This document provides an overview of business and accounting. It defines business, customers, profits, and stakeholders. It describes the nature of businesses as service, merchandising, or manufacturing organizations. It also outlines common business forms including proprietorships, partnerships, corporations, and limited liability companies. The document then discusses the roles of ethics in business and accounting. It defines accounting and describes its purposes and fields. It outlines internal and external users of accounting information and how accounting provides information to stakeholders. It also provides an overview of the accounting profession and generally accepted accounting principles.
1. Topic 1
1.1 Nature of Business and Accounting
Business: An organization in which basic resources (inputs) are assembled and
processed to provide goods or services (outputs) to customers. *basic resources (e.g.
materials and labors)
Customers: Individuals or a group of individuals, institutions, other business who
purchase goods or services in exchange for money or other items of value.
Most business is set up to maximize profits, however some business which is known as
not-for-profit business operates to provide benefits to the society (for example:
medical research or conservation of natural resources).
*Profits: The difference between the amounts received from customers for goods or services provided and the
amounts paid for the inputs used to provide the goods and services.
A business stakeholder is a person or entity having an interest in the economic
performance and well-being of a business.
Capital market stakeholders provide the major financing for the business in order for
the business to begin and continue its operations.
Product or service market stakeholders include customers who purchase the business’s
products or services as well as the vendors who supply inputs to the business.
Types Of Business
Service: Provide services.
E.g. Entertainment (Walt
Disney), Transportation
(Malaysia Airlines System
(MAS), Financial (Maybank
Corporation).
Merchandising: Sell products
they purchase from other
businesses.
E.g. Giant (General
merchandise), Amazon.com
(Internet books, music, video),
Toy ‘R’ Us (Toys), Panasonic
(Consumer electronics).
Manufacturing: Change basic
inputs into products that are
sold to individual customers.
E.g. Nokia (Cell phones), Dell
Inc. (Personal computers),
Nike (Athletic shoes and
apparel),
Sony Corporation (Stereos
and televisions).
2. Government stakeholders have an interest in the economic performance of a business.
City, county, state, and federal governments collect taxes from businesses within their
jurisdiction.
Internal stakeholders include individuals employed by the business. Managers have an
incentive to maximize the economic value of the business. Employees have an interest
because their jobs depend on it.
Common Forms of Business Organizations
Proprietorship
Owned by one
individual
More than 70% of
business
organizations in
Malaysia are
organized by
proprietorships
Easy and low cost
of organizing
Financial resources
are limited to the
owner’s resources
Commonly used by
small businesses
such as hardware
stores, laundries,
restaurants, and
grocery shop.
Partnership
Owned by two or
more individuals
About 10% of
organizations in
Malaysia are
organized by
partnerships
Combine the skills
and resources of
more than one
person
Commonly used by
small local
businesses such as
automotive repair
shops, music stores,
beauty & salons, and
clothing stores.
Corporation
Organized under
state or federal
statutes as a
separate legal
taxable entity
Generates 90% of
the total dollars of
business receipts
received.
Comprises only 20%
of the business
organizations in
Malaysia.
Ownership is
divided into shares
of stock sold to
shareholders
(stockholders)
Able to obtain large
amount of resources
by issuing stock.
Used only by large
businesses.
Limited liability
company (LLC)
Combines attributes
of a partnership and
a corporation in
that it is organized
as a corporation.
Can elect to be
taxed as a
partnership
A popular
alternative to a
partnership
Have tax and
liability advantages
to the owners.
3. 1.2 Roles of Ethics in Business
Ethics: Moral principles that guide the conduct of individuals.
Why do we need ethics?
a) Because our actions are watched and judged as right or wrong, honest or dishonest, and
fair or bias.
b) Because it has impact on society and others.
c) To communicate credible economic information activities.
d) These judgments represent the standards of conduct known as ethics.
Sound ethical principles:
i) Avoiding small ethical lapses
ii) Focusing on long term reputation
iii) Willing to suffer adverse personal consequences for holding on to an ethical position.
Ethics in Accounting:
Integrity, objectivity, independence, confidentiality, professional competence and due
care, compliance with technical standards and professional behavior.
1.3 The Roles of Accounting in Business
Accounting: An information system that identifies, records and communicates to
stakeholders about the economic activities and condition of a business.
Purposes:
To report companies’ activities
To provide useful information to users
To provide assistance in decision making
To measure business performance (provides information to other stakeholders)
A control medium for management (information for managers to use in operating the
business)
Fields of Accounting:
1. Financial Accounting 5. Tax
2. Management Accounting 6. Public Sector Accounting
3. Auditing and Non-Profit Organization
4. Accounting Information System
4. 1.4 Users and Uses of Accounting Information
Internal users (Managers who plan, organize and run the business)
Marketing managers, production supervisors, finance directors, and company officers
They need detailed information like financial comparison of operating alternatives,
projection of income from new sales, and forecasts of cash needs for the coming year
on a timely basis in running the business.
External users
Investors: to make decisions whether to buy, hold, or sell their share in the company.
Tax authority: check for company’s tax compliance.
Security Commission (SC): to make sure that company is operating within the prescribed
rules.
Customers: observe whether company continues to maintain product quality and
warranty and then decide whether to continue supporting its products.
Labor union: want to know whether company can afford to give pay raises or benefits.
Economic planners: to forecast economic activities.
The process by which accounting provides information to business stakeholders is as follows:
Identify stakeholders.
Assess stakeholders’ information needs.
Design the accounting information system to meet stakeholders’ needs.
Record economic data about business activities and events.
Prepare accounting reports for stakeholders.
1.5 The Accounting Profession
1. Financial accounting is primarily concerned with the recording and reporting of
economic data and activities for a business.
2. Managerial accounting uses both financial accounting and estimated data to aid
management in running day-to-day operations and in planning future operations.
3. Accountants employed by a business firm or a not-for-profit organization are said to be
employed in private accounting.
4. Accountants and their staff who provide services on a fee basis are said to be employed
in public accounting.
5. 1.6 Generally Accepted Accounting Principles (GAAPs)
A standard set of rules and standard system used in preparing financial statements, so
that, stakeholders and investors can compare financial performance and condition of
one company to another.
Accounting principles and concepts develop from research, practice, and
pronouncements of authoritative bodies such as the Malaysian Accounting Standards
Board (MASB).
The Malaysian Accounting Standards Board (MASB)
Established under the Financial Reporting Act 1997 as the independent authority to
develop and issue accounting and financial reporting standards in Malaysia.