Topic 2

KAL1013 BBA EXEC.(T.HAJI) 1

CHAPTER TWO: ACCOUNTING CONCEPT AND PRACTICE


Objectives Describe the assumptions, principles and

constrains related to practice of accounting State the accounting equation & define each

element of the equation Explain how business transaction can be stated in

term of the resulting changes in the basic elements of the accounting equation

Describe the financial statement of a proprietorship and explain how they interrelate


OUTLINE

Generally Accepted Accounting Principles Accounting assumptions Accounting principles Accounting constraints

Financial Statement Transaction & Accounting Equation


Generally Accepted Accounting Principles

AccountingAssumptions

Accounting Principles

AccountingConstraints


Accounting Assumptions

MonetaryUnit

assumption

Separate businessEntity

assumption

Enables accounting tomeasure economic events.

The activities of the ownerand the company should be kept separate.


Accounting Assumptions

Going Concern

assumption

Time periodassumption

The business will continueFor the conceivable future.

Final accounts are preparedat regular intervals. Known as accounting period /financial year.



Historical Cost

Principle

RevenueRecognition

Principle

All assets must be recordedat cost.

Revenue is recognized only afterthe goods have been delivered orservice rendered to customers.



MatchingPrinciple

Full DisclosurePrinciple

Profit is recognized by matching the income of the period with allexpenses incurred in earning such income.

Financial statements should providesufficient / relevant information to influence users decision making.


Accounting Constraints

MaterialityPrinciple

ConservatismPrinciple

An item is said to be “material”if it is sufficiently importantto affect our judgment of the true position of the firm.

When in doubt, choose the solutionthat will be least likely to overstateassets and income.


Financial Statement

Income Statement

Owner’s Equity Statement

Balance Sheet

Cash Flow Statement

Before we proceed…


Tindakan pengusaha menggunakan wang syarikat untuk perbelanjaan utiliti peribadi tidak boleh dianggap sebagai belanja utliti syarikat

Di dalam meyediakan akaun syarikat, kita perlu mengandaikan bahawa syarikat akan menjalankan operasinya secara berterusan

Pada dasarnya, hasil perlu direkod apabila ia diperoleh, contohnya apabila titik jualan telah berlaku tanpa mengambil kira pembayaran telah dibuat ataupun tidak oleh pelanggan


Syarikat perlu mendedahkan segala aktiviti ekonomi yang releven untuk proses membuat keputusan di dalam penyata kewangan

Syarikat mungkin memeiliki aset-aset tertentu seperti perabut yg berusia puluhan tahun tetapi masih boleh digunakan & masih baik keadaannya. Dalam keadaan ini, syarikat mungkin merekod nilai aset tersebut tidak setara dengan nilai saksamanya. Walaubagaimanapun, nilai aset yang direkod adalah sangat kecil dan tidak memberi kesan kepada keseluruhan penyata kewangan

Belanja perlu dipadankan dengan period di mana ianya dilibatkan, bukannya dibayar


Andaian ini menyatakan bahawa aktiviti ekonommi yang boleh diukur di dalam nilai matawang sahaja yang akan direkod

Kos adalah nilai yang perlu digunakan bagi merekod nilai aset kerana ia merupakan nilai yang releven dan bolehdipercayai

Pilihan perlu dibuat agar cenderung kepada keputusan yg tidak menyebabkan aset dan hasil terlebihcatat


Purpose of Financial Statements

FRS 1012004 : To provide information about the financialposition , performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions.

Show the results of management’s stewardshipof the resources entrusted to it.


Income StatementJannah Company

Income Statement For The Year Ended ……..

Sales Revenue xxxxx

Less: Expenses (xxxx)

Profit xxxx


Owner’s Equity StatementJannah Company

Statement of Owner’ Equity For The Year Ended ……..

Opening capital xxxxx

(+/-) Profit / Loss xxx

Additional Capital xxx

xxxxx(-) Drawings (xxxx)

Ending Capital xxxxxx


Balance SheetJannah Company

Balance Sheet As At ……..

Fixed Assets xxxxxx

Current Assets xxxxx

Less: Current Liabilities (xxxx)

Working Capital xxxx

Net Assets xxxxxx

Financed by:Owner’s Equity xxxxx

Long Term Liabilities xxxxx

xxxxx


Cash Flow Statement

Jannah CompanyCash Flow Statement For The Year Ended ……..

Cash From Operating Activities xxxx

Cash From Investing Activities xxxx

Cash From Financing Activities xxxx

Net increase in cash xxxxx

Opening balance xxx

Closing balance xxxxx


Transaction & Accounting Equation

Transactions Economic events

Eg: Sell goods to customers.

Pay utility bills

Receive cash from sales of good

Pay dividend to shareholders


Cont…The Accounting Equation:

Assets = Liabilities + Owner’s Equity

Resources that are expected to be

of benefit in the future

Claims held by the owners

Economic obligations (debts) payable to outsiders


Cont…Increase and decrease in owner’s equity

Owner’sEquity

Investment

Revenues Expenses

Withdrawals


Transaction Analysis

Owner started the business with RM40,000 cash.


=RM40,000 RM40,000+RM0

RM40,000 RM40,000



Purchase office equipment with cash RM20,000.


=RM40,000

RM40,000+RM0

RM40,000 RM40,000

(-) RM20,000(+) RM20,000



Purchase motor vehicles on credit RM80,000.


=RM40,000

RM40,000+RM80,000

RM120,000 RM120,000

(+) RM80,000


Transaction AnalysisReceive cash from customer for service rendered RM6,000.


=RM120,000 RM40,000

+RM80,000

RM126,000 RM126,000

(+) RM6,000 (+) RM6,000


Transaction AnalysisPay utility bills for RM500.


=RM126,000 RM46,000

+RM80,000

RM125,500 RM125,500

(-) RM500 (-) RM500


Transaction AnalysisReceived invoice from advertising company for the advertisement made, RM3,500. No payment made.


=RM125,500RM45,500

+RM80,000

RM125,500 RM125,500

(+) RM3,500 (-) RM3,500


Transaction AnalysisReceived loan from bank RM50,000.


=RM125,500 RM42,000

+RM83,500

RM175,500 RM175,500

(+) RM50,000 (+) RM50,000


Transaction AnalysisPay part of the amount owed to creditor for motor vehicle purchased RM20,000.


=RM175,500 RM42,000

+RM133,500

RM155,500 RM155,500

(-) RM20,000 (-) RM20,000


Transaction AnalysisOwner took out RM10,000 for his own use.


=RM155,500 RM42,000

+RM113,500

RM145,500 RM145,500

(-) RM10,000 (-) RM10,000


Thank You

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Topic 2