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8/3/2019 Week Introduction to Accounting
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LU 1: Introduction to Acconting
Prepared by: Sharifah SabrinaWeek 1
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Learning Objectives:
After studying this chapter, you should be ableto:
Define What is Accounting and Users ofAccounting
Describe Types and Form of Business Describe the Accounting Cycle/ Process
Identify Accounting Principles and Ethical Rules
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Definition of accounting and book-keeping
Accounting is the process of recording andinterpreting financial information pertaining toan organisation.
Book-keeping is a process of recording datarelating to accounting transactions in theaccounting books.
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5 Main branches of Accounting
Accounting
FinancialManagement
ManagementAccounting
TaxationAudit
FinancialAccounting
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Users of Accounting Information Many different people need accounting
information on which to base decision.
Investors, employees, managers, suppliers,financiers, customers, bankers, governmentsectors, etc.
Managers planning, control & running of thebusiness.
Directors and owners how effective the
managers are and to make judgments aboutrisks and return in future.
Employees stability & prospects of their jobs
Identify Internal users and external users. 5EBF 1013SSSA
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Prentice Hall, Inc. 2000 6
Questions Asked by Internal
UsersIs cash sufficient to pay bills?
What is the cost of manufacturing
each unit of product?Can we afford to give employee pay
raises this year?
What product line is most profitable?
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Prentice Hall, Inc. 2000 7
Is the company earning satisfactory
income?
How does the company compare insize and profitability with competitors?
Will the company be able to pay its debts
when they become due?
Questions Asked by External
Users
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Purpose of a Business
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Objective of Business
Everyone involved in business needs a goodunderstanding of accounting, including wherethe numbers come from, what the numbersmea Everyone involved in business needs a
good understanding of accounting, including,what the numbers mean, what accountingreports can be used for. n, what
involved in business needs a goodunderstanding of accounting, including
where the numbers come from, what thenumbers mean, what accounting reports can
be used for.
The objective of most businesses is to earn a profit.Profit is the difference between the amounts receivedfrom customers for goods or services provided and theamounts paid for the inputs used to provide thosegoods or services.
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Financing
Activities in Organizations
Operating
Investing
Operating activitiesAimed at selling products and
services
Result in sales and expenses
Exh.1.5
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Types of Business
Service Businesses provide service rather thanproduct to customers. Example?
Merchandising business sell products theypurchase from other businesses to customers
Examples?
Manufacturing Business change basic inputsinto products that are sold to customers
Examples?
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Form of business
Sole proprietorship is a one-man business, ownedand managed by one person.
Partnership is a business formed by two people but
having not more than 20 partners. Professionalpartnership can have a maximum of 50 members.
A company is an enterprise formed by two or morepersons with a maximum of 50 people for a privatelimited company and no maximum limit for a publiclimited company.
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The Accounting Cycle
Transactionsor events Documents
JournalizeTransaction
Post entries tothe accountsin the general
ledger.
Prepare a trialbalance.
Prepare financialstatements.
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The Accounting Cycle
1.An event is a happening of consequence.
2.A transaction is an external event.
3.Documents Receipt, Invoice, Cheques, Purchase order
4.The journal is the book of original entry. .Posting is the
process of transferring information from the journal to theledger.
5. A ledger is a book of accounts
a.The general ledger contains all of the accounts
b.A subsidiary ledger provides detail about one specificgeneral ledger account.
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The Accounting Cycle
6.The trial balance is a list of all open accounts inthe ledger and their balances.
a.If the trial balance is prepared immediatelyafter the adjusting entries have been made, it is
called an adjusted trial balance.
b.If the trial balance is prepared immediatelyafter the closing entries have been posted, it iscalled a post-closing trial balance.
7.Adjusting entries are made at the end of anaccounting period to bring all accounts up todate on an accrual basis.
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The Accounting Cycle
8 .Financial statements reflect the collection, tabulation, and
final summarization of the accounting data. There are 4financial statements
a.The balance sheet which shows the financial conditionof the enterprise at the end of a period
b.The income statement which measure the results ofoperations for the period
c.The statement of cash flows which reports the cashprovided and used by operating, investing, and financingactivities during the period AND
d.The statement of retained earnings, which reconcilesthe balance of the retained earnings account from thebeginning to the end of the period.
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The Accounting Cycle
9. Closing is the formal process by which allnominal accounts are reduced to zero and thenet income or net loss is determined andtransferred to owner's equity.
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Accounting standards
At one time, there used to be quite wide differences inthe ways that accountant calculated profits.
In the late 1960s, a number of cases led to widespreadoutcry against this lack of uniformity in accounting
practice. In response, the accounting bodies formed theAccounting Standards Committee.
Accounting Standards are drafted to ensure that thereis no conflict between the law and accountingstandards.
Starting 1/1/2006 public listed companies in Malaysiawere required to adopt all the Financial ReportingStandards issued by Malaysian Accounting StandardBoard.
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Accounting principles andconventions
Revenue recognition: Revenue must be recordedwhen the four criteriahas been satisfied :
1) Persuasive sales arrangement exists2) Delivery has/will eventually occur or services
already rendered3) The sellers price to the buyer is fixed or
determinable; and4) Collectability is reasonably assured
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Accounting principles andconventions
Accounting entity: each business is a separateentity from its owner.
Going concern: the business entity will continue to
operate indefinitely.
Money measurement: money is used as the basicmeasuring unit for financial reporting.
Historical cost: all transactions of a business entityare recorded at the original cost to the enterprise.
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Accounting principles and conventions
Accounting period: the life of a business is dividedinto specified periods of time for the purpose ofpreparing financial reports.
Objectivity: there must always be objective
verifiable evidence for reporting any accountinginformation.
Consistency: the same accounting method shouldbe applied in each accounting period whenpreparing financial reports.
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Accounting principles and conventions
Prudence: Accounting concept that requiresrecording (recognizing) the expenses andliabilitiesas soon as possible, but the revenuesonly when they are realized or assured. It
implies that only that method of determiningasset value or net income which yields thelesser amount should be used.
Accrual concept: revenue is recognised when it isearned and expenses when they are incurred.
Matching principle: revenue earned during anaccounting period has to be matched with theexpenses associated with earning that revenue.
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Grading
Grades are what you make of them. Not whatthey make of you, unless YOU made it thatway!
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REFERENCE (Main)
Wan Ibrahim, W., Bijoy, K., Kasim, K. (2008).Fundamentals of Business Accounting, OxfordUniversity Press
You should buy at RM39.90.