DPK5013: BUSINESS

ACCOUNTING
CHAPTER 1:
INTRODUCTION TO ACCOUNTING
By: Pn. Suhana Binti Mohd Jamil
COURSE LEARNING OUTCOMES
Describe clearly basic principles, concepts and framework for
accounting based on the current Accounting Standards (C1).
At the end of this chapter, students should be able to:
1. Understand the framework of financial accounting
2. Learn the function of financial accounting
3. Know the types of business entities
4. Define the concept of cost accounting

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1.1 Understand the framework of financial accounting

1.1.1 Define accounting

1.1.2 Explain accounting in qualitative characteristics,

principles, assumptions, and constraint according
to accounting framework and standards
WHAT IS ACCOUNTING??

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7.1

DEFINITION OF ACCOUNTING

Accounting Bookkeeping
is the process of classifying , is the process of classifying,
recording and summarizing recording and summarizing
business transaction in business transactions.
monetary units, analyzing and
interpreting the financial data
of a business in order to assist
stakeholders in making
decisions.

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 ACCOUNTING PROCESS

Classifying

Bookkeeping Recording Accounting

Summarizing

Analyzing

Interpreting
 ACCOUNTING PROCESS

Classifying Recording Summarizing Analyzing Interpreting

Accounting Transaction are Accounting Financial The result of

data from recorded in data for a statement are the analysis is
business journals and particular analyzed used as a guide
documents are ledgers period in the to make a
arranged and form of decision
categorized. financial
E.g.: business statements
documents are (Statement Of
receipts, Comprehensive
invoices, cash Income and
bills etc. Statement of
Financial
Position)
 ACCOUNTING CYCLE

Financial Source
Statements Documents

Trial
Journals
Balance

Ledgers
 ACCOUNTING IN QUALITATIVE CHARACTERISTIC

Reports should be able to compared over time

COMPARABILITY through the use of consistent accounting procedures.

Reports should be presented in manner that makes it

UNDERSTANDABILITY easy for the user to understand their meaning.

Reports should include all information which is

RELEVANCE useful for decision-making.

VERIFIABILITY/ Reports should contain information verified by

RELIABLE source document evidence so that it is free from bias.
 ACCOUNTING PRINCIPLES,
ASSUMPTIONS AND CONSTRAINTS

Accounting Accounting Accounting

Principles Assumptions Constraints
Historical cost Separate entity Conservatism
Objectivity Going concern Materiality
Full disclosure Money as a unit Benefit and
Matching of of cost
revenue and measurement /
expenses monetary unit
Consistency
Accounting
period
 ACCOUNTING PRINCIPLES
1. Historical Cost
All accounting records are 2. Objectivity
prepared based on the cost Each transaction must be
value or the actual price stated recorded based on objective
in the source document, that is evidence or verified &
the current value at the time of unbiased information.
transaction

4. Matching of revenue and

3. Full disclosure
expenses
Published accounting
All expenses incurred to
information must always be
generate revenue must be
relevant, timely, reliable,
reported within the period in
unbiased & free from mistakes.
which the revenue is reported.
 ACCOUNTING ASSUMPTION
It is assumed that a business will continue to expand & operate
Going Concern in the future.

The business is separate from the owner and other entities and
Separate entity its records should be kept on that basis.

Money as a unit of All transactions are recorded in the countrys monetary unit.
measurement / monetary unit The monetary value is assumed to be stable.

The same accounting method will be used from one accounting

Consistency period to another accounting period.

Business activities can be divided into periods e.g. a

month, a quarter, 6 months or a year. The accounting period
Accounting Period must be consistent in order to enable comparison of
business performance between accounting periods.
 ACCOUNTING CONSTRAINTS

Business must avoid Materiality refers to The cost of preparing

overstating values of the relative accounting
assets and revenue, importance or information must not
and understating significance of an exceed the value or
liabilities and item or event. benefit of the
expenses when Items that are not information to the
recording material need not be users of the financial
transactions reported separately. statements.

Benefit and
Conservatism Materiality
cost
1.2 Learn the function of financial accounting

1.2.1 Discuss the functions of financial accounting

1.2.2 Explain the usage and the importance of

accounting information
ACCOUNTING FUNCTIONS

Accounting

Provide a picture of
the financial position
of a company or
business
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 IMPORTANCE OF ACCOUNTING INFORMATION

To identify the financial position of an organization, that is whether it is

making profit or a loss and the necessary follow-up actions that should be
taken.

To ensure that transactions are recorded for future reference.

Managements responsibility in a large organization may be complicated if

transactions are not recorded accurately. Financial statements may
provide an inaccurate description of the business.

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THE USAGE OF ACCOUNTING INFORMATION
Users of accounting information

Management Banks / Financial

Finance department Institutions
Marketing department Creditors
Business owner / Employee unions
Shareholders Suppliers
Current investor Government
Employee

Internal External
Users Users
 INTERNAL USERS
Inside a business
Who use the business information for day-to-day business decisions

Management Management uses financial information as a guideline to plan,

organize and control the organization, and analyse the performance
of the business
Finance Department Financial information enables the finance department to evaluate
the ability of the organization or company to pay its business debts.
Marketing Financial information is used as a guideline to determine the policies
Department and the price of the products to be marketed.
Business Owners / They need to know the expected rate of return obtained from
Shareholders investments, financial position, and the growth rate of the business
during a particular period. Owners use this financial information to
make decisions on whether to maintain, increase or stop
investments
 EXTERNAL USERS
Individuals or other firms/institutions outside a business
Who have no involvement in the day-to-day business operations or decisions

Banks/Financial Banks or financial institutions need to know the ability of a company

Institutions or business to repay loans or debts.

Employee unions An employee union uses financial information to ensure that their
demands to the employer such as salary increments and other
benefits are reasonable compared with the companys financial
ability.

Suppliers Financial information enables suppliers to evaluate the companys

ability to pay its debts.
Government Government bodies, e.g: LHDN refers to accounting statement and
financial reports in order to determine the amount of tax to be paid.
1.3 Know the types of business or entities

1.3.1 Describe the types of business or entities:

a. Sole Proprietor
b. Partnership
c. Limited Company
 TYPES OF BUSINESS ENTITIES

A business is a term to a group of people or an organization (the entity)

that engages in trading of goods or services with consumers.
Business entities can be categorized based on their unique characteristics.

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 SOLE PROPRIETORSHIPS
Characteristics

1. Is profit oriented and owned by 1 entrepreneur.

2. The sole proprietor or owner usually runs the business alone;
sometimes, the owner may employ a worker or two for assistance.
3. The owner is fully responsible for the daily financial operations of the
business. Thus, the owner has unlimited liability.
4. Unlimited liability the owner is exposed to any legal actions taken
against him/her for debts or misconducts in the business.

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 PARTNERSHIPS
A partnership is a business
owned by two or more
entrepreneurs.
The partners run their
business together; each
partner plays his/her
respective role in the
business
The profits and losses of the
partnership are shred among
the partners based on the
percentage of capital
contributed to the business
As owners of the business,
each partner has unlimited
liability this means that
each partner is liable for
debts or misconducts in the
business
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 LIMITED COMPANY

A limited company is incorporated under the

Companies Act 1965 which is enforced by the
Companies Commission of Malaysia (SSM)

The names given to business usually end with

Sendirian Berhad (Sdn. Bhd.) to signify the
status of limited liability

Limited liability means that the owners of the

business are free (not liable) from debts or
misconducts in the business.

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1.4 Define the concept of cost accounting

1.4.1 Define Cost Accounting

1.4.2 Explain the importance of Cost Accounting to management
1.4.3 Identify the differences between Cost Accounting and
Financial Accounting
 COST ACCOUNTING

Describe the process of identifying and accumulating the costs of

business operations in a way that is helpful in valuing stock and in
identifying the costs and profitability of different departments or
divisions of a busines.

Is a method to determine costs in order to plan and control

business operations.

Involves the determination of sales costs, production costs and

service costs.
 THE IMPORTANCE OF COST ACCOUNTING TO
MANAGEMENT

1. To determine product cost.

2. To facilities planning and control of regular business activities.
3. To supply information for short and long run decision.
 THE DIFFERENCES BETWEEN
COST ACCOUNTING AND FINANCIAL ACCOUNTING

1. Audience
2. Format
3. Level of details
4. Product costs
5. Regulatory framework
6. Report content
7. Report timing
8. Time horizon
 Financial accounting Cost accounting
Audience .. .
Format ..
Level of details .. ..
Product costs .. .
Regulatory ..
framework
Report content .. ..
Report timing .. .
Time horizon ..
THE END

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