ACC4153_Ch 01- INTRODUCTION TO ACCOUNTING.pptx

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Fundamentals of Accounting for Non-accounting Students
© Oxford Fajar Sdn. Bhd. (008974-T), 2017 1–3
LEARNING OUTCOMES
At the end of this chapter, students should be able to:
 Understand the basic concepts of accounting
 Identify the origin and development of accounting
 Understand the generally accepted accounting
principles (GAAP)
 Recognise the different types of business entities

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INTRODUCTION TO
ACCOUNTING
 Modern accounting was originated by Pacioli in Venice,
Italy, at the end of the fifteenth century.
 A good number of rules related to accounting were
developed and are known as accounting principles or
accounting concepts.

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INTRODUCTION TO
ACCOUNTING (cont.)
 Different accounting bodies in each country is
responsible for keeping their accounting practices
advanced and updated.
 For example, in the US, the American Institute of
Certified Public Accountants plays a noticeable role.
The Malaysian Institute of Accountants is responsible
for the same in Malaysia.

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BASIC ACCOUNTING
TERMINOLOGY
 Bookkeeping
 Accounting/account/accountants
 Identifying an economic activity
 Recording the related transactions
 Communicating in the form of financial statements or
accounting reports such as income statement and
Statement of Financial Position (balance sheet)

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THE ACCOUNTING PROCESS
Figure 1.1 The accounting process
Recording
Identifying economic activity
Communicating

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USERS OF ACCOUNTING
INFORMATION
Figure 1.2 Internal and external users of accounting information

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BRANCHES OF ACCOUNTING
Financial
accounting
Auditing
Cost and management
accounting
Government
accounting
Forensic accounting
Branches of Accounting
Taxation
Figure 1.3 Branches of accounting

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TYPES OF ACCOUNTING
 Financial accounting is the process of preparing
financial statements, such as the income statement and
statement of financial position (balance sheet) based
on the happenings of the business transactions.
 Management accounting includes activities
to gather and prepare information intended for
management, for the purposes of planning, controlling,
decision making, performance evaluation and managing
the organisation as a whole.

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TYPES OF ACCOUNTING
(cont.)
 Cost accounting is the process of gathering the
operating cost information which will help managers in
identifying, measuring and controlling expenditure.
 Auditing is the activity of examining the accounts.
 Tax accountants are responsible for calculating
individual or business taxes for the purpose of tax
assessments.

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TYPES OF ACCOUNTING
(cont.)
 Government accounting is also known as public
sector accounting. It includes accounting for legislative
bodies and government departments.
 Forensic accounting is the latest branch of accounting
which involves the application of knowledge and
accounting standards in the court of law.

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BASIC ACCOUNTING RULES
 Boundary Rules
– Separate entity
– Accounting period
– Ongoing concern
 Measurement Rules
– Money measurement
– Historical cost
– Realisation
– Matching
– Duality
– Materiality

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BASIC ACCOUNTING RULES
(cont.)
 Ethical Rules
– Conservatism (prudence)
– Consistency
– Objectivity
– Relevance
– Integrity
– Confidentiality

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ACCOUNTING CONCEPTUAL
FRAMEWORK
Professor Dr. Hamzah Ismail (1988) outlines four
requirements of conceptual framework:
• To limit what is to be included in financial statements.
• To prepare the accounting field to face new
challenges.
• To rationalise accounting practices.
• To give organisations the opportunity to choose the
measurements and disclosure methods.

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GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
(GAAP)
 GAAP is defined as a set of standards or rules used by
accounting professionals to prepare accounting
information for external and internal parties.
 The GAAP started in the US when the United States
Steel Corporation became the first company to issue
financial statements and an auditors’ report.

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STRENGTHS OF SOLE
PROPRIETORSHIP
Easily formed and dissolved with low costs
Profit is enjoyed solely (no need to share with others)
Full authority to run the business
Not dependent on other people
Not many regulations to adhere to
Not taxed according to special income tax

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STRENGTHS OF
PARTNERSHIP
Easily formed
Can bring in other parties (for expertise)
Opportunity to increase capital
Not many regulations to adhere to
Not taxed according to special income tax
Partners can work together for the benefit of the
business

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WEAKNESSES OF
PARTNERSHIP
Unlimited liability (at least one partner has unlimited
liability)
Profits to be shared among partners
Possibility of misunderstanding among partners
Rules to dissolve the partnership depend on certain
conditions

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PRIVATE LIMITED COMPANY
 The number of shareholders is between 2 and 50
persons only.
 The shares can only be sold to other individuals by
invitation and is circulated among members.
 The company cannot be listed in the Malaysian Stock
Exchange.

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PUBLIC LIMITED COMPANY
 The number of shareholders is a minimum of 7 persons
to an unlimited amount of person.
 The shares can be sold to any member of the public.
 The company can be listed in the Malaysian Stock
Exchange.

ACC4153_Ch 01- INTRODUCTION TO ACCOUNTING.pptx

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