CHAPTER ONE INTRODUCTION TO ACCOUNTING
Sep 05, 2015
CHAPTER ONEINTRODUCTION TO ACCOUNTING
is an information system that...measures business activities,processes information, and...communicates financial information.ACCOUNTING...
is called the language of business.ACCOUNTING...RMEthical considerations affect everything accountants do. External users making investment decisions rely on the financial information accountants generate, yet there is considerable pressure on the accountants to make the companys financial position look as good as possible. See the conflict?
HISTORY AND DEVELOPMENT OF ACCOUNTANCY
The first published works on double entry bookeeping was done by Luca Pacioli, an Italian in 1494.Refined versions of Paciolis works were produced in England and Holland in the 17th century.
HISTORY AND DEVELOPMENT OF ACCOUNTANCYThe first professional acctg association Society of Accountants, established in England in 1854Changed name to: Institute of Chartered AccountantsIn Malaysia- fin reporting regulations were first governed by Company Ordinance (and amendments) of 1940, 1946 and 1956 (Tong,2000)Then Replaced by: Malaysian Company Act 1965 (Act)9 Schedule of the Act list out the disclosure requirement of financial statements -
*Book-keeping & AccountingBook-keeping is defined as a process of recording business transactions accurately & systematically according to certain set of rules.Accounting involves the following process:Recording business transactions accurately & systematically, i.e. book-keeping.Classifying accounting information for the preparation of financial reports.Analysing & interpreting business transactions & accounting reports. This enable the business to make decisions & plans for the future.Functions of book-keeping & accounting:Providing proof that a business transaction has taken place.Recording, classifying & summarising business transactions in monetary unit systematically.Supplying information regarding all assets & liabilities of the entity so that the financial standing of the entity can be ascertained at any fixed time.Supplying all information regarding the expenses & revenues of the entity.
OBJECTIVES OF ACCOUNTING
Decision makingHelp management to plan strategy and policy in the future Improve weaknessesControllingTo watch and control over all business transactions that involved monetary valueReport on financial position and performance
Users of Accounting InformationInternalUsersExternal usersCreditorsInvestorsUnionsPublicOwnersmanagersEmployeesGov. agencies
Users of Accounting InformationExternal users are individuals or groups outside the business or organization who evaluate the ability , financial position and performance of the organizations.External users are also known as stakeholders who have some interest in the accounting information.Internal users include the directors, managers and employees in a company or organization who do the analysis of the given information to fulfill their own requirements.
Owners would be interest in knowing what are the profit they earned from their investment in the business. They also interested in the financial stability and growth of the business.Managers - managers have to ensure that the business is operated efficiently. So they need information in planning, organizing and controlling the organization.
Employees would also interested in the businesss ability to progress and expand. They would look for steady employment, earning capacity and other benefits which are to be gained from a financially stable business.Creditor-to determine the firms ability to repay loan.Investor- to evaluate whether the business is a good investments
External usersmake decisionsabout the entity.Internal usersmake decisionsfor the entity.USERS OF ACCOUNTING INFORMATION
Management AccountingFinancial AccountingFIELDS OF ACCOUNTING
THE ACCOUNTING PROCESSGATHERING FINANCIAL INFORMATIONABOUT A BUSINESSAND REPORTING IT TO USERSACCOUNTING IS A SYSTEM OF:
STEP ONEANALYZINGLOOKING AT EVENTS THAT HAVE TAKEN PLACE AND THINKING ABOUT HOW THEY AFFECT THE BUSINESS
STEP TWOENTERING FINANCIAL INFORMATION ABOUT EVENTS INTO THE ACCOUNTING SYSTEMRECORDING
STEP THREESORTING AND GROUPING SIMILAR ITEMS TOGETHER CLASSIFYING
STEP FOURBRINGING THE VARIOUS ITEMS OF INFORMATION TOGETHER TO DETERMINE A RESULT SUMMARIZING
STEP FIVETELLING THE RESULTSREPORTING
STEP SIXDECIDING THE MEANING AND IMPORTANCE OF THE INFORMATION IN VARIOUS REPORTSINTERPRETING
ACCOUNTING PROCESS:SIX MAJOR STEPSANALYZINGRECORDING
ACCOUNTING PROCESS:SIX MAJOR STEPSSUMMARIZINGCLASSIFYING
ACCOUNTING PROCESS:SIX MAJOR STEPSREPORTINGINTERPRETING
OWNERSHIP STRUCTURESSOLE PROPRIETORSHIPPARTNERSHIP CORPORATION
SOLE PROPRIETORSHIPONE OWNEROWNER ASSUMES ALL RISKOWNER MAKES ALL DECISIONS
PARTNERSHIPTWO OR MORE PARTNERSPARTNERS SHARE RISKSPARTNERS MAY DISAGREE ON HOW TO RUN BUSINESS
CORPORATIONSSTOCKHOLDERSSTOCKHOLDERS HAVE LIMITED RISKSTOCKHOLDERS MAY HAVE LITTLE INFLUENCE ON BUSINESS DECISIONS
CAREER OPPORTUNITIES IN ACCOUNTINGACCOUNTING CLERKBOOKKEEPERPARA-ACCOUNTANTACCOUNTANT
ACCOUNTING CLERKRecord, sort, and file accounting informationOften specialize in one area (such as cash, payroll, accounts receivable, accounts payable, inventory and purchases)At least one year of accounting education
BOOKKEEPERSSupervise the work of accounting clerksSummarize accounting informationHelp managers and owners interpret accounting informationOne to two years of accounting education
PARA-ACCOUNTANTSProvide many accounting, auditing or tax servicesUnder direct supervision of accountantTwo years of accounting educationOr, significant accounting and bookkeeping experience
ACCOUNTANTSDesign the accounting information systemFocus on analyzing and interpreting infoLook for trendsStudy the impact of alternative decisionsCollege degree in accounting
18/1/04*Career Opportunities for Accountants
Commerce & Education IndustryPublic AccountantsPublic SectorCompany accountantsFinance managersBank managersFinancial controllersTreasury managersTax managersCorporate plannersBudget controllersBank officersFinance directorsAccountantsTax consultantsMgmt consultantsCompany secretariesReceiversLiquidatorsTreasurersAuditorsFinancial officersInland revenue officersDirectors of MinistriesMAS officers
HISTORICAL DEVELOPMENT AND CONCEPTUAL FRAMEWORK
Conceptual Framework was created in 1980s by the Financial Accounting Standard Board and the International Accounting Standard Board in the US, Canada and Australia.The conceptual framework includes: the boundaries that must be abided by accounting professionals.objectives of reporting the financial statements, qualitative characteristics or reporting, elements of financial statements and operational guideline.operational guideline covers the recognition of items, measurement of values in the financial statement, presentation of financial statements and the reported entity. It is also states the assumptions, principles and limitations in each area mentioned above.
To provide information usefulfor making investment andlending decisionsWhat is the primary objective of financial reporting?GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
THE ENTITY CONCEPT EXAMPLEThe affairs of the business are to be treated as separate from thenon-business activities of its owner(s)
Assume that John decides to open up a gas station and coffee shop.The gas station made $250,000 in profits, while the coffee shop lost $50,000.THE ENTITY CONCEPT EXAMPLE
How much money did John make?At a first glance, we would assume that John made $200,000.However, by applying the entity concept we realize that the gas station made $250,000 while the coffee shop lost $50,000.THE ENTITY CONCEPT EXAMPLE
The entity will continueto operate in the future.THE GOING CONCERN CONCEPT
The dollars purchasingpower is relativelystable.THE STABLE-MONETARY-UNIT CONCEPT
The final accounts are prepared at regular time interval (yearly or monthly basis).THE ACCOUNTING PERIOD CONCEPT
Cost PrincipleObjectivity PrincipleDisclosure PrincipleConsistency PrincipleFounded based on the four concepts (or accounting assumptions):BASIC ACCOUNTING PRINCIPLESConservatism PrincipleMatching PrincipleRealization PrincipleMateriality Principle
Assets and servicesacquiredshould be recordedat their actual cost.THE COST PRINCIPLE
Information mustbe reasonablyaccurate.Information mustbe free from bias.Information must report what actually happened.Individuals wouldarrive at similarconclusions usingsame data.THE RELIABILITY (OBJECTIVITY) PRINCIPLE
Requires all material information to be disclosed or published.DISCLOSURE PRINCIPLE
Requires to use thesame accountingmethod overconsecutive time period.CONSISTENCY PRINCIPLE
To record a figure which will understaterather than overstatethe profit. CONSERVATISM (PRUDENCE) PRINCIPLE
Asset = Capital + Liabilities MATCHING PRINCIPLE
Revenue can be realizedat the point of sale and notat the point the debt is recovered. REALIZATION PRINCIPLE
Recording of only significant accountingdata that affects thedecision making. MATERIALITY PRINCIPLE
**Ethical considerations affect everything accountants do. External users making investment decisions rely on the financial information accountants generate, yet there is considerable pressure on the accountants to make the companys financial position look as good as possible. See the conflict?***Accounting can be divided into two fields financial accounting and management accounting. Financial accounting focuses on information for people outside the entity. Management accounting focuses on information for internal decision makers of an entity.***************