Accounting Assumptions Monetary Unit assumption Economic Entity assumption Enables accounting to measure economic events. The activities of the owner and the company should be kept separate.
Accounting Assumptions Going Concern assumption Time Interval / Periodicity assumption The business will continue For the conceivable future. Final accounts are prepared at regular intervals. Known as accounting period /financial year.
Accounting Principles Hitorical Cost Principle Revenue Recognition Principle All assets must be recorded at cost. Revenue is recognized only after the goods have been delivered or service rendered to customers.
Accounting Principles Matching Principle Full Disclosure Principle Profit is recognized by matching the income of the period with all expenses incurred in earning such income. Financial statements should provide sufficient / relevant information to influence users decision making.
Accounting Constraints Materiality Principle Conservatism Principle An item is said to be “material” if it is sufficiently important to affect our judgment of the true position of the firm. When in doubt, choose the solution that will be least likely to overstate assets and income.
Financial Statement Income Statement – A summary of revenue and expenses for a specific period of time / to show bus. performance <ul><li>Owner’s Equity Statement – A summary of the changes in </li></ul><ul><li>the owner’s equity as of a specific date. </li></ul> Balance Sheet – A list of assets, liabilities and owner’s equity as of specific date/ to show position. Cash Flow Statement – A summary of cash receipts and cash payments for a specific period of time.
Purpose of Financial Statements MASB 1 : To provide information about the financial position , performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions. Show the results of management’s stewardship of the resources entrusted to it.
Income Statement Exwyezack Company Income Statement For The Year Ended …….. Sales Revenue xxxxx Less: Expenses (xxxx) Profit xxxx
Owner’s Equity Statement Exwyezack Company Statement of Owner’ Equity For The Year Ended …….. Opening capital xxxxx (+/-) Profit / Loss xxx Additional Capital xxx xxxxx (-) Drawings (xxxx) Ending Capital xxxxxx
Balance Sheet Exwyezack Company Balance Sheet As At …….. Fixed Assets xxxxxx Current Assets xxxxx Less: Current Liabilities (xxxx) Working Capital xxxx Net Assets xxxxxx Financed by: Owner’s Equity xxxxx Long Term Liabilities xxxxx xxxxx
Cash Flow Statement Exwyezack Company Cash Flow Statement For The Year Ended …….. Cash From Operating Activities xxxx Cash From Investing Activities xxxx Cash From Financing Activities xxxx Net increase in cash xxxxx Opening balance xxx Closing balance xxxxx
Cont… The Accounting Equation: Assets = Liabilities + Owner’s Equity Resources that are expected to be of benefit in the future/ Owned by business Claims held by the owners Economic obligations (debts) payable to outsiders
Cont… Increase and decrease in owner’s equity Owner’s Equity Investment Revenues Expenses Withdrawals
Transaction Analysis Owner started the business with RM20,000 cash. Assets = Liabilities + Owner’s Equity = RM20,000 RM20,000 + RM0 RM20,000 RM20,000