This document provides an introduction to financial accounting concepts. It defines accounting and bookkeeping, outlines their differences, and describes key accounting concepts like the accounting equation. Accounting tracks and reports business transactions, while bookkeeping records daily financial activities. Concepts covered include separate entity, historical cost, money measurement, consistency, and accruals. The document also discusses the components of accounting - assets, liabilities, owner's equity, revenue and expenses. It defines each component and provides examples. The accounting equation is introduced as a way to balance the relationship between assets, liabilities and owner's equity.

1. Introduction to Financial
Accounting : Study Notes
Prepared by: RMSRM

2. Learning Outcomes
At the end of this lesson, students will
be able to:
 Understanding what is accounting and
forms of business in Malaysia.
 Understanding the accounting
concepts and principles.
 Understanding the accounting
components.
 Understanding the accounting
equation.

3. What is Accounting
 Accounting is defined as the art of
identifying, recording, classifying,
analyzing, and reporting all the
business transaction in monetary
terms for preparation of Financial
Statements.

4. What is Bookeeping
 Bookkeeping is the recording, on a
day-to-day basis, of the financial
transactions and information
pertaining to a business.
 It ensures that records of the
individual financial transactions are
correct, up-to-date and
comprehensive.
 Accuracy is therefore vital to the
process

5. Differences between Accounting
& Bookeeping
BOOKEEPING ACCOUNTING
Definition Bookeeping is mainly related
to identifying, measuring and
recording financial transaction
Accounting is the process of
summarizing, interpreting, and
communicating financial
transactions which were
classified in the ledger account
Decision
making
Management can't take a
decision based on the data
provided by bookkeeping
Depending on the data provided
by the accountants, the
management can take critical
business decision
Objective The objective of bookkeeping
is to keep the records of all
financial transactions proper
and systematic
The objective of accounting is to
gauge the financial situation and
further communicate the
information to the relevant
authorities
Preparation
of Financial
Statements
Financial statements are not
prepared as a part of this
process
Financial statements are
prepared during the accounting
process

6. Differences between Accounting
& Bookeeping
BOOKEEPING ACCOUNTING
Skills
Required
Bookkeeping doesn't require
any special skill set
Accounting requires special
skills due to its analytical and
complex nature
Analysis The process of bookkeeping
does not require any analysis
Accounting uses bookkeeping
information to analyze and
interpret the data and then
compiles it into reports

7. Accounting
Concepts
1.Separate
Entity
2.Historical
Cost
3.Money
measurement
concept
4.Consistency
5.Objectivity
6.Fair
Presentation
7.Going
concern
8.Accrual

8. Business entity
• The business and its
owner(s) are two separate
existence entity.
• Any private and personal
incomes and expenses of
the owner(s) should not be
treated as the incomes and
expenses of the business.
• Insurance premiums for the
owner’s house should be
excluded from the expense
of the business
• The owner’s property
should not be included in
the premises account of
the business
Historical cost
• Assets should be shown on
the balance sheet at the
cost of purchase instead of
current value
• The cost of fixed assets is
recorded at the date of
acquisition cost. The
acquisition cost includes all
expenditure made to
prepare the asset for its
intended use.
• It included the invoice price
of the assets, freight
charges, insurance or
installation costs

9. Money measurement
• All transactions of the
business are recorded in
terms of money
• It provides a common unit
of measurement
• Market conditions,
technological changes
and the efficiency of
management would not
be disclosed in the
accounts
Going concern
• The business will
continue in operational
existence for the
foreseeable future
• Financial statements
should be prepared on a
going concern basis
unless management
either intends to liquidate
the enterprise or to cease
trading, or has no realistic
alternative but to do so.
• Possible losses form the
closure of business will
not be anticipated in the
accounts

10. Objectivity
• The accounting
information should be
free from bias and
capable of independent
verification
• The information should
be based upon verifiable
evidence such as
invoices or contracts.
• The recognition of
revenue should be
based on verifiable
evidence such as the
delivery of goods or the
issue of invoices.
Fair presentation
• Financial statements
should be prepared to
reflect a true and fair
view of the financial
position and
performance of the
enterprise
• All material and relevant
information must be
disclosed in the financial
statements.

11. Consistency
• Companies should choose
the most suitable
accounting methods and
treatments, and
consistently apply them in
every period
• Changes are permitted
only when the new method
is considered better and
can reflect the true and fair
view of the financial
position of the company
• The change and its effect
on profits should be
disclosed in the financial
statements
Accrual
• Revenues are recognized
when they are earned, but
not when cash is received
• Expenses are recognized
as they are incurred, but
not when cash is paid
• The net income for the
period is determined by
subtracting expenses
incurred from revenues
earned.
• Expenses incurred but not
yet paid in current period
should be treated as
accrual/accrued expenses
under current liabilities

12. Users of Financial Position
Internal users- people inside the
organization
 Management
◦ Need information for planning, policy making and
evaluation
 Employees
◦ Interested in the stability of the business to provide
employment, fringe benefits and promotion opportunities

13. External users- people outside the
organization.
 Customers
◦ Interested in long-tem stability of the business and continuance
of the supply of particular products
 Public
◦ Need information about the trends and recent development
 Government
◦ Need information about various businesses for statistics and
formulation of economic plan
 Investors
◦ Need information about the profitability, dividend yield and price
earnings ratio in order to assess the quality and the price of
shares of a company
 Lenders
◦ Need information about the profitability and solvency of the
business in order to determine the risk and interest rate of loans
 Suppliers and trade creditors
◦ Need information about the liquidity of business in order to
access the ability to repay the amounts owed to them

14. Forms of business
organization
Proprietorship /
Sole trader
Partnership
Limited
Liability
Company

15. Aspects Proprietorship Partnership Limited Company
Definition
A type of business,
in which only one
person is the owner
as well as operator
of the business.
A business form in
which minimum 2 until
20 persons
(Professional
partnership , Ex
lawyer, Accountant,
max 50 persons)
which is agree to carry
on business .
Have 2 types.
1) Sendirian BHD
,minimum members
limit is 2 and maximum
is 50.
2) Berhad (BHD), the
minimum of members
(shareholders) are 2
and maximum of
unlimited amount of
members.
Governing
Act
Company Act 2016 Partnership Act 1961 Company Act 2016
Owner
Known as sole
trader or sole
proprietor.
Individually knows as
partners and
collectively known as
firm
Shareholder (provider of
fund)
Managem
ent &
Owner have a full
control and
management over
the business
Active partner take a
part in control &
management of
business. Silent
Shareholder, as a
owner have a full
control and
management over the

16. Aspects Proprietorship Partnership Company
Sources
of capital
Solely contribute by
the owner
Contribute by the
partners
Contribute by the
shareholder
Profit and
loss
Profit & loss are
borne solely by the
owner
Profit & loss are divide
among the partners
according to
agreement/ profit ratio.
Receive profit in term
of dividend paid,
restricted to amount
of share subscribe.
Duration
Uncertain Depend on desire and
capacity of the partners
Depend on desire and
capacity of the
management
Annual
General
Meeting
(AGM)
Not mandatory Not mandatory Mandatory
Tax Income tax Income tax Company tax
Liability
Unlimited liability. Unlimited liability Limited liability, either
limited by share or
limited by guarantee
Note
(Unlimited liability = The third parties, example lenders or creditors
have a right to claim owner’s property, if business unable to pay it)

17. Accounting’s components
Asset Liability
Owner
equity
Revenue
Expenses

18. Assets
 Assets can be defined as objects or
entities, whether tangible or intangible,
that the company owns that have
economic value.
◦ Current assets are items that are completely
consumed, sold, or converted into cash in 12
months or less. Example, inventories,
debtors, bank, cash, prepaid expenses and
accrued revenue.
◦ Non-current assets @ Fixed assets are
tangible assets with a life span of at least one
year and more than 12 months. Example,
machinery, buildings, land, share, fixtures &
fitting and vehicles.

19. Liabilities
 Liabilities are the debts, or financial
obligations of a business - the money the
business owes to others.
◦ Current liabilities are debts that are paid in
12 months or less, and consist mainly of
monthly operating debts. Example of current
liabilities are creditor, bank overdraft and
short term loan.
◦ Non-Current liabilities also known as Long
Term Liabilities are debts that are paid in 12
months or more. Example long term loan and
promissory note.

20. Owner equity
 Owner's equity represents the owner's
investment or property in the
business.
 It is derived from total equity minus
the owner's draws or withdrawals from
the business plus the net income (or
minus the net loss) since the business
began.
 Example of owner equity is capital.

21. Revenue
 Revenue is a money the business
earns from selling a product or
service, generated from business
operation.
 Example of revenue are sales from
goods, commission received, rental
receives and interest on fixed deposit.

22. Expenses
 Expenses are expenditures, often
monthly, that allow a company to
operate.
 Examples of expenses are office
supplies, utilities, rental, insurance,
maintenance, repair of vehicle,
interest, salary, entertainment and
travel

23. Accounting Equation
Asset = Liability + Owner’s Equity
Asset = Liability + Owner’s Equity + Net Profit
Asset = Liability + Owner’s Equity + Revenue – Expenses
Asset + Expenses = Liability + Owner’s Equity + Revenue

24. Journal
 In accounting and bookkeeping a journal
is a record of financial transactions in
order by date.
 A journal is often defined as the book of
original entry.
 All the transaction from sources
documents will record into journal.
 There 2 type of journal:
◦ General journal
◦ Special journal

25. General journal
 To record all the business transaction
which are unable to record into special
journal.
 Example of transaction such as:
1. Starting the business
2. Drawing from the owner.
3. Adjustment transaction.
4. Sale or purchase any non-current / fixed
assets through credit.
5. To record liquidation of business.

26. Special journal
 There are 6 types of special journal:
1. Sales journal – to record any transaction sales of
goods through credit.
2. Purchases journal – to record any transaction
purchases of goods through credit.
3. Sales return journal – to record any sales return
transaction from customers.
4. Purchases return journal – to record any
purchases return transaction to suppliers.
5. Cash receipts journal - to record any transaction
sale of goods or any receipts through cash or
bank.
6. Cash payment journal - to record any transaction
purchases of goods or any disbursements
through cash or bank.

27. Journal entries- General
journal
General journal
Date Particular
Debit (RM)
Credit
(RM)
2018
Jan 1 Dr Cash in hand 2000
Motor vehicles 3000
Cash in bank 5000
Cr Capital 10,000
(Start the business with the assets
above)
8 Dr Drawings 500
Cr Purchases 500
(Drawings of goods for personal
purpose)

28. Journal entries- Special
journal
Sales journal
Purchases journal
Date Particular Discount Allowed Total (RM)
2018
Jan 3 Ahmad - 2000
6 Fatimah - 3000
31 Sales account (Cr) - 5000
Date Particular Discount
Received
Total (RM)
2018
Jan 1 Mahmud Enterprise - 1000
6 Amirah Enterprise - 2000
31 Purchases account (Dr) - 3000

29. Journal entries- Special
journal
Sales return journal
Purchases return journal
Date Particular Discount Allowed Total (RM)
2018
Jan 10 Ahmad - 500
14 Fatimah - 250
31 Sales return account (Dr) - 750
Date Particular Discount
Received
Total (RM)
2018
Jan 12 Mahmud Enterprise - 400
20 Amirah Enterprise - 250
31 Purchases return account - 650

30. Journal entries- Special
journal
Cash receipts journal
Cash Payment journal
Date Particular
Discount
Allowed
Cash (RM) Bank (RM)
2018
Jan
7
Commission receive - 600
24
Sales - 250
31
Cash receipts account
(Dr)
- 250 600
Date Particular
Discount
Received
Cash (RM) Bank (RM)
2018
Jan
18
Salary - 400
27
Purchases - 700

31. NEXT :
 LEDGER & TRIAL BALANCE

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