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Accounting Principles 1
Group Assignment
Accounting

Group Member
1. Velmurugen Subramaniam- SCSJ-0011612
2. Kimberly Dudl...
Introduction to Accounting Principles

Accounting is the art of recording, summarizing, reporting, and analyzing financial...
The Basic Accounting Equation

The accounting equation for a sole proprietorship is:
Assets = Liabilities + Owner’s Equity...
The Accounting Cycle

Before elaborating further about the steps taken to construct a systematic accounting cycle,
here is...
After applying the rules of debits and credits, the accountant should then record the
transactions in a journal, or journa...
journal and then posted to the ledger. All adjusting entries are made at the end of the
accounting time period.
After the ...
However, some companies, complete one more step in the accounting cycle, step 10, or
reversing entries. Reversing entries ...
Type of Business in Malaysia
The basics of setting up a business entity in Malaysia aren‟t so difficult to understand. Fir...
Lastly, is about the Limited Company (SDN BHD or BHD). Sendirian Berhad (SDN BHD)
is a private limited company, where it p...
Statement of Financial Position of Sole Trader X at 30 June 20x1

ASSETS
Non current assets
Licence to operate
Land and bu...
Statement of Comprehensive Income for the year ended 30 June 20x1
$
Sales revenue
Cost of sales
Opening inventory
Purchase...
The Conclusion

It is easier for business to be conducted with the help of accounting. It systematically
organizes the str...
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Accounting principles 1

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Accounting principles 1

  1. 1. Accounting Principles 1 Group Assignment Accounting Group Member 1. Velmurugen Subramaniam- SCSJ-0011612 2. Kimberly Dudley Anne- SCSJ-0007708 3. Thevagi Thangavellu- SCSJ-0011768
  2. 2. Introduction to Accounting Principles Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions .The purpose of accounting is to identify, record, and communicate the economic events of an organization to interested users. It is a method of organizing one‟s revenue and expanses in a systematic way. Type of Accounts The five account types Double-entry accounting uses five account types to record all the transactions that can possibly be recorded in an accounting system. There are sub-types of the following list, but all financial transactions can be recorded using these five types of accounts. The five account types are the following: Balance sheet accounts: 1. Assets -Things of value that are owned and used by the business. 2. Liabilities -Debts that are owed by the business. 3. Equity -The owner's claim to business assets. Profit and loss accounts: 4. Revenue - The amounts earned from the sale of goods and services. 5. Expenses - Costs incurred in the course of business.
  3. 3. The Basic Accounting Equation The accounting equation for a sole proprietorship is: Assets = Liabilities + Owner’s Equity. The accounting equation for a corporation is: Assets = Liabilities + Stockholders’ Equity. Profit Determination Making a profit is the most important. Some might say the only objective of a business. Profit measures success. It can be defined simply: Revenues - Expenses = Profit. So, to increase profits we must raise revenues, lower expenses, or both. To make improvements we must know what's really going on financially at all times. We have to watch every financial event without any kind of optimistic filter. Equation for Profit. Revenue – Expanses = Profit. Loss happens when the expanses are more than revenue which leads revenue to the negative value.
  4. 4. The Accounting Cycle Before elaborating further about the steps taken to construct a systematic accounting cycle, here is a clear definition of accounting cycle based on an online source known as investopedia. Investopedia explains thataccounting cycle is a methodical set of rules to ensure the accuracy and conformity of financial statements. Computerized accounting systems have helped to greatly reduce mathematical errors in the accounting process, but the uniform process of the accounting cycle also helps reduce mistakes. To construct an accounting cycle, firstly it requires collecting and analyzing data from transactions and events following by putting transactions into the general journal.Posting entries to the general ledger will be the third steps following by preparing an unadjusted trial balance, adjusting entries appropriately, preparing an adjusted trial balance, organizing the accounts into the financial statements, closing the books, preparing a post-closing trial balance to check the accounts which is the final step also known as "bookkeeping cycle".It‟s important that you realize when the steps occur. Steps 1 through 3 occur often throughout the accountingtime period. Steps four through 10 occur only at the end of the accounting period. The accounting process partially starts with analyzing the transactions. The company first looks at the source documents which describe the transactions and events occurred for the given year. Source documents can be either hard copy or electronic (softcopy). Some examples of source documents include bank statements, checks, and purchase orders. After analyzing the transactions, events and source documents, the company is now ready to complete step 2, journalize. When the company journalizes the accountant applies the rules of double-entry accounting. We should take into consideration that double-entry accounting means that each transaction must be recorded in at least two accounts or that the debits must equal the credits which means a tally or balanced.
  5. 5. After applying the rules of debits and credits, the accountant should then record the transactions in a journal, or journalize. A journal is a complete record of each transaction. It‟s easy to remember, because journal entry has the word journal in it. The third step in the accounting cycle is to post. This sounds complicated but it‟s actually very easy. Posting involves transferring information from the journal to the ledger. A ledger is simply a collection of all accounts – it shows all of the number detail about a company‟s accounts. In this posting example, notice how the journal entry that includes a debit to cash and credit to common stock is posted to the ledger with a debit of $25,000 in the cash account and a credit of $25,000 in the common stock account. When we post, we are simply transferring the debits and credits from the journal to the ledger. To verify that the business firms debits is equivalent to the credits, an unadjusted trial balance is prepared. A trial balance is a list of all accounts and their balances at a point in time or the given year. This is the fourth step of the accounting cycle. The information used in a trial balance comes from the ledger. The account balances from the ledger is used to create the trial balance. Hence we call this trial balance an unadjusted trial balance because it is prepared before the adjusting entries. This is an example of the trial balance, notice how the account balances are listed in the appropriate debit and credit column. The purpose of the trial balance is to verify that the debits equal the credits ,it does not guarantee that no errors were made. Moving on to the fifth step in the accounting cycle is to prepare adjusting entries. Adjusting entries involve entering or listing in an asset or liability account balance to its proper amount and updating the corresponding revenue or expense account. Adjusting entries are recorded in the general
  6. 6. journal and then posted to the ledger. All adjusting entries are made at the end of the accounting time period. After the adjusting entries have been posted, the accountant prepares another trial balance. This trial balance is called the adjusted trial balance because it is prepared AFTER the adjusting entries. This trial balance is used to verify that the debits equal the credits and also is used to prepare the financial statements. Now that the adjusted trial balance has been prepared the next step is to prepare the financial statements. The financial statements must be prepared in a very specific order. The order for the financial statements is, income statement, statement of retained earnings, balance sheet, and then statement of cash flows. This order is important because information provided in the income statement is used in the statement of retained earnings, and information from the statement of retained earnings is used in the balance sheet. Step eight in the accounting cycle is to prepare the closing entries. Closing entries are prepared after the financial statements are completed. The purpose of closing entries is to prepare the accounts for recording transactions and events for the next period. Step nine, and for many companies the last step in the accounting cycle, is to prepare a post-closing trial balance. A post-closing trial balance should only contain the debit and credit balance for permanent accounts, because these are the only accounts that are remaining after the closing process. Once again the purpose of this trial balance is to ensure that the debits equal the credits and that all temporary accounts have a zero balance. For many companies this is the last step in the accounting cycle, the company is now ready to start the new accounting period.
  7. 7. However, some companies, complete one more step in the accounting cycle, step 10, or reversing entries. Reversing entries are optional. These entries reverse certain adjustments in the next period. Users of Accounting Information The users of accounting information is basically divided into two broad categories of interested parties of users namely the external users and the internal users. The external users are the parties outside the reporting entity or a business company who has an interest in accounting information. The type of external users includes investors such as the owners who uses accounting information to purchase an item, sell or keep decisions related to shares and bonds. Creditors, such as supplierand bank who utilize accounting information to conduct lending decisions. Taxing authorities, such as the internal revenue service who requires accounting information to determine a company‟s tax liabilities and finally customers, who may need accounting information to decide which products to buy from which companies. Internal users on the other hand are parties inside the reporting entity or business firm who are interested in accounting information. Types of internal users include, a company's senior and middle management, who use accounting information to run the business. An employee uses accounting information to determine a company's profitability and profit sharing.
  8. 8. Type of Business in Malaysia The basics of setting up a business entity in Malaysia aren‟t so difficult to understand. First, start with Types of Business in Malaysia. There are three different types of business in Malaysia to choose from which are the Sole Proprietorship (also known as Sole Trader), Partnership business entity and Limited Company (SDN. BHD. or Sendirian Berhad or BHD. or Berhad). The Sole Proprietorship business entity in Malaysia is owned solely by one individual, as his/her liability is unlimited. Unlimited liability means is that, if a business fails or is declared bankrupt, creditors can sue the sole proprietor‟s owner for all debts owed to respective merchants. This means personal assets, personal income and employment income are all liable. There are several advantages of a Sole Proprietorship Business Entity which is less paperwork & additional formalities (registration is easy, fast and fewer documents are needed), price of entity formation is much cheaper and is not required by the Malaysian government to be audited, not required to disclose financial statements to the public and easy to convert into limited company (SDN BHD). Next, is the “Partnership” business entity is a joint-entity holder with two or more persons to carry out a legal business in Malaysia. The Companies Commission of Malaysia requires that partnership entities MUST comprise of at least two members and a maximum twenty members. Partners in partnership business entities are also bounded by unlimited liability. Generally, the Sole Proprietorship & Partnership business entity is similar to each other in many ways. However, there are some of differences include the own partnership agreements are to be made or set to default, governed by Malaysia‟s Partnership Act 1961. Sole Proprietors are owned by one owner whereas Partnerships are owned by two or more.
  9. 9. Lastly, is about the Limited Company (SDN BHD or BHD). Sendirian Berhad (SDN BHD) is a private limited company, where it prohibits any invitation to the public to subscribe to any of its shares, deposit money with the company for investment or subscription. Minimum members in a private limited company are two and maximum is fifty. Berhad (BHD) is a public limited company where its shares can be offered to the public for fixed periods and any other forms of subscription. The minimum amount of members‟ (shareholders) are two and maximum of unlimited amount of members. There are three (3) types of limited companies in Malaysia which is Limited by Shares, Limited by Guarantee and Unlimited company with or without share capital. First, Companies Limited by Shares is where liability of members‟ contribution to this company is limited to the amount specified on their unpaid shares. Should the company becomes insolvent or goes into liquidation; members are not obligated to pay off the company‟s debts if and unless any one of the members gives a personal guarantee. Also, members‟ personal assets, employment and personal income are not liable to any of the company‟s debts. This type of business entity is the most common one in Malaysia. Second is, Companies Limited by Guarantee. In a limited company‟s Memorandum and Articles of Association, members‟ liability is limited to the amount they „guarantee‟ or undertake during winding up. In which the amount is specified in the Memorandum, agreed and signed by all members. In many cases, companies limited by guarantee are often registered by non-profit organizations, public societies and clubs. Third, Unlimited Companies are no different from sole proprietorship and partnership business entities. One of the only differences is that they have a special article of association and are free to return capital to its members.
  10. 10. Statement of Financial Position of Sole Trader X at 30 June 20x1 ASSETS Non current assets Licence to operate Land and buildings Office equipment Motor vehicles Fixtures and fittings Current assets Inventory Trade receivables Less: allowance for doubtful receivable Prepayments Cash at bank Cash in hand Total assets EQUITY AND LIABILITIES Capital Initial capital introduced Total cumulative comprehensive income at 1 July 20x0 Less: Cumulative withdrawals at 1 July 20x0 Total equity at 1 July 20x0 Total comprehensive income in The current period Withdrawals in the current year Total equity at 30 July20x1 Non current liabilities Bank loans $ $ 10,000 35,000 20,000 30,000 10,000 105,000 20,000 13,000 (1,000) 12,000 4,000 3,000 2,000 146,000 30,000 85,700 (24,000) 91,700 16,000 (8,000) 99,700 32,000 Current liabilities Bank overdraft Trade payables Accruals Total liabilities 3,300 8,000 3,000 46,300 Total equity and liabilities 146,000
  11. 11. Statement of Comprehensive Income for the year ended 30 June 20x1 $ Sales revenue Cost of sales Opening inventory Purchases of inventory Delivery costs inwards Closing inventory $ 152,000 30,000 80,000 10,000 (20,000) (100,000) Gross profit 52,000 Sundry income Discounts received 3,000 2,000 57,000 Less: Expenses Delivery costs outwards Depreciation Discounts allowed to customer Electricity Irrecoverable and doubtful debts Mobile phones Motor expenses Rent Telephone and internet Wages and Salaries Profit for the period before tax 3,000 6,000 1,000 4,000 2,500 500 2,500 9,000 1,500 12,000 (42,000) 14,000 Other comprehensive income: Revaluation gain on property Total comprehensive income in the period 2,000 16,000
  12. 12. The Conclusion It is easier for business to be conducted with the help of accounting. It systematically organizes the structure of incoming and outgoing of revenue/expanses as well as preventing from mistakes or misconduct of money by irresponsible people.

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