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Objectives:
Define what is accounting
Briefly describe history and development of accounting
List prospect of accounting profession & professionalbodies in Malaysia
Outline the development of accounting standard
Discuss the function of accounting Outline the components of financial statements and their
function
Accounting principle, assumption and conventions
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What is accounting?
Accountingis an information systemthat provides quantitative, financial
information to stakeholders about theeconomic activities and condition of a
businessso that they can make
business/economicdecisions.
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Accounting System
The procedures and processes used by abusiness to analyse transactions, handle
routine bookkeeping tasks, and structureinformation so it can be used to evaluate
the performance and health of the
business
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What are the functions of anaccounting system?
Analyze business events todetermine if informationshould be captured by theaccounting system.
Analysis
Day-to-day keeping track ofthings.
Bookkeeping
Use summary information toevaluate the financial healthand performance of thebusiness.
Evaluation
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1. Analyzebusiness event
Describe The AccountingCycle
2. Record,
3. Classify, and
4. Summarize
transaction
5. Report
summaries
Balance sheet,Income statement,Statement of cash
flows
Account, amount,classification
Investment,purchase, sale, or
transaction
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The Accounting Cycle
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The different between accounting andbookkeeping:
Accounting:
a process of identifying, recording, classifying and
summarizing in a significant manner and in termsof money, transactions and events which are, in
part at least, of a financial character, and
interpreting the result thereof (AICPA, 1961)
Bookkeeping:
only involves activities of collecting and recording
financial data
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What is the Nature of Accounting?
Deals with numbers.Quantitative
Focused on the financial
dimension of business.Financial
Past information can onlybe useful if it impactsdecisions about the future.
Decision Making
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3 PHASES OF ACCOUNTING
DEVELOPMENT
Stewardship accounting
Financial accounting and reporting
Management Accounting
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Stewardship accounting
The accounting activity concerned with simplerecord keeping and the discharge of stewardship.
Wealthy men employed stewards to managetheir property.
These stewards will provide periodical accountof their management of the resources to theirmaster
It involves the orderly recording of businesstransaction
Based on the concept of give and take.
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Financial accounting and reporting
Started from the Industrial Revolution (IR) in Britain
The size of business has increase and more complex
Results to the need for more sophisticated methodsby which business was financed. (Large amount of capital
is needed)Led to the introduction of the joint stock company(many people invest in one company) and also the UKsJoint Stock Companies Act (1844)
financial account must be audited before it ispresented to their owners (shareholder) and creditor
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The age of scientific accounting
Industrial Revolution
Professional Society
Large Scale Business
Large Capital
Various Sources
of Capital
(Owner + SH)
Reporting
failure SH Trust
Creative accounting
New accounting practice
Recognition
MeasurementAccounting concepts
Fixed Asset
Capital vs Expenses
depreciation
Research
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Management accounting
Associated with the introduction of industrialrevolution (IR) in 18th century.
Business more concern to reduce cost
delopment of cost accounting technique and use as aguide to management decisions.
The introduction of management accounting showsthe ability and capacity of accounting to develop and
meet changing socio-economic needs
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Definition: FRS 101 (MASB 1)
Financial statement is a structuredfinancial representation of thefinancial position of an enterprise and
the transaction undertaken by anenterprise
Introduction to FinancialStatements
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Objectives and purposesof Financial Statement
1. Provide information about the financialposition, performance and cash flow of an
enterprise2. Show the results of managements stewardship
of the resources entrusted to it
3. Assists users in predicting the enterprisesfuture cash flow and the timing and certaintyof the generation of cash and cash equivalents.
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Components of FS
1. Balance Sheet2. Income Statement
3. A statement showing:
All changes in equity
Changes in equity other than those arisingfrom capital transaction with owners and
distribution with owners4. Cash Flow Statement, and
5. Accounting policies and explanatory notes
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Primary Financial Statements
These financial statements answerbasic questions:What is the companys current
financial status?What were the companys operating
results for the period?
How did the company obtain and usecash during the period?
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Sometimesreferred to as a
Statement ofFinancialPosition
What are the resou rces
of the company?
What are the companys
exist ing obl igations?
What are the companys
net assets?
Summary of the financialposition of a company ata particular date.
The Balance Sheet
Assets: cash, accountsreceivable, inventory,land, buildings,equipment, and intangibleitems.
Liabilities: accounts
payable, notes payable,and mortgages payable.
Owners Equity: net
assets after all obligationshave been satisfied.
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Balance Sheet
Hershey Foods CorporationBalance SheetDecember 31, 2001
(in thousands)
Assets
Cash $ 134,147Accounts receivable 361,726Inventories 512,134Prepaid expenses 62,595
Property, plant, and equipment 1,534,901Intangibles 429,128Other assets 212,799Total assets $3,247,430
Continued
Note that the date
is a specific point
in time
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LiabilitiesAccounts payable $ 133,049
Accrued liabilities 462,901Notes and other debt 1,245,939Income taxes 258,337Total liabilities $2,100,226
Stockholders EquityCapital stock $ 183,213Retained earnings 2,755,333Repurchased stock and other equity items (1,791,342)Total stockholders equity $1,147,204Total liabilities and stockholders equity $3,247,430
Matches total assets
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Assets recorded athistorical value.
Only recognizesassets that can beexpressed inmonetary terms.
Owners equity isusually less than thecompanys marketvalue.
Describe Three Balance SheetLimitations.
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Sometimesreferred to
as a
Statement ofEarnings
What goods w ere sold o rserv ices performed thatprov ided revenue for thecompany?
What costs were incu rred inno rmal operat ions togenerate these revenues?
What are the earnin gs orcompany prof it?
Shows the results of acompanys operationsover a period of time.
The Income Statement
Revenues
Assets (cash or AR)created throughbusiness operations
Expenses
Assets (cash or AP)consumed throughbusiness operations
Net Income or (Net Loss)
Revenues - Expenses
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Income Statement
Hershey Foods CorporationIncome Statement
For the Year Ended December 31, 2001
Revenues:
Sales $4,557,241Expenses:Cost of sales $2,665,566Selling and administrative 1,269,964
Other expenses 209,077Interest 69,093 4,213,700Net income $ 343,541(-)Income taxes (136,385)Net income after tax 207,156
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Statement of Cash Flows
Reports the amount of cash collectedand paid out by a company in the
following three types of activities:1. Operating activities
2. Investing activities
3. Financing activities
H h F d C ti
1-46
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Hershey Foods Corporation
Statement of Cash FlowsFor the Year Ended December 31, 2001
(in thousands)
Net cash flows from operating activities $ 706,405Cash flows from investing activities:
Investments in property, plant, and equipment $(187,029)Proceeds from sale of property, plant, and equipment 63,042Net cash flows used in investing activities $(123,987)Cash flows from financing activities:
Cash receipts from financing activities, including debt $ 30,589Dividends paid to stockholders (154,750)Repurchase of stock (40,322)
Other, including repayment of debt (315,757)Net cash flows used in financing activities $(480,240)Net increase in cash during 2001 $ 102,178Cash as of January 1, 2001 31,969
Cash as of December 31, 2001 $ 134,147
1-46
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Limitations of FinancialStatements
1. Limited to information which can be
expressed in quantitative terms.
2. Largely confined to an analysis ofpast events.
3. Accounting is not an exact science.
4. Most information expressed in
monetary units
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Role of Accounting?
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Accounting role in business
As business language use accounting knowledge to interpret accounting
number
to understand financial information of a business
As an information systemAcctg. gather information and communicate them
to the userBusiness transaction will be processed and
analyzed to make it useful to the user
From raw data financial statement
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Accounting role in business
As a decision making toolWe use accounting information to make decision.
Each user will have different decision and will
used different type of accounting information.
As a planning and control tool
Manager are important users of financialinformation
Accounting help them to plan and control
business activities
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Business Stakeholders
A business stakeholderis a person
or entity that has an interest in theeconomic performance and well-
being of a business.
Their interest is on the report
produce by a business before theycan make sound decision
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What are the Two Types of Reports
from Accounting Information?
Internal Reports(Management Accounting)
External Reports(Financial Accounting)
Management
Lenders
Investors
Suppliers/CustomersEmployees
Competitors
Government Agencies
The Press
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What Are Accounting Reports
Used For?
Used by management for
planning
implementing plans
controlling costs
making decisions
Used by external partieswho have an economicinterest in the firm.
Balance sheet
Income statement
Statement of cash flows
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User Information Requirements
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Overview of Financial and Management
Accounts
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Qualitative
Characteristic OfFinancial Information
- What are the
characteristics?
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Relevance
The information has predictive value- helps users
to make decisions about the future
Has confirmatory valuehelps users to evaluatetheir past decisions
Reliability
Complete information and free from significant
error and bias
Qualitative Characteristic OfFinancial Information
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Comparability
The information can be comparable with:
Information produced in the previous year
Information produced by other businesses
Understandability
Means that the users should understand and
can make a good decision from such information
Timeliness
Cost effective and;
The information is ready when it is needed
Qualitative Characteristic OfFinancial Information
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Accounting Professionalbodies in Malaysia
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Established in 1965 under Company Act 1965.
Sole professional accounting body in Malaysia.
Function :
Provides training and sets professionalexaminations.
To become a member :
must pass all the examinations set by the body.
has relevant working experience. (http://www.micpa.com.my)
MICPA
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A regulatory body formed in 1969 under Sec 23Accountant Act 1967.
Functions :
To oversee development and growth of theaccounting bodies.
Sole body where the accountants must
register.
Conducts training and courses for membersto ensure they remain with developments in
the profession.
http://www.mia.org.my
MIA
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What is a CPA?
CPA: Certified Public Accountant
Has taken a minimum number of college-level
accounting classes. Has passed the exam administered by the MICPA.
Has met other requirements set by his/her state.
MICPA: Malaysian Institute of Certified Public Accountants
The national organization of CPAs in the Malaysia.
Not a government agency.
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A statutory body established under the Fin. Rep Act1997.
Functions :
To issue accounting standards.
To issue statements of principles for financial
reporting.
To review or to adopt existing accounting standards.
To issue technical pronouncements.
To develop conceptual framework.
To change the structure or contents of proposed
accounting standards.
(http://www.masb.org.my)
MASB
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A statutory body established under the Fin. Rep Act1997.
Functions :
Oversees MASB performance, financial & funding
requirement
Reviews proposed standard by MASB
FRF
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Accounting Professional Bodies
APB
FRF
MASB
MICPA
MIA
Oversees MASB performance, financialfunding requirement
Reviews proposed standard by MASB
Adopt international accounting standard
Develop new accounting standard
Advance the accounting theory & practic
Provide education, training & examinatio
to accountants
Adopt international accounting standard
Develop new accounting standard
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ACCOUNTANTS JOB SCOPE
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Accounting Opportunities
Industry
Government
or Nonprofit
Graduate
Education
PublicAccounting Auditor
Tax Consultant
ManagementAdvisoryServices
Consultant
Controller
Internal Auditor
FinancialExecutive
GovernmentAgencies: GAO,
IRS, FBI
State and LocalAgencies
Hospitals,Schools,Nonprofit
Organizations
J.D. (Law)
Ph.D.
M.Acc.
MBA
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Why Study Accounting?
Everyone makes financial decisions.
What types of decisions?
Budgeting
Investing
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Accounting Standard
Accounting Standard is a set of rules to guide the application of
accounting principles in a specific situation while preparing thefinancial statement.
(satu kerangka berkonsep dan aturan yang perlu dipatuhi oleh semua entitiperniagaan dan perakaunan)
Purpose:1. A guideline in preparing the financial statement.
2. To improve the quality of financial reporting
3. Define and explain the concept of reporting entity; which should
be reported and which is not.
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4. Identifying the common information needs of the various users offinancial reports.
5. Determine a qualitative characteristics of financial information.
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Leadingbusinessman
SEC
KLSE ROC
Accounting
Profession
Financial
Analysts
FRF
Senior membersAccounting Profession
Senior RepBNM
Financial Analysts Accountant
Finance Directors
MASB
Financial Reporting Act 1967
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OVERALL CONSIDERATION IN PREPARINGFINANCIAL STATEMENT:1. Fair presentation and compliance with MASB Standards.
- Fair presentationpresentation fairly the financial position,performance and cash flows of an enterprise by application of
appropriate MASB Standards.- Compliance with MASBcomply with all the MASB Standard and
other technical pronouncements issued by MASB.
- If departure from requirements to achieve fair presentation, anenterprise should disclose the four reasons outlined by MASB
(refer MASB 1 page 7 para 14).
a) that management has concluded that the FS fairly present the
enterprises financial position, financial performance and cash
flows;
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b) that it has complied in all material respects with applicable MASBStandards except that it has departed from a Standard in order toachieve a fair presentation;
c) the Standard from which the enterprise has departed, the nature ofdeparture, including the treatment that the Standard would require,
the reason why the treatment would misleading in the circumstancesand the treatment adopted; and
d) the financial impact of the departure on the enterprises net profitor loss, assets, liabilities, equity and cash flows for each periodpresented.
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2. Accounting Policies
- Management should select and apply an enterprises accountingpolicies so that its comply with MASB Standard.
- Definition:
Accounting policies are the specific principles, bases, convention,rules and practices adopted by the enterprise in preparing financialstatements.
- If there is no specific requirement management should developpolicies to ensure the financial statement is;
a) Relevant
b) Reliablerepresent faithfully, neutral, free of bias,prudent and complete.
3. Going Concern
- assuming that the business will continue to operate for theforeseeable future.
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4. Accrual Basis of Accounting
- transaction and events are recognized when they are occur (not as acash received or paid) and they are recorded in the accountingrecorded in the accounting record and reported in financialstatements of the period to which they are relate.
- Expenses are recognized on direct association basis between costand income (matching).
5. Consistency in Presentation
- presentation and classification of items should be appliedconsistently from one accounting period to another.
- Changes are allowed if;A significant change in the nature of the operation and the
changes could demonstrate more appropriate presentation ofevents or transaction.
A change is required by MASB Standard.
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6. Materiality and Aggregation
- the importance of a material item toward the overall financialinformation. (the item are material if its non-disclosure couldinfluence the economic decision of users).
- materiality depends on:
size of the items
nature of the items.
- material items;
presented separately in the financial statement.
- immaterial items;
aggregated with amount of a similar nature or function and neednot be presented separately.
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Example of questions on Accounting Standard:1. Apakah piawai perakaunan? Namakan badan yang bertanggungjawab dalam
penggubalan piawaian perakauanan di Malaysia. Bagaimanakah piawaiperakaunan digubal di Malaysia?
2. Berikan 2 fungsi Lembaga Piawaian Perakaunan Malaysia (MASB)?
3. General Purpose Financial Reports(Laporan kewangan untuk tujuan am) are
designed to satisfy the needs of many different type of users. Does this meanthe general purpose report will be of little used to individual users?
4. Di atas sebab-sebab yang tak dapat dielakkan, Amir Enterprise tidak dapatakur kepada salah satu piawaian perakaunan yang telah ditetapkan oleh MASB.Apakah maklumat-maklumat yang perlu Amir Enterprise dedahkan kepada
pengguna-2 maklumat perakaunan sepertimana yang dikehendaki oleh MASBdalam keadaan ini?
5. Mestikan persembahan penyata kewangan tekal (consistent)dari satu tempohke satu tempoh yang lain?Dalam keadaan bagaimanakah ia dibenarkan tidaktekal? Mengapakah penting andaian ini dipatuhi?
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Example of questions on Accounting Concept1. Berikut adalah beberapa situasi yang berasingan. Anda dikehendaki
mengkaji setiap situasi dan nyatakan samada anda bersetuju atau tidakdengan cara ianya direkodkan di dalam akaun, dengan merujuk kepadaandaian/prinsip/konsep/konvesyen perakaunan yang relevan.Jelaskan jawapan anda.
a. Perbelanjaan pembaikan Perniagaan XYZ termasuk belanjapembaikan rumah pengarah syarikatnya sebanyak RM12000 telahdirekodkan ke dalam akaun perniagaan XYZ.
b. Salmah telah membeli mesin kira yang berharga RM50 untkkegunaan pejabat yang dijangkana boleh digunakan untuk tempoh 4
tahun. Mesin tersebut telah direkod sebagai satu belanja.c. Perniagaan Selamat mempunyai pekerja yang mahir dan reputasi
yang baik dari segi penjagaan kualiti barangan yang dikeluarkannya.Maklumat ini walaubagaimanapun tidak direkodkan.
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d. Syarikat Hijau mempunyai 2 ekar tanah berdekatan dengan LitarFormula 1 Sepang, yang dibeli pada tahun 1980 pada harga RM20000
seekar. Disebabkan oleh kepesatan pembangunan nilai tanah ini telahmeningkat kepada RM110000 seekar. Harga pasaran baru ini telahdirekodkan di dalam penyata kewangan.
e. Seorang pelanggan yang berhutang sebanyak RM4500 denganPerniagaan Enak mungkin akan muflis. Usia hutang tersebut telahlebih daripada 90 hari. Wlaubagaimanapun maklumat ini tidakdimasukkan ke dalm penyata kewangan Perniagaan Enak.
f. Perniagaan Perabut Hasan telah menerima tempaha set meja makan
dari En. Khairil pada akhir bulan Januari 2001. Set meja makantersebut dihantar kepada pada bulan Februari dan ia membayarnyapada awal bulan Mac 2001. Urusniaga tersebut hanya direkod dalam
bulan Mac, 2001 apabila ianya dibayar.
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