INTRODUCTION TO

ACCOUNTING & BUSINESS

TYPES OF BUSINESS
Service businesses provide services
rather than products to customers.

Service Business Service
The Walt Disney Company Entertainment
Malaysia Airlines System (MAS) Transportation
Maybank Corporation Financial services
Marriott International Hotels Hospitality and lodging
KPMG Auditing
MERCHANDISING BUSINESS
Merchandising Business Product
Giant General merchandise
Amazon.com Internet books, music, video
Toy R Us Toys
Panasonic Consumer electronics
Gap Inc. Apparel
o Merchandising businesses sell products they purchase from other
businesses to customers.
o Merchandisers sell the goods that manufacturers produced.
o Merchandisers that sell exclusively to other businesses are called
wholesalers.
o Those that sell to customers are called retailers
o department stores, car dealers, supermarkets, drugstores, and hobby shops
.

MANUFACTURING BUSINESS
Buys raw materials, uses labor and machinery to
transform them into finished products, and sells the
finished products to individuals or other businesses.
Examples are shipbuilders, bakeries, and tire factories.

Manufacturing Business Product
General Motors Corporation Cars, trucks, vans
Nokia Cell phones
Dell Inc. Personal computers
Nike Athletic shoes and apparel
F & N Company Beverages
Sony Corporation Stereos and televisions
TYPES OF BUSINESS
ORGANIZATION
PROPRIETORSHIP
CORPORATION
PARTNERSHIP
LIMITED LIABILITY
COMPANY (LLC)
PROPRIETORSHIP
owned by one individual,
more than 70% of business organizations in
Malaysia are organized by proprietorships,
easy and low cost of organizing,
financial resources are limited to the owners
resources, and
commonly used by small businesses such as
hardware stores, laundries, restaurants, and grocery
shop.

Joes
ADVANTAGES & DISADVANTAGES
OF SOLE PROPRIETORSHIP
Easy to set up
All profits go to owner
Owner has total control
Few regulations to follow
ADVANTAGES
DISADVANTAGES
Limited expertise
Hard to raise money
Owner has all the risks
Hard to attract talented employees
PARTNERSHIP
owned by two or more individuals,
about 10% of business organizations in Malaysia
are organized by partnerships.
combine the skills and resources of more than one
person.
Business partners usually enter into a written, legal
agreement - specifies each partners investment in money
or property, responsibilities, and percent of profits and
losses.
Like proprietorships, small local businesses such as
automotive repair shops, music stores, beauty salons, and
clothing stores may be organized as partnerships.

Joe and Martys
ADVANTAGES & DISADVANTAGES
OF PARTNERSHIP
ADVANTAGES
DISADVANTAGES
Easy startup
Pooled skills and talents
More money available

Risk of partner conflict
Shared profits
Shared risks
CORPORATION
organized under state or federal
statutes as a separate legal taxable entity
generates 90% of the total dollars of business receipts
received.
comprises only 20% of the business organizations in
Malaysia.
ownership is divided into shares of stock, sold to
shareholders (stockholders)
able to obtain large amount of resources by issuing
stock.
is used only by large businesses.

J & M, Inc.
LIMITED LIABILITY COMPANY
combines attributes of a partnership
and a corporation in that it is organized as a
corporation.
can elect to be taxed as a partnership
a popular alternative to a partnership has tax and
liability advantages to the owners
J & M, Inc.
Joe and Martys
BUSINESS STAKEHOLDERS
A business stakeholder is a person or entity
having an interest in the economic performance
and well-being of a business.
A business stakeholder is a person or
entity having an interest in the
economic performance and well-being
of a business.
CAPITAL MARKET
STAKEHOLDER

provide the major financing for
the business in order for the
business to begin and continue its
operations.

BANKS & OWNERS
PRODUCT OR SERVICE
MARKET STAKEHOLDERS

Buyers of product or services
and vendors to the business
CUSTOMERS & SUPPLERS
GOVERNMENT
STAKEHOLDERS

Have an interest in the economic
performance of a business. City,
county, state, and federal governments
collect taxes from businesses within
their jurisdiction.
FEDERAL, STATE & LOCAL
GOVERNMENT
INTERNAL STAKEHOLDER

Individuals employed by the business.
Managers have an incentive to maximize
the economic value of the business.
Employees have an interest because their
jobs depend on it.

EMPLOYEES & MANAGERS
ROLE OF ETHICS IN
BUSINESS
Ethics is the moral principles that guide the
conduct of individuals.
Company Result
Enron Fraudulently inflated its financial
result
Bankruptcy. Criminal
charges against senior
executive.
WorldCom Misstated financial results by
nearly RM9 billion.
Bankruptcy. Criminal
conviction of CEO & CFO.
Example of companies caught in the midst of ethical lapses
that lead to fines, firings and criminal and/or civil prosecutions.
WHAT IS ACCOUNTING?
An information system that provides reports to
stakeholders about the economic activities and
condition of a business.
Language of business accounting is the
means by which business information is
communicated to the stakeholders.
Who uses the accounting information?

THE ROLE OF ACCOUNTING IN
BUSINESS
Accounting PROVIDES information
for MANAGERS to use in operating
the business.

Also provides INFORMATION to
other stakeholders to use in
assessing the economic performance
and condition of the business.
INTERNAL USERS
Directly involved in managing and running an
organization.
They use the information to help improve the
efficiency and effectiveness of an organization.
E.g. Marketing managers, production supervisors,
finance directors, and company officers.
Need detailed information like financial comparison
of operating alternative, projection of income from
new sales & forecast of cash needs for the coming
year on a timely basis in running the business.
EXTERNAL USERS
not directly involved in running the organization
Investors to make decisions whether to buy, hold, or sell their
share in the company.
Tax authority check for companys tax compliance.
Security Commission (SC) to make sure that company is operating
within the prescribed rules.
Customers observe whether company continues to maintain
product quality and warranty and then decide whether to continue
supporting its products.
Labor union want to know whether company can afford to give
pay raises or benefits.
Economic planners to forecast economic activities.

The role of the accounting
profession in business and
specialized accounting fields

Financial accounting is primarily
concerned with the recording and
reporting of economic data and
activities for a business.
Managerial accounting uses both
financial accounting and estimated data
to aid management in running day-to-
day operations and in planning future
operations.
ACCOUNTING PROFESSION
PRIVATE
ACCOUNTING
Accountants employed by a
business firm or a not-for-
profit organization
PUBLIC
ACCOUNTING
Accountants and their
staff who provide
services on a fee basis
ACCOUNTING
PROFESSIONAL
BODIES

MICPA
MIA
MASB
FRF
Malaysian Institute of
Accountant (MIA)
Established under the Accountants Act 1967.
Authoritative body regulating the accounting profession

Objectives:
1. To promote & regulate professional & ethical
standards
2. To enhance competency
3. To enhance the status of members
4. To lead research and development
5. To inculcate a high sense of social responsibility

Malaysian Institute of Certified
Public Accountant (MICPA)
Objective:
1.To advance the theory and practice of
accounting
2.To recruit, educate, train and assess members
3.To preserve the professional independence of
accountants
4.To maintain high standards of practice and
professional conduct by all its members.
5.Advancing the profession of accountancy in
relation to public practice, industry, commerce,
education and the public service.

Malaysian Accounting Standard
Board (MASB)
Established under the Financial Reporting Act 1997
Independent authority to develop & issue accounting &
financial reporting standards in Malaysia.
Functions and powers:
Issue new accounting standards
Issue statements of principles for financial reporting
Sponsor the development of accounting standards
Conduct public consultant as necessary
Develop a conceptual framework for the purpose of
evaluating proposed accounting standards

Financial Reporting Foundation
(FRF)
Established under the Financial Reporting Act
1997
Responsible for MASB's performance, financial
and funding arrangements.
Functions and powers of the FRF:
To provide its views to the MASB
To review the performance of the MASB
To be responsible for the financing
arrangements & operations of the MASB
To approve the MASB budget

CHARACTERISTICS OF THE
QUALITATIVE ACCOUNTING
INFORMATION
PRIMARY QUALITIES
RELEVANCE
Accounting
information has
relevance if it
makes a
difference in a
decision
RELIABILITY
Information is free from
significant error and
bias; must be
verifiable; must be a
faithful representation
SECONDARY QUALITIES
CONSISTENCY
COMPARABILITY
Can be compared with
accounting information
about other enterprise;
should be comparable
from business to
business and period to
period
A company
uses the same
accounting
principle and
methods year
to year