DPA10183 BUSINESS ACCOUNTING CHAPTER 1 INTRODUCTION TO ACCOUNTING
CHAPTER OUTLINES o DEFINE ACCOUNTING AND BOOKKEEPING o DESCRIBE THE USERS OF ACCOUNTING INFORMATION o RECOGNIZE TYPES OF BUSINESS ENTITY o DICUSS EACH TYPES OF ACCOUNTING FIELD o DESCRIBE THE FUNCTIONS OF REGULATORY BODIES IN MALAYSIA o DESCRIBE THE APPROVED ACCOUNTING STANDARDS IN MALAYSIA o IDENTIFY THE STEPS OF ACCOUNTING CYCLE
DEFINE ACCOUNTING AND BOOKKEEPING • Bookkeeping is the process of classifying, recording and summarizing business transactions. • Accounting is the process of classifying, recording, summarizing, analyzing and interpreting economic information to permit informed judgements and decisions by users of the information. DIFFERENCES BETWEEN BOOKKEEPING AND ACCOUNTING Bookkeeping is keeping proper records of the financial transactions of an entity. Accounting is recording, measuring, grouping, summarizing, evaluating and reporting of transactions of the entity which are in monetary terms. The task of Bookkeeping is performed by a bookkeeper whereas the accountant performs the task of Accounting. Financial Statement forms a part of the accounting process but not the bookkeeping process Accounting records are taken as a base for taking managerial decision unlike bookkeeping records, in which decision making is difficult. Bookkeeping is the first step to Accounting. Bookkeeping does not disclose the correct financial position however for purpose accounting helps the users in showing the true and fair view of the financial status and profitability of an organization
USERS OF ACCOUNTING INFORMATION a) INTERNAL USER - who is user of accounting information inside the organization. Example owners, managers, employees etc. b) EXTERNAL USER- which is user of accounting information outside the organization. Example Creditors, Investor, Government, Other organization, Buyer etc. TYPES OF BUSINESS ENTITY
TYPES OF ACCOUNTING FIELD Financial Accounting • The branch of accounting that provides information to people outside the business. • Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. • Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial statement such as an income statement or a balance sheet. Cost Accounting • The branch of accounting that determines and controls a business’s costs. • A method of accounting in which all costs incurred in carrying out an activity or accomplishing a purpose are collected, classified, and recorded. This data is then summarized and analyzed to arrive at a selling price, or to determine where savings are possible Management Accounting • The branch of accounting that generates information for internal decisions makers of the business, such as top executive. • Its also the process of preparing management reports and accounts that provide accurate and timely financial and statistical information to managers to make shortterm and long-term decisions. • It identifies, measures, analyzes, interprets, and communicates information to enable an organization to pursue its goals. Auditing • Is the detailed examination of the financial reports of an organization and is used to provide confidence for all stakeholders that the organization’s accounting reports are accurate. • Auditing is the systematic and scientific examination of the books of a accounts and records of a business so as to enable the auditor to satisfy himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business and profit or loss for the financial period Taxation • Tax accounting is a structure of accounting methods focused on taxes rather than the appearance of public financial statements. • Tax accounting is governed by the Internal Revenue Code, which dictates the specific rules that companies and individuals must follow when preparing their tax returns.
THE FUNCTIONS OF REGULATORY BODIES IN MALAYSIA MALAYSIAN INSTITUE OF ACCOUNTANTS (MIA) - A regulatory body formed in 1969 under Section 23 Accountant Act 1967. Functions: • To oversee development and growth of the accounting bodies. • Sole body where the accountants must register. • Conducts training and courses for members to ensure they remain with developments in the profession. MALAYSIAN ACCOUNTING STANDARD BOARD (MASB) - A statutory body established under the Financial Reporting Act 1997 Functions: • To issue accounting standards • To issue statements of principles of financial reporting • To review or to adapt existing accounting standards. • To issue technical pronouncements. • To develop conceptual framework. • To change the structure or contents of proposed accounting standards
THE COMPANIES COMMISSION OF MALAYSIA - To serve as an agency to incorporate companies and register businesses as well as to provide company and business information to the public. DESCRIBE THE APPROVED ACCOUNTING STANDARDS IN MALAYSIA i. The Malaysian Financial Reporting Standards (MFRS)- This is the MASB approved accounting standards for entities, but not include private entities. ii. Private Entity Reporting Standards (PERPS)- This is the MASB approved accounting standards for all private entities. However ,this can withdrawn effective 1 January 2016 iii. Malaysian Private Entities Reporting Standards (MPERS)-This replace the previous PERS and in effect from 1 January 2016.
IMPORTANCE AND THE DIFFERENCE OF MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING IN BUSINESS - MANAGERIAL ACCOUNTING • Helping managers make well-informed business decisions on the direction of the company. - FINANCIAL ACCOUNTING • Reports a company's performance for a specific period of time and does it in the most straightforward way possible.
Separate Entity Going concern Monetary Unit Consistency Accounting Period Historical Cost Reliability Full Disclosure Materiality Conserva tism ACCOUNTING CONCEPTS
STEPS OF ACCOUNTING CYCLE Source Documents Book of First Entry Ledgers Trial Balance Adjustments Adjusted Trial Balance Financial Statements Financial Reports