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Introduction To Accounting
Mr Kwong
D9.02, Suite B, Ext. 5420
Tutors:
Mr Mahathir, E9 Wing A, Ext. 5658,
MahathirBin.MohamedIsmail@taylors.edu.my
Ms Corrina Wong, C5 Wing B,
TseLing.Wong@taylors.edu.my
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1 or 2 sessions of 2 hrs each
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Learning Objectives…
• Measuring
– Expressed in common measurement
– So that effects of transactions can be combined
– Money – measure of value
• Recording
– Provides history of transactions
– Maintain files of all transactions
– Classified – place into meaningful groups
– Summarize – reports and financial statements
• Communicate
– Prepare and distribute accounting reports to users
of information
– Then they are able to analyze and interpret
The Accounting Process…
Who are interested in our business & why?
“Users” of accounting info / “Stakeholders” of a business:
Owners / Shareholders –maximum profits with minimum costs
Management & Employees – better performance , higher
salaries & benefits
Customers – accessibility to highest quality of goods at
minimum costs
Debtors - maximum credit with minimum interest
Suppliers – Minimum credit with maximum interest
Bankers – collateral, security for loans facilities
Government & Statutory Bodies – tax authorities , statute
Competitors – share of market & developments
Investors/Venture Capitalists – maximum returns
within minimum time
Entrants into business, general public, etc
In short everybody is a busy body
Financial vs. Managerial Accounting
Taxing authorities
Financial Acct vs Mgmt Acct
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Key Governing Organisations…
The Companies
The government agency that regulate all
Commission of
business and companies in Malaysia
Malaysia (CCM)
Sole
Partnerships
Proprietorships
Limited
Corporations Liability
Companies
Types of Business Organizations…
Sole
Proprietorship Partnership Corporation LLC
Shareholders
Board of Directors
Top Management
(CEO, CFO, COO, etc)
Sole Proprietor vs LLP vs General
Partnership vs Company in Malaysia
• The following are the common forms of business
organization in Malaysia:-
• By an individual operating as Sole Proprietor
• By two or more (but not more than 20) persons
in Partnership, or
• By two or more persons in Limited Liability
Partnership, or
• By a locally incorporated Company or by a Foreign
Company registered under the provisions of the
Company Act 1965
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The Business Entity Concept
Sole Proprietorship
Capital
The Accounting Equation
Sole Proprietorship
+ Net income
- Expenses
- Withdrawals*
= Ending Capital
*Appropriation of Profits
Revenues & Expenses
Revenues
= Amounts earned by delivering goods or services to customers
• Sales revenue
• Service revenue
• Interest revenue
• Dividend revenue
Expenses
= Outflows of assets or increasing liabilities in the course of delivering goods
or services to customers
• Salary expense
• Rent expense
• Utilities expense
• Interest expense
Accounting Equation
Once business commences, there will be income [revenues minus
expenses and gains minus losses] and perhaps additional capital
contributions (increase in capital) and withdrawals (drawings).
At the end of a reporting period, these will impact Owners Capital
as follows:
Assets = Liabilities + Capital
Impact on Owner's Capital
Revenue increase
Expenses decrease
Gains increase
Losses decrease
Contributions
/additional Capital increase
Drawings/taking
out cash/goods for
private use decrease
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Accounting Equation
A summary of the impact of revenues, expenses , gains, losses,
additional capital contributions and withdrawals (drawings) are
shown below.
Assets = Liabilities + Capital
[+ Revenues
- Expenses
+ Gains
- Losses
+ Contributions
- Withdrawals ]
Transaction
•An event that affects the financial position of a particular entity
•Can be recorded reliably
•Every transaction impacts at least two items
•The accounting equation balances before and after each transaction
Example 2…
Sandra owns and operates an advertising firm called Awesome Ads. The following
amounts summaries her business on 30 June 2017:
Assets Liabilities Owner’s Equity
Accounts Accounts Sandra,
Date Cash Receivable Supplies Land Payable Capital
Required:
Analyze the effects of the above transactions on the accounting
equation of Awesome Ads.
The Accounting Equation: Example 2
(f)
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Accounting Equation Summary
Summary of effect of typical transactions upon assets, liabilities and capital
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The Financial Statements
After analyzing/recording all transactions – total assets equals total liabilities plus
capital/owner’s equity
How should people make use of such information? Is the company profitable? Will it
be able to pay off a loan?
In order to address these & to aid effective decision-making – financial statements
must first be derived – summary of transaction data
Financial statements
• business documents that report on a business in monetary terms
1. Income statement/Profit and Loss Account
2. Statement of Owner’s Equity
3. Statement of Financial Position/Balance Sheet
4. Statement of Cash Flows
Example 3 (continued)
The Accounting Equation is expressed in a financial position statement
called the balance sheet.
The financial position is expressed AS AT a particular point of time
eg as at 31 Dec 2017.
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Components of A SOFP / Balance Sheet
Assets
Non Current assets XX
Current Assets XX
Liabilities
Current Liabilities (XX)
Working Capital (Net current assets/(Liabilities)) XX
XXX
Non Current Liabilities (XX)
Total Net Assets YYY
Financed By
Capital (Share Capital / Capital Introduced) XX
Retained Earnings XX
Total Capital & Earnings 53 YYY
Example 3 (continued)
For our learning purposes, we shall be using the vertical format rather than the
horizontal format.
Therefore, as at 30 Apr 2017, Mike Phonie’s SOFP should look like below: