Introduction to accounting

Learning objectives:
At the end of this chapter, students should be able to:
 Give definition, history and development of
accounting
 Know the functions, objectives and uses of the
financial statements
 know the main user groups of financial statement
 Know the types of business
 differentiate between bookkeeping and accounting
Definition
 Accounting: as the art of recording, classifying and
summarizing of business transaction and interpreting
the results.
 Recording – where transactions are recorded in the
books of the business
 Classifying – which involves sorting out the mass of
accounting data into orderly & meaningful categories
 Summarizing – where periodically the accounting data
are summarized.
 Interpreting – where the financial data are analyzed &
used to assist in more effective decision making.
History & development
1) 7,000 years ago
- which are early civilization of Egypt, Babylon, Greece and
Rome.
2) 15th century (renaissance period)
- bookkeeping was introduced & 1st published work on
double-entry bookkeeping was produced by Luca Pacioli in
1494.
3) Modern & present
- Rapid technological advances led to formation of
companies, and result to the rise of more specialized
aspects of bookkeeping & accounting.
Existing laws were required a detailed financial statement to
presented to shareholders.
Function & objectives of financial
statement
 Manager must be able to supervise others, who are
collecting, recording and summarizing accounting
data.
 For decision making because it tells where, when,
how and why money has been spend
 To evaluate performance of the company @ choose
project
 To ensure the smooth-running of all organizations.
Users & Uses of Accounting
Information
 *To evaluate the *To evaluate the *To determine the
firm’s ability to pay taxable income of
financial status *To determine the wages &other
of the biz. the biz.
firm’s ability to benefits.
*To evaluate their *To make better
repay loans *To get an idea of
Interest in the biz. their employment financial decisions
prospects. for the co.

OWNERS CREDITORS EMPLOYEES GOVERNMENTS

USERS & USES OF ACCOUNTING INFORMATION

MANAGERS INVESTORS PUBLIC OTHERS

*To evaluate *To evaluate the

*To evaluate the financial position *For academic
ability of reduction
financial status of the biz. purposes
in prices of the
of the biz. *To evaluate *For planning of
goods purchased.
*To make sound whether the biz projects
*Corporate Social
biz decision is a good
Responsibility
investment
Forms of businesses
1. SOLE PROPRIETOR
 business owned by single individual.
 Owner – own title to assets, personally liable without
limitation for liabilities occurred.
 Entitle to profits and absorb all losses
 No legal requirement must be met.
 Starting and terminate by owner’s choice
Advantages Disadvantages
1. Easily and inexpensive to 1. Difficult to obtain large
form sums of capital
2. Subject to few govt. 2. Has unlimited personal
regulations liability
3. business avoids 3. Life of business is limited
corporate income taxes to life of creator.
2) Partnership
 2 to 20 partners (Except for partnerships for professional
practice with no maximum limit)
 Under Partnership Act
 Sharing profit & loss
 Each partner is personally liable for the debts of the
partnership

Advantages Disadvantages
1. Low cost 1. Unlimited liability
2. Ease of formation 2. Limited life of organization
3. Difficulty of transferring
ownership
4. Difficulty of raising large
amounts of capital
3) Companies
 Have many owners called shareholders or
stockholders
 Companies Act 2016
 Two type of companies:
1) Private company
2) Public company
Private company Public company
1. Must end with the word 1. Must end with the word
“sendirian berhad” “berhad”
2. Max number 50 2. No limit
3. Cannot issue share to the 3. Can issue share to the
public. public in order to rise the
capital.
 Accounting VS bookkeeping
Accounting
 is the bigger picture.
 Relate with the system that
keeps track of the data, including
people, and records the
transaction by taking the
information from bookkeeping
 involve analyse the results
 Give a reports and information
needed for management to
make decisions
Bookkeeping
 Refers to the mechanical aspect
of accounting, such as recording,
classifying and summarizing
transaction
 Is a part of accounting
 is the tedious part of the
financial affairs of a business.
 It involves the systematic
recording of the:
1) Amounts
2) Dates
3) sources of each revenue and
expense transaction.
 Bookkeeping is concerned with
the systems that enable the
financial information to be
extracted in the transactions.
THANK YOU 