Accounting in
    Chapter
                                     Business

        1
                                       ...
Learning Objectives
     Identify users and uses of              Identify professional
      accounting                 ...
Importance of Accounting
                                       is a
                                                     ...
Accounting Activities
     Identifying                         Recording
     Business                             Busin...
Users of Accounting Information

                                                            Internal Users
              ...
Users of Accounting Information

                 External Users
                                             Internal Use...
Characteristics of Accounting
                               Information
                                                U...
Opportunities in Accounting
         Financial                        Managerial                        Taxation
      •Pr...
Generally Accepted Accounting
                             Principles
                 Financial accounting practice is go...
Setting Accounting Principles

                        Financial Accounting
                    Standards Board is the pri...
The Operating Guidelines of Accounting

              ASSUMPTIONS           PRINCIPLES           CONSTRAINTS
             ...
Accounting Assumptions

                                                Now                  Future
                      ...
Accounting Principles

             Revenue Recognition
       2. Recognize revenue when it is
                           ...
Accounting Constraints



            Conservatism
  Income and assets be reported at
their lowest reasonable amounts (i.e...
Professional Accounting Bodies and
               Standard Setting in Malaysia
     Malaysian Institute of Accountant (MI...
Malaysian Institute of Accountant (MIA)
     established under the Accountants Act 1967
     regulating the accounting p...
Malaysian Institute of Accountant (MIA)
     Objectives:
           • To promote and regulate professional and ethical
  ...
Malaysian Institute of Certified Public
                  Accountant (MICPA)
     Objectives:
           • To advance the...
Malaysian Accounting Standards Board
                     (MASB)

     established under the Financial Reporting Act 1997...
Financial Reporting Federation (FRF)
     established under the Financial Reporting Act 1997
      (Act), comprises repre...
Business Entity Forms


    Proprietorship                      Partnership          Corporation




                     ...
Characteristics of Businesses

     Characteristics Proprietorship Partnership Corporation
   Business entity        yes  ...
Corporation




                             Owners of a corporation are called
                              shareholders...
Accounting Equation

                                   =                    +
        Assets                          Lia...
Assets

                                     Cash
           Accounts                                  Notes
           Re...
Liabilities

                Accounts                                  Notes
                 Payable                     ...
Equity

                                                  Owner
              Owner
                                      ...
Expanded Accounting Equation

                                       =                   +
         Assets                ...
Transaction Analysis Equation
                 The accounting equation must remain in
                      balance after ...
Transaction Analysis
         J. Scott, the owner, contributed $20,000
                cash to start the business.

      ...
Transaction Analysis
         J. Scott, the owner, contributed $20,000
                cash to start the business.




   ...
Transaction Analysis
                Purchased supplies paying $1,000
                             cash.
      The account...
Transaction Analysis
                Purchased supplies paying $1,000
                             cash.




             ...
Transaction Analysis
                 Purchased equipment for $15,000
                             cash.
           The ac...
Transaction Analysis
                 Purchased equipment for $15,000
                             cash.




             ...
Transaction Analysis
                  Purchased Supplies of $200 and
                  Equipment of $1,000 on account.
  ...
Transaction Analysis
                  Purchased Supplies of $200 and
                  Equipment of $1,000 on account.


...
Transaction Analysis
              Borrowed $4,000 from 1st American
                            Bank.
    The accounts in...
Transaction Analysis
              Borrowed $4,000 from 1st American
                            Bank.




               ...
Transaction Analysis
               The balances so far appear below. Note that the
                 Balance Sheet Equatio...
Transaction Analysis
                       Rendered consulting services
                          receiving $3,000 cash.
...
Transaction Analysis
                       Rendered consulting services
                          receiving $3,000 cash.
...
Transaction Analysis
               Paid salaries of $800 to employees.

    The accounts involved are:
     (1) Cash (ass...
Transaction Analysis
               Paid salaries of $800 to employees.




     Remember that expenses decrease equity.
 ...
Transaction Analysis
                    J. Scott withdrew $500 from the
                       business for personal use....
Transaction Analysis
                    J. Scott withdrew $500 from the
                       business for personal use....
Financial Statements
               Let’s prepare the Financial Statements
             reflecting the transactions we hav...
Net income is the
                                        difference
                                         between
    ...
The net income
                                      of $2,200
                                     increases
            ...
The Balance
          Sheet
       describes a
       company’s
        financial
      position at a
      point in time....
From Statement of Owner’s Equity
                                                      © The McGraw-Hill Companies, Inc., ...
The Statement of Cash Flows identifies cash inflows and cash outflows over a
                                   period of ...
End of Chapter 1




                                     © The McGraw-Hill Companies, Inc., 2005
Ropidah, Haslinda, Aryat...
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Mujahid Ali Chapter 1 Accounting In Business

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  • Mujahid Ali Chapter 1 Accounting In Business

    1. 1. Accounting in Chapter Business 1 © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    2. 2. Learning Objectives  Identify users and uses of  Identify professional accounting accounting bodies and standards setting in Malaysia  Identify opportunities in accounting and related fields  Define and interpret the accounting equation and  Explain he meaning of each of its components generally accepted accounting principles, and  Analyze business define and apply several key transactions using the principles of accounting accounting equation  Identify and prepare basic financial statements and explain how they interrelate © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    3. 3. Importance of Accounting is a Identifies Accounting system that Records information Relevant Communicates that is Reliable to help users make better decisions. Comparable © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    4. 4. Accounting Activities  Identifying  Recording Business Business Activities Activities  Communicating Business Activities © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    5. 5. Users of Accounting Information Internal Users External Users •Lenders •Consumer Groups •Managers •Sales Staff •Shareholders •External Auditors •Officers •Budget Officers •Governments •Customers •Internal Auditors •Controllers © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    6. 6. Users of Accounting Information External Users Internal Users Financial accounting provides external users with financial Managerial accounting provides statements. information needs for internal decision makers. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    7. 7. Characteristics of Accounting Information USEFUL FINANCIAL INFORMATION RELEVANCE RELIABILITY 1. Predictive value 1. Verifiable 2. Feedback value 2. Faithful representation 3. Timely 3. Neutral COMPARABILITY CONSISTENCY © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    8. 8. Opportunities in Accounting Financial Managerial Taxation •Preparation •General accounting •Preparation •Analysis •Cost accounting •Planning •Auditing •Budgeting •Regulatory •Regulatory •Internal auditing •Investigations •Consulting •Consulting •Consulting •Planning •Controller •Enforcement •Criminal •Treasurer •Legal services •Strategy •Estate planning investigation •Lenders •FBI investigators •Consultants •Market researchers •Analysts •Systems designers Accounting- •Traders •Merger services related •Directors •Business valuation •Underwriters •Human services •Planners •Litigation support •Appraisers •Entrepreneurs © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    9. 9. Generally Accepted Accounting Principles Financial accounting practice is governed by concepts and rules known as Generally Accepted Accounting Principles (GAAP). Relevant Information Affects the decision of its users. Reliable Information Is trusted by users. Comparable Is helpful in contrasting Information organizations. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    10. 10. Setting Accounting Principles Financial Accounting Standards Board is the private group that sets both broad and specific principles. The Securities Commission is the government group that establishes reporting requirements for companies that issue share to the public. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    11. 11. The Operating Guidelines of Accounting ASSUMPTIONS PRINCIPLES CONSTRAINTS Economic entity Historical costs Conservatism Monetary unit Revenue recognition Materiality Going concern Matching Time period Full disclosure © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    12. 12. Accounting Assumptions Now Future Going-Concern Principle Economic Entity Reflects assumption that the The business is accounted for business will continue operating separately from other business instead of being closed or sold entities, including its owner Time Period Monetary Unit Principle The economic life of business can be Express transactions and events in divided into artificial time period for monetary, or money, units the purpose of financial reporting © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    13. 13. Accounting Principles Revenue Recognition 2. Recognize revenue when it is Historical Cost earned. Accounting information is based 3. Proceeds need not be in cash. on actual cost. 4. Measure revenue by cash received plus cash value of items received. Full Disclosure Matching Report enough information for Expenses are matched against users to make knowledgeable revenues, and recorded in the decisions about the company same period in which the related revenues are earned © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    14. 14. Accounting Constraints Conservatism Income and assets be reported at their lowest reasonable amounts (i.e. minimizing the assets and Materiality understating the income) Accountants are required to accurately account for significant items and transactions © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    15. 15. Professional Accounting Bodies and Standard Setting in Malaysia  Malaysian Institute of Accountant (MIA) http://www.mia.org.my  Malaysian Institute of Certified Public Accountant (MICPA)  Malaysian Accounting Standards Board (MASB) http://www.masb.org.my  Financial Reporting Foundation (FRF) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    16. 16. Malaysian Institute of Accountant (MIA)  established under the Accountants Act 1967  regulating the accounting profession.  play a significant role in the development and advancement of accounting profession globally.  Its membership in such bodies include the: • Asean Federation of Accountants (AFA) • Confederation of Asian and Pacific Accountants (CAPA) • International Federation of Accountants (IFAC) • Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    17. 17. Malaysian Institute of Accountant (MIA)  Objectives: • To promote and regulate professional and ethical standards • To enhance competency through continuous education and training to meet the challenges of the global economy • To enhance the status of members • To lead research and development for the enhancement of the profession • To inculcate a high sense of social responsibility © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    18. 18. Malaysian Institute of Certified Public Accountant (MICPA)  Objectives: • To advance the theory and practice of accountancy in all its aspects. • To recruit, educate, train and assess by means of examination or otherwise a body of members skilled in these areas. • To preserve at all times the professional independence of accountants in whatever capacities they may be serving. • To maintain high standards of practice and professional conduct by all its members. • To do all such things as may advance the profession of accountancy in relation to public practice, industry, commerce, education and the public service. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    19. 19. Malaysian Accounting Standards Board (MASB)  established under the Financial Reporting Act 1997 (the Act) as an independent authority to develop and issue accounting and financial reporting standards in Malaysia.  Working with FRF to make up the new framework for financial reporting in Malaysia, with representation from all relevant parties in the standard-setting process, including preparers, users, regulators and the accountancy profession. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    20. 20. Financial Reporting Federation (FRF)  established under the Financial Reporting Act 1997 (Act), comprises representation from all relevant parties in the standard setting process, including preparers, users, regulators and accountancy profession.  oversight the MASB's performance, financial and funding arrangements, and as an initial source of views for the MASB on proposed standards and pronouncements. It has no direct responsibility with regard to standard setting. This responsibility rests solely with the MASB. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    21. 21. Business Entity Forms Proprietorship Partnership Corporation © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    22. 22. Characteristics of Businesses Characteristics Proprietorship Partnership Corporation Business entity yes yes yes Legal entity no no yes Limited liability no* no* yes Unlimited life no no yes Business taxed no no yes One owner allowed yes no yes * Proprietorships and partnerships that are set up as LLC’s provide limited liability. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    23. 23. Corporation Owners of a corporation are called shareholders (or stockholders). When a corporation issues only one class of share, we call it common share (or capital share). © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    24. 24. Accounting Equation = + Assets Liabilities Equity Liabilities Assets & Equity © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    25. 25. Assets Cash Accounts Notes Receivable Receivable Resources owned or controlled Vehicles Land by a company Buildings Store Supplies Equipment © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    26. 26. Liabilities Accounts Notes Payable Payable Creditors’ claims on assets Taxes Wages Payable Payable © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    27. 27. Equity Owner Owner Withdrawals Investments Owner’s claims on assets Revenues Expenses © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    28. 28. Expanded Accounting Equation = + Assets Liabilities Equity _ _ Owner Owner + Revenues Expenses Capital Withdrawals © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    29. 29. Transaction Analysis Equation The accounting equation must remain in balance after each transaction. = + Assets Liabilities Equity © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    30. 30. Transaction Analysis J. Scott, the owner, contributed $20,000 cash to start the business. The accounts involved are: (1) Cash (asset) (2) J. Scott, Capital (equity) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    31. 31. Transaction Analysis J. Scott, the owner, contributed $20,000 cash to start the business. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    32. 32. Transaction Analysis Purchased supplies paying $1,000 cash. The accounts involved are: (1) Cash (asset) (2) Supplies (asset) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    33. 33. Transaction Analysis Purchased supplies paying $1,000 cash. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    34. 34. Transaction Analysis Purchased equipment for $15,000 cash. The accounts involved are: (1) Cash (asset) (2) Equipment (asset) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    35. 35. Transaction Analysis Purchased equipment for $15,000 cash. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    36. 36. Transaction Analysis Purchased Supplies of $200 and Equipment of $1,000 on account. The accounts involved are: (1) Supplies (asset) (2) Equipment (asset) (3) Accounts Payable (liability) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    37. 37. Transaction Analysis Purchased Supplies of $200 and Equipment of $1,000 on account. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    38. 38. Transaction Analysis Borrowed $4,000 from 1st American Bank. The accounts involved are: (1) Cash (asset) (2) Notes payable (liability) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    39. 39. Transaction Analysis Borrowed $4,000 from 1st American Bank. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    40. 40. Transaction Analysis The balances so far appear below. Note that the Balance Sheet Equation is still in balance. Now let’s look at transactions involving revenue, expenses and withdrawals. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    41. 41. Transaction Analysis Rendered consulting services receiving $3,000 cash. The accounts involved are: (1) Cash (asset) (2) Revenues (equity) © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    42. 42. Transaction Analysis Rendered consulting services receiving $3,000 cash. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    43. 43. Transaction Analysis Paid salaries of $800 to employees. The accounts involved are: (1) Cash (asset) (2) Salaries expense (equity) Remember that the balance in the salaries expense account actually increases. But, equity actually decreases because expenses reduce equity. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    44. 44. Transaction Analysis Paid salaries of $800 to employees. Remember that expenses decrease equity. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    45. 45. Transaction Analysis J. Scott withdrew $500 from the business for personal use. The accounts involved are: (1) Cash (asset) (2) J. Scott, Withdrawals (equity) Remember that the balance in the J. Scott, Withdrawals account actually increases. But, equity actually decreases because withdrawals reduce equity. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    46. 46. Transaction Analysis J. Scott withdrew $500 from the business for personal use. Remember that withdrawals decrease equity. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    47. 47. Financial Statements Let’s prepare the Financial Statements reflecting the transactions we have recorded. 1. Income Statement 2. Statement of Owner’s Equity 3. Balance Sheet 4. Statement of Cash Flows © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    48. 48. Net income is the difference between Revenues and Expenses. The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    49. 49. The net income of $2,200 increases Scott’s capital by $2,200. The Statement of Owner’s Equity explains changes in equity from net income (or net loss) and from owner investments and withdrawals for a period of time. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    50. 50. The Balance Sheet describes a company’s financial position at a point in time. Owner’s Equity in Balance Sheet © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    51. 51. From Statement of Owner’s Equity © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    52. 52. The Statement of Cash Flows identifies cash inflows and cash outflows over a period of time. © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
    53. 53. End of Chapter 1 © The McGraw-Hill Companies, Inc., 2005 Ropidah, Haslinda, Aryati, Liana
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