Topic 1 Conceptual Framework
In Your Textbook... <ul><li>Roshayani Arshad, et al. (2007),  Financial Accounting An Introduction , 2 nd  Edition, Malays...
“ WHAT & WHY ”  Financial Reporting?
What is Accounting? <ul><li>Accounting can be defined as the process of recording, reporting, and interpreting financial i...
What does Accounting record? <ul><li>Transactions :  Refer to any economic event or activity that affects the financial co...
Purpose of Accounting <ul><li>To  provide financial information  about business organisations to various interested partie...
A  business stakeholder   is a person or   entity having an interest in the economic performance of the business. Business...
Business Stakeholders <ul><li>Owners  – interested in knowing amount of profits earned from their investment, to evaluate ...
Business Stakeholders <ul><li>Creditors  – to determine borrower’s ability to meet scheduled payments by evaluating borrow...
The Process of Providing Information 2 Assess stakeholders’ informational needs. STAKEHOLDERS Internal: Owners, managers, ...
The Process of Providing Information Accounting Information System Design the accounting information system to meet stakeh...
Accounting Information System The Process of Providing Information 5 Prepare accounting reports for stakeholders. STAKEHOL...
“ WHOM ” do we report for?
Nature of a Business <ul><li>A  business  is an organisation in which basic resources (inputs) are assembled and processed...
Manufacturing Business Types of Businesses Product Proton Cars, automotive parts Intel Computer chips Boeing Jet aircraft ...
Merchandising Business Types of Businesses Product Jusco General merchandise Toys “R” Us Toys Tower Records Music & video ...
Service Business Types of Businesses Product Disney Entertainment Malaysia Airline Transportation Hilton Hotels Hospitalit...
There are three types of business organizations <ul><li>Proprietorship </li></ul><ul><li>Partnership </li></ul><ul><li>Cor...
A  proprietorship   is owned by one individual.  <ul><li>Advantages </li></ul><ul><li>Ease in organizing </li></ul><ul><li...
A  partnership  is owned by two or more individuals.  <ul><li>Advantages </li></ul><ul><li>More financial resources.  </li...
A  corporation  is organized under Company Law as a separate legal entity. <ul><li>Advantage </li></ul><ul><li>The ability...
Sample Organisation Chart
Take A Break!
“ HOW ” to record?
General Accepted Accounting Principles <ul><li>Financial statements have to be prepared in accordance to General Accepted ...
Basic Accounting Concepts <ul><li>The accountant uses a number of accounting concepts and conventions as guides to account...
<ul><li>1. Accounting/Business Entity </li></ul><ul><li>For accounting purposes, the business is regarded as an accounting...
<ul><li>2. Going Concern </li></ul><ul><li>The business enterprise is assumed to have an indefinite life. </li></ul><ul><l...
<ul><li>3. Money Measurement </li></ul><ul><li>Money is used as the basic measuring unit for financial reporting. </li></u...
<ul><li>4. Historical Cost </li></ul><ul><li>All transactions of a business entity are recorded at the original cost to th...
<ul><li>5. Accounting Period </li></ul><ul><li>The life of a business is divided into units of equal length for the purpos...
<ul><li>6. Objectivity </li></ul><ul><li>There must always be objective verifiable evidence for reporting any accounting i...
<ul><li>7. Consistency </li></ul><ul><li>The same accounting method should be applied in each accounting period when prepa...
<ul><li>8. Conservatism/Prudence </li></ul><ul><li>Due to uncertainty of future events, cautious accounting practices are ...
Basic Accounting Concepts <ul><li>Revenue reported when earned </li></ul><ul><li>Expense reported when incurred (used) </l...
<ul><li>10. Matching Principle </li></ul><ul><li>Revenue earned during an accounting period has to be matched with the exp...
Accounting reports, called  financial statements , provide summarized information to the owner.
Financial Statements <ul><li>Income statement   —  A summary of the revenue and expenses  for a specific period of time. <...
Cycle of  Accounting Record Process Source  Documents Journal Ledger Trial Balance Income  Statement Balance Sheet Transac...
The End
Upcoming SlideShare
Loading in …5
×

Acc week 1

1,876 views

Published on

Published in: Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,876
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Acc week 1

  1. 1. Topic 1 Conceptual Framework
  2. 2. In Your Textbook... <ul><li>Roshayani Arshad, et al. (2007), Financial Accounting An Introduction , 2 nd Edition, Malaysia, McGraw Hill. </li></ul><ul><li>Chapter 1: Introduction to Accounting </li></ul><ul><li>Chapter 2: Basic Framework of Accounting </li></ul>
  3. 3. “ WHAT & WHY ” Financial Reporting?
  4. 4. What is Accounting? <ul><li>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. </li></ul><ul><li>Vs. Book-keeping – involves only the recording of data. </li></ul><ul><li>Accounting is concerned with the uses which accountants might make of the bookkeeping information given to them. </li></ul>UTAR/FBAF1023/Topic1
  5. 5. What does Accounting record? <ul><li>Transactions : Refer to any economic event or activity that affects the financial condition of a business and must be entered into the accounting records. </li></ul><ul><li>Two types of transactions: </li></ul><ul><ul><li>Cash transaction – for which immediate payment is made. </li></ul></ul><ul><ul><li>Credit transaction – for which payment is postponed to a future date. </li></ul></ul>
  6. 6. Purpose of Accounting <ul><li>To provide financial information about business organisations to various interested parties for decision making . </li></ul><ul><li>Accounting information is used by: </li></ul><ul><ul><li>External users, e.g. investors, government, creditors, taxing authorities, general public </li></ul></ul><ul><ul><li>Internal users, e.g. managers, business owners, shareholders </li></ul></ul>Looking at the examples above, how do you think we differentiate external users from internal users?
  7. 7. A business stakeholder is a person or entity having an interest in the economic performance of the business. Business Stakeholders Users ??
  8. 8. Business Stakeholders <ul><li>Owners – interested in knowing amount of profits earned from their investment, to evaluate financial stability and growth of the business. </li></ul><ul><li>Business managers – to set goals, evaluate progress and take corrective action if necessary. </li></ul><ul><li>Investors – to evaluate what income they can expect from their investment. </li></ul>
  9. 9. Business Stakeholders <ul><li>Creditors – to determine borrower’s ability to meet scheduled payments by evaluating borrower’s financial position and prediction of future operations. </li></ul><ul><li>Government & taxing authorities – to administer and enforce laws on companies. </li></ul>
  10. 10. The Process of Providing Information 2 Assess stakeholders’ informational needs. STAKEHOLDERS Internal: Owners, managers, employees External: Customers, creditors, government 1 Identify stake-holders.
  11. 11. 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.
  12. 12. Accounting Information System The Process of Providing Information 5 Prepare accounting reports for stakeholders. STAKEHOLDERS Internal: Owners, managers, employees External: Customers, creditors, government
  13. 13. “ WHOM ” do we report for?
  14. 14. Nature of a Business <ul><li>A business is an organisation in which basic resources (inputs) are assembled and processed to provide goods or services (outputs) to customers. </li></ul><ul><li>Objective of most businesses – to maximise profits (difference between revenue and cost/expenses). </li></ul><ul><li>Some businesses operate with an objective other than to maximise profits. </li></ul>
  15. 15. 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
  16. 16. 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
  17. 17. Service Business Types of Businesses Product Disney Entertainment Malaysia Airline Transportation Hilton Hotels Hospitality and lodging A Cut Above Hairdressing services Maxis Telecommunication
  18. 18. There are three types of business organizations <ul><li>Proprietorship </li></ul><ul><li>Partnership </li></ul><ul><li>Corporation </li></ul>
  19. 19. A proprietorship is owned by one individual. <ul><li>Advantages </li></ul><ul><li>Ease in organizing </li></ul><ul><li>Low cost of organizing </li></ul><ul><li>Disadvantage </li></ul><ul><li>Limited source of financial resources </li></ul><ul><li>Unlimited liability </li></ul>Joe’s
  20. 20. A partnership is owned by two or more individuals. <ul><li>Advantages </li></ul><ul><li>More financial resources. </li></ul><ul><li>Additional management skills. </li></ul><ul><li>Disadvantage </li></ul><ul><li>Unlimited liability. </li></ul>Joe and Marty’s
  21. 21. A corporation is organized under Company Law as a separate legal entity. <ul><li>Advantage </li></ul><ul><li>The ability to obtain large amounts of resources by issuing shares. </li></ul><ul><li>Disadvantage </li></ul><ul><li>Double taxation. </li></ul>J & M, Bhd.
  22. 22. Sample Organisation Chart
  23. 23. Take A Break!
  24. 24. “ HOW ” to record?
  25. 25. General Accepted Accounting Principles <ul><li>Financial statements have to be prepared in accordance to General Accepted Accounting Principles (GAAPs). </li></ul><ul><li>GAAPs are the standards and principles (i.e. rules, practices and procedures) used in the preparation of financial statements. </li></ul><ul><li>International Accounting Standards Board (IASB) issues the International Financial Reporting Standards (IFRS). </li></ul><ul><li>In Malaysia, the Malaysian Accounting Standards Board requires companies to adopt the IFRS with effective 1 January 2006. </li></ul>
  26. 26. Basic Accounting Concepts <ul><li>The accountant uses a number of accounting concepts and conventions as guides to accounting practice. </li></ul><ul><li>These concepts have been derived over the years from customs and general accounting practices. </li></ul>
  27. 27. <ul><li>1. Accounting/Business Entity </li></ul><ul><li>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. </li></ul><ul><li>All of the dealings or transactions of the business are recorded from the point of view of the business, as a separate entity. </li></ul>Basic Accounting Concepts
  28. 28. <ul><li>2. Going Concern </li></ul><ul><li>The business enterprise is assumed to have an indefinite life. </li></ul><ul><li>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. </li></ul>Basic Accounting Concepts
  29. 29. <ul><li>3. Money Measurement </li></ul><ul><li>Money is used as the basic measuring unit for financial reporting. </li></ul><ul><li>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. </li></ul>Basic Accounting Concepts
  30. 30. <ul><li>4. Historical Cost </li></ul><ul><li>All transactions of a business entity are recorded at the original cost to the enterprise. </li></ul><ul><li>Current market value irrelevant. </li></ul><ul><li>This practice is based on the assumption that the business is a going concern and is not likely to be liquidated. </li></ul>Basic Accounting Concepts
  31. 31. <ul><li>5. Accounting Period </li></ul><ul><li>The life of a business is divided into units of equal length for the purpose of preparing financial reports. </li></ul><ul><li>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. </li></ul><ul><li>Purpose: to enable comparisons and analysis of the business’s financial position over a period of time. </li></ul>Basic Accounting Concepts
  32. 32. <ul><li>6. Objectivity </li></ul><ul><li>There must always be objective verifiable evidence for reporting any accounting information. </li></ul><ul><li>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. </li></ul>Basic Accounting Concepts
  33. 33. <ul><li>7. Consistency </li></ul><ul><li>The same accounting method should be applied in each accounting period when preparing financial reports. </li></ul><ul><li>Purpose: </li></ul><ul><ul><li>to ensure that the accounting reports of a business are comparable from period to period. </li></ul></ul><ul><ul><li>to prevent misleading profits arising from differing accounting methods, from being reported. </li></ul></ul>Basic Accounting Concepts
  34. 34. <ul><li>8. Conservatism/Prudence </li></ul><ul><li>Due to uncertainty of future events, cautious accounting practices are observed so that neither assets are overstated nor liabilities understated. </li></ul><ul><li>The accountant will try not to anticipate income but to provide for all possible losses. </li></ul>Basic Accounting Concepts
  35. 35. Basic Accounting Concepts <ul><li>Revenue reported when earned </li></ul><ul><li>Expense reported when incurred (used) </li></ul><ul><li>Revenue is considered earned as soon as goods are sold or whenever services are performed </li></ul><ul><li>Cash receipts/payment irrelevant </li></ul>9. Accrual Concept
  36. 36. <ul><li>10. Matching Principle </li></ul><ul><li>Revenue earned during an accounting period has to be matched with the expenses associated with earning that revenue. </li></ul>Basic Accounting Concepts Sales made during 1/1/06 – 31/12/06 Bills incurred during 1/1/06 – 31/12/06 “ Matched”
  37. 37. Accounting reports, called financial statements , provide summarized information to the owner.
  38. 38. Financial Statements <ul><li>Income statement — A summary of the revenue and expenses for a specific period of time. </li></ul><ul><li>Balance sheet — A list of the assets, liabilities, and owner’s equity as of a specific date. </li></ul><ul><li>Statement of cash flows — A summary of the cash receipts and disbursements for a specific period of time. </li></ul>
  39. 39. Cycle of Accounting Record Process Source Documents Journal Ledger Trial Balance Income Statement Balance Sheet Transactions take place
  40. 40. The End

×