FAR 360

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THE BUSINESS ENVIRONMENTAND ACCOUNTING

INFORMATION SYSTEMSPREPARED BY:

SYAZLIANA HJ. KASIMFACULTY OF ACCOUNTANCY

UiTM SHAH ALAM

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TYPES OF BUSINESS

Syazliana Hj. KasimFaculty of Accountancy UiTM Shah Alam 2

FORMS OF

BUSINESSES

SOLE

PROPRIETORSHIPPARTNERSHIP

COMPANY

(CORPORATION)

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SOLE PROPRIETORSHIP

A business with a single or sole owner, who most often is alsoa manager.

For example, small retail establishments and individual

professional businesses (accountants, engineers, doctors,lawyers).

The owner contributes his/her own resources as the capitalof the proprietorship and usually very limited.

From accounting viewpoint, each proprietorship is anindividual entity that is separate and distinct from its owner.

Syazliana Hj. KasimFaculty of Accountancy UiTM Shah Alam

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SOLE PROPRIETORSHIP

Owners of proprietorships typically have unlimited liability,thus creditors can look for repayment beyond the businessentitysassets to the ownerspersonal assets.

If a proprietorship gets into financial trouble, and theproprietorships assets are not enough to fully settle theclaims of the creditors, the creditors can claim againstownerspersonal asset.

Transfer of ownership is not easy for proprietorships (in thecase of death of the owner).


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PARTNERSHIP

A business organisation that is made up of two or more

individuals or owners, who jointly own the business.

Under the Partnership Act 1961, a partnership is defined astherelationship which subsists between persons carrying onbusiness in common with a view of profit.

A partnership other than a professional partnership musthave a minimum of 2 and up a maximum of 20 members.

A professional partnership of accountants, doctors or lawyerscan have a maximum of 50 members.

From legal viewpoint, a partnership is not an entity.


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PARTNERSHIP

Partners are the entities and each partner is personally liablefor the debts of the partnership.

Owners of partnerships typically have unlimited liability, thuscreditors can look for repayment beyond the business entitys

assets to the ownerspersonal assets.

If a partnership gets into financial trouble, and thepartnershipsassets are not enough to fully settle the claimsof the creditors, the creditors can claim against partners

personal asset.

Transfer of ownership is not easy for partnerships (in case anyof the partners died).


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COMPANY/CORPORATION

Organisations which have many owners called shareholders orstockholders.

Under the Companies Act 1965, a company becomes a legalentity, as well as an accounting entity, that conducts its

business apart from its owners.

Shareholders have limited liability, thus creditors (banks,suppliers) of the company can claim against only thecompanysassets.

If a company gets into financial trouble, and the companysassets are not enough to fully settle the claims of thecreditors, the creditors cannot claim against shareholderspersonal asset.


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COMPANY/CORPORATION

Companies can also easily raise additional capital whenneeded.

Transfer of ownership is easy for companies as compared toproprietorships and partnerships.

A company is taxed as a separate entity from its shareholders.

The income tax laws regard companies as being taxableentities.


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Identify the basic principles of

accounting information systems.

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An accounting information system involves

collecting and processing data and

disseminating financial information to

interested parties.

An AIS may either be manual or

computerized.

ACCOUNTING INFORMATION SYSTEMS

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PRINCIPLES OF AN EFFICIENT AND EFFECTIVEACCOUNTING INFORMATION SYSTEM

Costs Benefits

The accounting

system must be cost

effective.Benefits of

information must

outweigh the cost

of providing it.

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PRINCIPLES OF AN EFFICIENT AND EFFECTIVE

ACCOUNTING INFORMATION SYSTEM

It must be

relevant!

It must be

reliable! It must be

accurate!

It must be

timely!

Balance

Sheet

Income

Statement

Other

FinancialReports

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PRINCIPLES OF AN EFFICIENT AND EFFECTIVE

ACCOUNTING INFORMATION SYSTEM

GovernmentRegulation

ChangingAccounting

Principles

Technological

Advances

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Explain the major phases in the development of

an accounting system.

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PHASES IN THE DEVELOPMENT OF AN ACCOUNTING

SYSTEM

Analysis

Follow-up Design

Implementation

Planning and

identifying

information needsand sources

Monitoring and correcting

any weaknessesCreating forms,

documents, procedures,

job descriptions, and

reports

Installing the system,

training personnel, and

making the system

wholly operational

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In a manual accounting system, each of the steps in

the accounting cycle is performed by hand.

This means that transactions are entered into a

journal and then posted to the ledger.

Financial statements are thus derived

from ledger balances.

So.....why study manual systems if the realworld uses computerized systems?

MANUAL ACCOUNTING

SYSTEMS

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Small businesses still abound and most of them

begin operations with manual accounting systems

and convert to computerized systems as business

grows. To understand what computerized accounting

systems do, one must understand

how manual accounting systems work.

MANUAL VS. COMPUTERIZED

SYSTEMS

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MANAGEMENT ACCOUNTING VS.

FINANCIAL ACCOUNTING

The purpose of management accounting is to provide managerswith whatever information they need to help them managetheir resources efficiently and take sensible decisions.

They are no externally imposed rules about how this is done: itdepends on the needs of the organisation.

The purpose of financial accounting is to provide accuratefinancial information for the company accounts, which will beused be both senior management and external parties (forexample investors).

The data used to prepare financial accounts and management

accounts are the same. The differences between the financial accounts and the

management accounts arise because the data is analysed in adifferent way.


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MANAGEMENT ACCOUNTS

They are distributed internally for use within a business only.

They are recorded and presented in a way that is decided bymanagement.

They look at past data and also future data (for planningpurposes).

They are used to help management in planning, control anddecision-making.

There is no legal requirement to prepare them.

They include both financial and non-financial information.


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FINANCIAL ACCOUNTS

They are used for external reporting.

There is a legal requirement for limited companies to prepare

them.

They are concerned with past data only.

They usually include only financial information.

They provide details on the results of an organisation over a

defined period (usually a year).


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USERS OF ACCOUNTING INFORMATION


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USERS OFACCOUNTING

INFORMATION

OWNERS

MANAGERS

CREDITORS

INVESTORSEMPLOYEES

GOVERNMENTS

PUBLIC

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WHO USES? WHAT THEY USE FOR?

OWNERS

The owner is the person who

contributes resources to the

business and own the business

They want to know how much profits they earn from theirinvestments in the business.

They want to assess the financial stability and growth of the

business.

MANAGERS

They are hired to manage the

business for the owners

They have to ensure that the business is operated efficiently.

Managers have to run the firm in the most efficient manner

which maximize returns to the owners.

Accounting information is used in planning, organizing and

controlling activities.

Accounting information can also be used to appraise or

analyze the operations of the firm.CREDITORS

Those who supply goods or

services to the business

Include bankers and money

lenders

They are interested to determine the financial stability of the

business.

They want to know whether these businesses are able to repay

the amounts owing to them.

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WHO USES? WHAT THEY USE FOR?

INVESTORS

It could be either existing

investors or

potential/prospective investors

Investors would want to inquire about the solvency of the business (the

ability to repay debts as and when they are due).

They also want to know about the financial strength of the business.

In addition, accounting provides information on business present and

future earning capacity and the ability of the management.

EMPLOYEESPeople working for the firm

They are interested in thebusinessability to progress and expand.

Employees would look for steady employment, earning capacity, and

other monetary benefits which are to be gained from a financially stable

business.GOVERNMENTS

Including the local, state and

federal levels, which are thetax authority bodies

These bodies are interested in the accounting statements and reports of

businesses.

These statements would provide information on how much funds

would be made available for running the country.Governments also use these information for setting price controls,

plans for expansion of industry and other government activities.THE PUBLIC

The consumers of

products/services

They are interested in the establishment of good accounting controls as

a means of reducing costs of production, selling and distribution.

This will lead to the reduction of the prices of the goods they purchase



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USES OF ACCOUNTING INFORMATION

SYSTEM

For decision making purpose

To analyse the profitability of the company

To ascertain the financial stability of thecompany

To maximization the companys scarce

resources


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Documents

FAR 360