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Chapter6.ppt
1.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 1
2.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 2 Chapter BASIC ACCOUNTING AND FINANCIAL MANAGEMENT 6
3.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 3 LEARNING OUTCOMES AT THE END OF THIS CHAPTER, YOU WILL BE ABLE TO: Define the accounting system and understand how it differs from bookkeeping. Differentiate between financial accounting and management accounting. Explain the basic concept of accounting. Define the accounting equation Identify the accounting elements Understand financial statements: income statement and balance sheet
4.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 4 6.1 DEFINITION OF ACCOUNTING Accounting can be defined as a process of identifying, classifying, recording and summarizing business transactions in monetary terms. Then, the results can be interpreted and communicated to interested parties to enable them to make informed decisions.
5.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 5 6.2 ACCOUNTING AND BOOKKEEPING ACCOUNTING: Identifying, Classifying, Recording, Summarizing, Interpreting, Communicating BOOKKEEPING: Identifying Classifying Recording
6.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 6 6.3 MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING DIFFERENCES Characteristic Financial accounting Management accounting User report is utilized by external users report is used by external users Legal requirement statutory requirement for public listed companies management accounting report is optional for organization Scope Provides information about the whole of the organization Focus on one part or several parts of the organization GAAP and FRS Financial reporting must follow GAAP and FRS and conform with legal requirement Management accounting reporting is not subject to the legal requirement, FRS and GAAP principles Timeframe The report contains past information, e.g. historical cost The report delivers information which is expected to occur in the future such as forecasted sales Frequency Normally, the report will be produced on semi-annual or annual basis The report will be produced more frequently, such as daily, weekly or monthly
7.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 7 MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING Similarities Characteristic Description Use basic accounting process Both gather information by applying basic accounting process Objective Both aim to deliver relevant information to the interested users of the organization in assisting them to make decisions. Controlling and performance evaluation purposes Both processes are used for the purpose of controlling and performance evaluation
8.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 8 6.4 BASIC ACCOUNTING CONCEPTS Basic Accounting Concepts
9.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 9 6.5 BASIC ACCOUNTING EQUATION Assets = Owners' Equity + Liabilities Owners' Equity = Assets – Liabilities Liabilities = Assets – Owners' Equity
10.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 10 6.6 ELEMENTS OF ACCOUNTING ELEMENTS OF ACCOUNTING ASSETS LIABILITIES OWNER’S EQUITY REVENUES EXPENSES
11.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 11 ASSETS Fixed Assets (Non Current Asset): – These assets have physical existence, such as land, buildings, office equipment, machinery and motor vehicles. Current Assets – These assets are either cash in-hand, deposits in the bank or items that are expected to be converted into cash within one year, e.g. stocks and debtors. BACK
12.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 12 LIABILITIES Long-term Liabilities – Long-term liabilities refer to amount owing by the business on a long-term basis, which is more than one year, such as loans and mortgages. Current Liabilities – Current liabilities are amount owing by the business for a short-term basis and are expected to be repaid within one year, such as bank overdrafts, trade creditors and sundry creditors. BACK
13.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 13 OWNER’S EQUITY Capital – Capital refers to resources supplied by the owner to the business, such as money, motor vehicles and buildings. Drawings – Drawings can be defined as any business resources that are taken out by the owner from the business for personal purposes or use. BACK
14.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 14 REVENUES Business Revenue Sources BACK
15.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 15 EXPENSES Business Expenses BACK
16.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 16 6.7 FINANCIAL STATEMENTS The main objectives of these statements are to provide information regarding the financial position, performance and cash flows of a business to entrepreneurs. It’s main components are: – Income Statement – Balance Sheet
17.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 17 INCOME STATEMENT It comprises two main accounts, which are: – Trading account – Profit and loss account
18.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 18 TRADING ACCOUNT Trading Account: Ascertaining the Gross Profit
19.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 19 PROFIT AND LOSS ACCOUNT Profit and loss account is prepared to calculate the net profit of a business for a particular accounting period. The formula used to determine net profit is as follows: Gross Profit + Revenues – Expenses = Net Profit
20.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 20 BALANCE SHEET Balance sheet is a statement that discloses the total of assets, liabilities and owner equities of a business for a particular financial period Capital Employed = Owners' Equity + Long Term Liabilities Working Capital = Current Assets – Current Liabilities
21.
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Entrepreneurship 3e © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 21 SUMMARY Accounting system can be defined as a process used to interpret and communicate so as to enable entrepreneurs to make informed decisions. Management accounting is also called internal accounting Financial accounting focuses on the provision of information to external parties outside the organization. Accounting concepts relate to some assumptions underlying the preparation of the financial statement. Financial statements are a structured financial representation of the financial position of a business including Income Statement and Balance Sheet.
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