.We further confirm that the same work, where appropriate, has beenverified by antiplagiarismsoftware ________________________ (please insert).

Name Student ID Signature

WONG SOON HAW 11WBD01699

GAN KEAN HOE 11WBD01689

MAVERICK NG SHUNG SERN 11WBD05440

CHOO YUNG TENG 11WBD05079

SEBASTIAN GOH SZE PAN 11WBD00163

Date: ___________________

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3. Summary

What is accounting? Nowadays, the word ACCOUNTING can be referred to as “the language of business” (Andrew, Wong, 2010).Accounting is a process where the accountants identify, analyze, summarize and then communicate the business information to the users. For instance, the business institutions use the accounting information to measure their business performances and find out their financial position in order to making further decisions. On the other hand, this information also helps the customers to know how to use their money wiser.

4. Introduction

From the accounting equation, ones can straight away find out all the assets that he/she owns, how much they can receive from others and how much they owe to somebody else. The profitability of the business activities is shown conspicuously by the profit determination. For example, the companies can know how much they earn or loss after running their business for a specific period of time by preparing an income statement which is based on the profit determination. When preparing the accounting information, the accountants are always following the accounting cycle that we covered in this report. By referring to the financial statements, the proprietors can know about the current financial status of their business and this will help them to decide what they should do in the future.

5. Content

5.1 Accounting Equation:

The basic Accounting Equation formula is stated as below:

By the way, it can be stated as below:

Non-current Assets + Current Assets = Current Liabilities + Non-current Liabilities +

Capital + Additional Capital Injection + Profit –

Loss – Drawings

Assets are the resources that owned by a business or company in undertaking

business activities. There are two types of assets: non-current assets and current assets.

Non-current assets are the resources that ready to be used for more than one year. The

examples of non-current assets are motor vehicles, machinery, land, buildings and office

equipment. Current assets are the resources that can be used within one year and

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Assets Liabilities Owner's Equity

converted into cash easily. For example, cash in hand, cash in bank, inventories and trade

receivables. (Loh Boon Foo et al., 2006)

Liabilities are the amount owed by a business to outsiders or suppliers (external

parties). There are two types of liabilities: current liabilities and non-current liabilities.

Current liabilities are debts that have to be settled by business within an accounting

year. For example, trade payables, bank overdraft, accrued expenses and prepaid revenue.

Non-current liabilities are the owing amount that a business has more time (>1 year) to

settle. The examples of non-current liabilities are bank loans, mortgages and debentures.

Owner’s equity is defined as the investment made by the owner in a business

(capital). Owner and the business are considered as two separate entities. Therefore,

capital is a liability to the business. When the business derives profit, the owner’s equity

will increase. Besides, the owner’s equity can be increased by additional capital

injection. When the business makes loss, the owner’s equity will decrease. In other way,

the owner’s equity will decrease when the owner makes withdrawal (drawings). (Betsy

Li et. al, 2007)

5.2 Profit Determination

PROFIT=REVENUE-EXPENSES

Profit is made when the revenues obtained from business activities are more than

the expenses (Frank Wood, 2008). For example, $40,000 is the revenue that Win Hong

gained through his business. After deducting the revenue by his expenses which amount

to $20,000, there is still has $20,000 left and this is the profit he derived from his

business.

Revenue can be represented by the value of amount that an individual or a

company gained by running a business over a period of time. The examples of revenues

are sales, discount received, interest received, and etc.

Expenses are defined as the value of amount that has been spent on buying goods

or services for business use. For example, purchasing goods which will be going to resell

in future is an expense. The other examples are like discount given, workers’ salaries,

utility bills, and etc.

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5.3 Accounting Cycle

The illustration above is the accounting cycle. The accounting cycle is an

accounting process which involves recording, posting, adjusting and preparing the

financial statements. It will be repeated in every accounting year.

When a transaction is made, both parties involved will receive the relevant source

documents such as invoices, debit notes, credit notes, and cash bills. The information of

source documents will be recorded in the journals such as General Journal, Sales

Journal, Purchases Journal, Return Inwards Journal, Return Outwards Journal, Petty Cash

Book and Cash Book. Then, book-keeper will post the records to relevant accounts in the

ledger such as General Ledger, Sales Ledger and Purchases Ledger. At a certain date

(usually at the end of accounting period), an unadjusted Trial Balance will be opened to

check the accuracy of accounting. By the way, some adjustments have to be made for

some additional information such as accrued expenses, prepaid revenue, bad debts, and

depreciation of motor vehicles. An adjusted Trial Balance will be made after making

the adjustments. Then, the financial statements such as Statement of Comprehensive

Income (Profit & Loss Account) and Statement of Financial Position (Balance Sheet) will

be prepared according to the adjusted Trial Balance. In the end, closing entries will be

made to bring down the balance of the accounts to another accounting period.

Source: http://basiccollegeaccounting.com/what-is-an-accounting-cycle-and-the-

steps-involved/

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5.4 Users of Accounting Information

There are two categories of users of accounting information: Internal users and

external users. Internal users are the people inside a company who plan, organize and

run the business activities (Jerry J.Weygandt et al, 2008). The examples of internal users

are the management team, board of directors etc. Those users would like to know if the

company makes profit or sustains loss so that they can make decision, planning or control

the business activities. Board of directors needs the information to decide whether or not

to expand their business according to the financial status of company.

External users are the people or organizations outside the company who want the

financial information. The examples of external users are the government, creditors

(suppliers/bankers), investors and customers. The creditors will be keen to know if the

company is able to settle the debts and the customers would like to know if the supply of

goods by the company is stable and secured. Besides, government agencies (tax

inspectors) need accounting information to calculate the taxes charged on the companies.

Investors need it also to decide which company they should invest (Frank Wood, 2008).

5.5 Types of Business in Malaysia

There are various types of business in Malaysia, they can be categorized into:

Type of Business Example of Company Example of

product/service

Trading:

Business that purchases

goods from suppliers for

resale.

Ikea

7 Eleven

Popular

Secret Recipe

Furniture

Groceries

Books

Cakes

Manufacturing:

Business that produces

goods by using raw

materials and sell it to

retailers.

Pensonic

Proton

Nestle

Sony

Electronic Products

Motor Vehicles

Dairy Products

Electronic Products

Service:

Business that provides

Malaysia Airlines

Ernst & Young

Transportation (Flight)

Auditing service/

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services to customers. Public Bank bhd. Accounts

Banking service

Source: Reeve et. al, 2007, p.3

5.6 Format of Financial Statements

There are two types of financial statements: Statement of Comprehensive Income and

Statement of Financial Position. Statement of Comprehensive Income reports the

revenue and expenses for a period of time. It shows the net profit/net loss based on the

matching concept. The format of the statement is illustrated as below:

Khairul Trading Sdn. Bhd.Statement of Comprehensive Income

For the year ended 31 DECEMBER 2009

RM RM RMSales 157,165Less: Return Inwards 165 Net Sales 157,000

Less: Cost of Inventories SoldOpening Inventories 4,120Purchases 92,800Less: Return Outwards 800Net Purchases 92,000Cost of Inventories Available for Sales 96,120Less: Closing Stock 2,400

93,720Gross Profit 63,280

Add: IncomeDiscount Received 160

63,440Less: Expenses

Salaries 31,740Rent 3,170Discount Allowed 820Van Running Costs 687Bad Debts 730Doubtful Debt Allowance 91Depreciation:

Office Equipment 380Delivery Van 1,250

1,630

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38,868Net Profit 24,572

Statement of Financial Position shows a list of assets, liabilities and owner’s equity at a particular date. It shows the financial position of a business based on the Accounting Equation. The format of Statement of Financial Position is illustrated as below:

Khairul Trading Sdn. Bhd.Statement of Financial Position as at 31 DECEMBER 2009

RM RM RM RMNon-current AssetsOffice Equipment 2,900Less: Accumulated Depreciation on Office Equipment 380

2,520Delivery Van 3,750Less: Accumulated Depreciation on Delivery Van 1,250

2,500 5,020

Current AssetsInventories Balance 2,400Trade Receivables 12,151Less: Allowance for Doubtful Debts 496 11,655Prepaid Rent 230Cash at Bank 9,100Cash in Hand 324

23,709Less: Current Liabilities

Trade Payables 4,445Accrued Salaries 412

4,857Working Capital 18,852

23,872Financed By:Owner’s EquityOpening Capital 11,400Add: Net Profit 24,572

35,972Less: Drawings 17,100Closing Capital 18,872Non-current LiabilityBank Loan 5,000

23,872Source: Frank Wood et al, 2008. pg. 691 (Appendix)7. Conclusion

By completing this Accounting coursework, we have gained a lot of knowledge on the

Principles of Accounting. We know that accounting is the language of business (Andrew

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Leong Fook Chee et. al, 2010, p.1) as it enables us to understand more about the uses as

well as the importance of accounting. Furthermore, we have learnt how to co-operate

with each other in order to complete this assignment. In short, we can say that the

accounting plays an important role in our society.

8. APPENDIX

Appendix 8.1: Accounting Equation

Source: http://www.understand-accounting.net/images/Fulcrum.jpg

Appendix 8.2: Accounting Cycle

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Source:

http://www.bookkeeping-financial-accounting-resources.com/images/accountingcycle.jpg

Appendix 8.3: Source Documents

Invoice Cash Bill

Source (Invoice):

http://www.turbocashuk.com/TurboCASHRefGuide/TCashRefImages/TurboCASH-

Accounting-Software-Source-Documents-Supplier-Credit-Note-413.jpg

Source (Cash Bill): http://www.accstream.com/5559/48379.jpg

Appendix 8.4: Users of Accounting Information

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Source: http://simplestudies.com/repository/lectures/ch1_accounting_types_users.gif

9. Reference

1. Clave Finch, 2007. A Student’s Guide to International Financial Reporting

Standards. Great Britain: Kaplan Publishing UK.

2. Betsy Li, Tan Sai Kim, and Goh, Ling Chin. 2006. Principle of Accounting, 22nd

Edition. Canada: Thomson South Western.

3. Monger, Rod F. 2010. Financial Accounting: A Global Approach. United

Kingdom: John Wiley & Sons Limited.

4. Frank Wood and Alan Sangster. 2010. Business Accounting 1, 11th Edition.

Harlow: Pearson Education Limited.

5. Loh Boon Foo, Ng Kim Hwa, Ng Lai Seon, Adrian Chan and Lee-Ng Lee Boon.

2006. Singapore: Pearson Education South Asia Private Limited.

6. Jerry J. Weygandt, Donald E. Kieso and Paul D. Kimmel. 2008. Accounting

Principles, 8th Edition. United Kingdom: John Wiley & Sons Inc.

7. Andrew Leong Fook Chee and Wong Sei Yan. 2010. Business Accounting, 3rd

Edition. Malaysia: Pearson/Prentice Hall. Selangor: McGraw Hill Education.

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8. Roshayani Arshad, Laily Umar, Kamaruzzaman Muhammad, Siti Maznah Mohd Arif,

2007. Financial Accounting: An Introduction, 2nd Edition.

9. http://www.quickmba.com/accounting/fin/equation/

10. http://www.accountingcoach.com/online-accounting-course/14Xpg01.html

11. http://basiccollegeaccounting.com/what-is-an-accounting-cycle-and-the-steps-

involved/

12. http://www.netmba.com/accounting/fin/process/

13. http://www.enotes.com/business-finance-encyclopedia/accounting-cycle

14. http://simplestudies.com/introduction-to-accounting.html

15. http://answers.yahoo.com/question/index?qid=20080621054014AAidg7f

16. http://www.quickmba.com/accounting/fin/statements/

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