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Acc week 1
 

Acc week 1

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    Acc week 1 Acc week 1 Presentation Transcript

    • Topic 1 Conceptual Framework
    • In Your Textbook...
      • Roshayani Arshad, et al. (2007), Financial Accounting An Introduction , 2 nd Edition, Malaysia, McGraw Hill.
      • Chapter 1: Introduction to Accounting
      • Chapter 2: Basic Framework of Accounting
    • “ WHAT & WHY ” Financial Reporting?
    • What is Accounting?
      • Accounting can be defined as the process of recording, reporting, and interpreting financial information to permit informed judgments and decisions by users of the information.
      • Vs. Book-keeping – involves only the recording of data.
      • Accounting is concerned with the uses which accountants might make of the bookkeeping information given to them.
      UTAR/FBAF1023/Topic1
    • What does Accounting record?
      • Transactions : Refer to any economic event or activity that affects the financial condition of a business and must be entered into the accounting records.
      • Two types of transactions:
        • Cash transaction – for which immediate payment is made.
        • Credit transaction – for which payment is postponed to a future date.
    • Purpose of Accounting
      • To provide financial information about business organisations to various interested parties for decision making .
      • Accounting information is used by:
        • External users, e.g. investors, government, creditors, taxing authorities, general public
        • Internal users, e.g. managers, business owners, shareholders
      Looking at the examples above, how do you think we differentiate external users from internal users?
    • A business stakeholder is a person or entity having an interest in the economic performance of the business. Business Stakeholders Users ??
    • Business Stakeholders
      • Owners – interested in knowing amount of profits earned from their investment, to evaluate financial stability and growth of the business.
      • Business managers – to set goals, evaluate progress and take corrective action if necessary.
      • Investors – to evaluate what income they can expect from their investment.
    • Business Stakeholders
      • Creditors – to determine borrower’s ability to meet scheduled payments by evaluating borrower’s financial position and prediction of future operations.
      • Government & taxing authorities – to administer and enforce laws on companies.
    • The Process of Providing Information 2 Assess stakeholders’ informational needs. STAKEHOLDERS Internal: Owners, managers, employees External: Customers, creditors, government 1 Identify stake-holders.
    • The Process of Providing Information Accounting Information System Design the accounting information system to meet stakeholders’ needs. 3 4 Record economic data about business activities and events.
    • Accounting Information System The Process of Providing Information 5 Prepare accounting reports for stakeholders. STAKEHOLDERS Internal: Owners, managers, employees External: Customers, creditors, government
    • “ WHOM ” do we report for?
    • Nature of a Business
      • A business is an organisation in which basic resources (inputs) are assembled and processed to provide goods or services (outputs) to customers.
      • Objective of most businesses – to maximise profits (difference between revenue and cost/expenses).
      • Some businesses operate with an objective other than to maximise profits.
    • Manufacturing Business Types of Businesses Product Proton Cars, automotive parts Intel Computer chips Boeing Jet aircraft Nike Athletic shoes and apparel Coca-Cola Beverages Sony Stereos and television
    • Merchandising Business Types of Businesses Product Jusco General merchandise Toys “R” Us Toys Tower Records Music & video records Guardian Beauty & health products Amazon.com Internet books, music, video retailer
    • Service Business Types of Businesses Product Disney Entertainment Malaysia Airline Transportation Hilton Hotels Hospitality and lodging A Cut Above Hairdressing services Maxis Telecommunication
    • There are three types of business organizations
      • Proprietorship
      • Partnership
      • Corporation
    • A proprietorship is owned by one individual.
      • Advantages
      • Ease in organizing
      • Low cost of organizing
      • Disadvantage
      • Limited source of financial resources
      • Unlimited liability
      Joe’s
    • A partnership is owned by two or more individuals.
      • Advantages
      • More financial resources.
      • Additional management skills.
      • Disadvantage
      • Unlimited liability.
      Joe and Marty’s
    • A corporation is organized under Company Law as a separate legal entity.
      • Advantage
      • The ability to obtain large amounts of resources by issuing shares.
      • Disadvantage
      • Double taxation.
      J & M, Bhd.
    • Sample Organisation Chart
    • Take A Break!
    • “ HOW ” to record?
    • General Accepted Accounting Principles
      • Financial statements have to be prepared in accordance to General Accepted Accounting Principles (GAAPs).
      • GAAPs are the standards and principles (i.e. rules, practices and procedures) used in the preparation of financial statements.
      • International Accounting Standards Board (IASB) issues the International Financial Reporting Standards (IFRS).
      • In Malaysia, the Malaysian Accounting Standards Board requires companies to adopt the IFRS with effective 1 January 2006.
    • Basic Accounting Concepts
      • The accountant uses a number of accounting concepts and conventions as guides to accounting practice.
      • These concepts have been derived over the years from customs and general accounting practices.
      • 1. Accounting/Business Entity
      • For accounting purposes, the business is regarded as an accounting entity or business entity which is different from its owners, creditors, employers, customers and other persons.
      • All of the dealings or transactions of the business are recorded from the point of view of the business, as a separate entity.
      Basic Accounting Concepts
      • 2. Going Concern
      • The business enterprise is assumed to have an indefinite life.
      • The accountant will ignore the current liquidation values of the resources in the business because he assumes that these resources will not be sold but will be utilized by the business in its normal operations.
      Basic Accounting Concepts
      • 3. Money Measurement
      • Money is used as the basic measuring unit for financial reporting.
      • If the event cannot be measured in monetary terms, it is not considered as part of the accounting data. E.g. motivational level of the staff, inefficient management, poor working conditions.
      Basic Accounting Concepts
      • 4. Historical Cost
      • All transactions of a business entity are recorded at the original cost to the enterprise.
      • Current market value irrelevant.
      • This practice is based on the assumption that the business is a going concern and is not likely to be liquidated.
      Basic Accounting Concepts
      • 5. Accounting Period
      • The life of a business is divided into units of equal length for the purpose of preparing financial reports.
      • The period may be a month, a half-year, a full year, or any other length of time depending on the volume and nature of the business.
      • Purpose: to enable comparisons and analysis of the business’s financial position over a period of time.
      Basic Accounting Concepts
      • 6. Objectivity
      • There must always be objective verifiable evidence for reporting any accounting information.
      • The evidence that a business transaction has taken place and the details pertaining to that transaction are contained in source documents, e.g. receipts, invoices, cheques, and vouchers.
      Basic Accounting Concepts
      • 7. Consistency
      • The same accounting method should be applied in each accounting period when preparing financial reports.
      • Purpose:
        • to ensure that the accounting reports of a business are comparable from period to period.
        • to prevent misleading profits arising from differing accounting methods, from being reported.
      Basic Accounting Concepts
      • 8. Conservatism/Prudence
      • Due to uncertainty of future events, cautious accounting practices are observed so that neither assets are overstated nor liabilities understated.
      • The accountant will try not to anticipate income but to provide for all possible losses.
      Basic Accounting Concepts
    • Basic Accounting Concepts
      • Revenue reported when earned
      • Expense reported when incurred (used)
      • Revenue is considered earned as soon as goods are sold or whenever services are performed
      • Cash receipts/payment irrelevant
      9. Accrual Concept
      • 10. Matching Principle
      • Revenue earned during an accounting period has to be matched with the expenses associated with earning that revenue.
      Basic Accounting Concepts Sales made during 1/1/06 – 31/12/06 Bills incurred during 1/1/06 – 31/12/06 “ Matched”
    • Accounting reports, called financial statements , provide summarized information to the owner.
    • Financial Statements
      • Income statement — A summary of the revenue and expenses for a specific period of time.
      • Balance sheet — A list of the assets, liabilities, and owner’s equity as of a specific date.
      • Statement of cash flows — A summary of the cash receipts and disbursements for a specific period of time.
    • Cycle of Accounting Record Process Source Documents Journal Ledger Trial Balance Income Statement Balance Sheet Transactions take place
    • The End