CHAPTER 1: INTRODUCTION
Accounting is concerned with the provision of information which will be
useful to those who are directly or indirectly connected with an
organization
The information provided would be useful both in assessing the
performance of the managers and position of the organization
Definition of accounting
The process of classifying, recording and summarizing of
transactions and business events in monetary terms, and
interpreting the results to interested parties (users of financial
statements) to assist them in decision making.
1
DIFFERENCE BETWEEN BOOKKEEPING
AND ACCOUNTING
Accounting is the process of classifying, recording and
summarizing of transactions and business events in monetary
terms, and interpreting the results to interested parties (users of
financial statements) to assist in decision making while
Bookkeeping is the mechanical aspects of accounting involving
recording, classifying and summarizing business transactions
Bookkeeping is only a part of accounting which concerned with
the accurate recording of transactions.
2
PROCESS OF ACCOUNTING
• Sort out accounting data into orderly and
Classifying meaningful categories.
• Example: Sales, Purchases, Debtors, Expenses
• Record the transactions in the books of business.
Recording • Example: Record in journals and ledgers
• Summarized accounting data in the financial
statements.
Summarising • Example: Profit & Loss Account and Balance
Sheet
• Analyze the financial statement and used the
Interpreting result of that analysis as guidance to make
decision. 3
ACCOUNTING CYCLE
ACCOUNTING CYCLE
JOURNALIZING
PREPARE LEDGER
TRIAL BALANCE
FINANCIAL STATEMENT
STATEMENT OF PROFIT & LOSS STATEMENT OF FINANCIAL POSITION
THE PURPOSES OF ACCOUNTING
As an evidence that
the transactions
have been taken
place.
To gather the accounting
information (firm
financial position) to
prepare the financial
report.
To analyze and interpret
the business transactions
(based on financial
report) to make decision.
5
THE USERS AND THE USE OF ACCOUNTING
INFORMATION
INTERNAL USERS
Manager Employee
Business owners
Interested in Need Interested to
the profits information to know the
earned from guide them in ability of the
their planning, business to
investment organizing and progress and
and the controlling the expand.
financial organizations
stability of the and analyzing
business. the operations of
the business.
6
THE USERS AND THE USE OF ACCOUNTING
INFORMATION
EXTERNAL USERS
Current/Potential Government
Creditor/Bankers Investors
Interested to Interested in Interested in
know whether knowing the the business
the business business accounting
can pay the solvency and information for
amount owing financial tax purposes.
to them. strengths.
7
TYPES OF BUSINESS ORGANIZATION AND
CHARACTERISTICS OF SOLE PROPRIETORSHIP,
PARTNERSHIP AND COMPANY
1) OWNERSHIP
Sole Partnership Company: Company:
Proprietorship Private Limited Public Limited
Usually owned Normal: 2-20 2-50 2 to unlimited
by single owner partners shareholders number of
shareholders
On his/her own Professionals: Shares are
name 2-10 partners offered to a The ownership
certain group of is opened to the
Partners people only and public through the
contribute capital not opened to the selling of shares
and are the legal public
owners of the Shares are
business Shares are not listed in the share
listed in the share market
8
market
2) CAPITAL CONTRIBUTION
Sole Partnership Company: Company:
Proprietorship Private Public Limited
Limited
Get the capital Get the capital Collected from Collected from
from personal from contribution the units of the selling of
savings, loans by the partners shares bought shares to public
from relatives according to the
and friends, percentage The size is The size of
loans from agreed. quite large capital is large
financial
institutions The size of
capital is larger
The size of than sole
capital is small proprietor
9
3) BUSINESS ESTABLISHMENT
Sole Partnership Company: Company:
Proprietorship Private Limited Public Limited
Easy to be There is an Register to SSM Register to SSM
established agreement of as required by CA as required by CA
partnership which 1965 1965
Less contains:
regulations and • Name of Should put Should put
restrictions partners “Private Limited” “PublicLimited”
• % of profit (Sdn. Bhd.) at the (Bhd.) at the end
division end of the of the company’s
• Capital company’s name name
contribution
• Types of
partners (Active,
Sleeping, etc)
register with
ROB
10
4) LIABILITY
Sole Partnership Company: Company:
Proprietorship Private Public Limited
Limited
Unlimited All debts and Limited Limited
liability losses will be according to according to
bear by partners capital capital
If the business contribution contribution
faced loss, it will
involved personal
assets if the
business assets
could not cover
all the loss
11
