Chapter 1

Accounting and the
Business Environment
Chapter 1
BBCA 1033 – Introduction to
Accounting
Lecturer : Pn Hazlina Hussein
Contact : 016.238.4246
Email : hhazlina66@gmail.com /pt.hazlina@city.edu.my
 Assessment Methods Due Date

 Assignment 1 – 10% 24.02.19
 Assignment 2 – 10% 09.03.19
 Mid Term Exam - 20% 16.03.19
 Final Exam - 60% tba
 Lesson 1 and 2 - Assignment 1

 Lesson 3 and 4 - Assignment 2
 Lesson 1 to 3 - Mid Term Examination
 Lesson 4 to 6 - Final Examination
Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Objectives
1. Use accounting vocabulary for decision

making
2. Apply accounting concepts and principles
to business situations
3. Use the accounting equation to describe
an organisation’s financial position
4. Use the accounting equation to analyse
business transactions
5. Prepare and use the financial statements
6. Evaluate the performance of a business
Objective 1
Use accounting vocabulary

for decision making.
Accounting...
is an information system that...
measures business activities,
processes information, and...
communicates financial information.

Accounting...
is called the language of business.
RM
What is accounting?
Accounting can be defined as:
The process of identifying, measuring and

communicating economic information to
permit informed judgements and
decisions by users of that information.
What are the objectives of
accounting?
 Is the business making a profit or a loss?
 What is the business worth?
 What is a transaction worth?
 How much cash is in the business?
 How wealthy is the business?
 How much is the business owed?
 How much does the business owe?
 Keeping a financial check on activities.
Users of Accounting Information
External users Internal users

make decisions make decisions
about the entity. for the entity.
Fields of Accounting
Financial Accounting
Management Accounting
Fields of Accounting
Financial Accounting Managerial Accounting

1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on
versus relevance objectivity and verifiability relevance
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focus on

companywide reports segment reports
6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
Standards of
Professional Conduct
MIA and MASB Standards of

joint Ethical
Code of Conduct of
Professional individual
Conduct companies
Objective 2
Apply accounting
concepts and principles
to business situations.
Generally Accepted
Accounting Principles
 What is the primary objective of financial

reporting?
To provide information useful

for making investment and
lending decisions
Malaysian Accounting
Standards
 Standards to govern measurement rules and level

of disclosure.
 Malaysian Accounting Standards Board is
responsible for technical accounting standards.
 Malaysia (like the rest of the world) is adopting
International Accounting Standards.
Objective 3
Use the accounting equation

to describe an organisation’s
financial position.
The Accounting Equation
Financial accounting is based upon the accounting equation.
Assets = Liabilities + Owner’s Equity
 This is a mathematical equation which must balance.

 If assets total RM300 and liabilities total RM200, then
owners' equity must be RM100.
The Basic Accounting
Equation
Balance Sheet
Assets Liabilities and Owners’ Equity
Cash 5,000 Liabilities
Accounts receivable 7,000 Accounts payable 8,000
Inventory 10,000 Notes payable 2,000
Equipment 7,000 Total liabilities 10,000
Owners’ equity 19,000
Total assets 29,000 Total liabilities and
owners’ equity 29,000
The balance sheet is an expanded expression of the accounting

equation.
Assets
 Assets are valuable resources that are owned by a
firm.
 They represent probable future economic benefits
and arise as the result of past transactions or
events.
 It is something a company owns which has future
economic value e.g.
– cash
– accounts receivable
– land and building
– equipment
– goodwill
Liability
 Liabilities are present obligations of the firm.

 They are probable future sacrifices of economic
benefits which arise as the result of past transactions or
events
 It is something a company owes.
– money
– service – legal retainers
– product – magazines
 E.g. accounts payable
Owner’s Equity
 Owners' equity represents the owners' residual interest

in the assets of the business.
 Residual interest is another name for owners'
equity.
 It is what’s left of the assets after liabilities have been
deducted.
– the same as net assets
– the owner’s claim on the entity’s assets
Transactions that Affect
Owner’s Equity
OWNER’S EQUITY OWNER’S EQUITY

INCREASES DECREASES
Owner Investments Owner Withdrawals

in the Business from the Business
Owner’s Equity
Revenues Expenses
Revenues
 What are revenues?

 They are amounts received or to be received
from customers for sales of products or services.
– sales
– performance of services
RM
– rent received
– interest received
Expenses
 What are expenses?

 They are amounts that have been paid or will be
paid later for costs that have been incurred to earn
revenue.
– salaries and wages
– services
– supplies used
– advertising
Objective 4
Use the accounting

equation to analyse
business transactions.
Accounting for
Business Transactions
 What is a transaction?
 It is any event that both affects the financial position
of the business and can be reliably recorded.
 It is ‘money’ into or out of the business.
 Transaction analysis is the central component of the
financial accounting process.
 Remember that every transaction must keep the
accounting equation in balance
A transaction may do one of
several things:
 It may increase both the asset side and the liabilities
and owners' equity side.
 It may decrease both the asset side and the liabilities
and owners' equity side.
 It may cause both an increase and a decrease on the

asset side.
 It may cause both an increase and a decrease on the
liabilities and owners' equity side.
 Regardless of what transaction occurs, the

accounting equation must be in balance after the
transaction is analyzed.
Assets Liabilities Capital
a Pay creditor RM60 cash
b Bought fixtures RM200 paying by

cheque
c Bought goods on credit RM 275
d The owner put in RM500 cash to the

company
e Jena lends the firm RM200 in cash
f A debtor pays RM50 by cheque
g Return goods cost RM60 to supplier

whose bill we had not paid
Bought additional shop premises

h paying RM5000 by cheque
Assets Liabilities Capital
a Bought a van on credit RM 8700
b Repaid by cash a loan owed to Dafi

RM 10,000
c Bought goods for RM1400 paying by

cheque
d The owner puts a further RM 4000

cash to the business
e A debtor returns to us RM150 goods.
f Bought goods on credit RM760
g The owner takes out RM200 for

personal use
h Pay creditor RM 1150 by cheque
Transaction Analysis
1. H. Jacob started his business with $50,000 Cash
Owners’ Original Investment

ASSETS = LIABILITIES + OWNERS’ EQUITY
Cash H.Jacobs, capital
+$50,000 +$50,000
2. H. Jacob took a loan amounting to $20,000
B a nk Lo a n
Cash Notes
+$20,000 Payable
+$20,000
3. He paid rents in advanced amounting to $12,000 cash.
Rent
Cash
–$12,000
Prepaid
rent
+$12,000
4. He purchased inventory on credit amounting to

$30,000
Inventory
Inventory Accounts
+$30,000 Payable
+$30,000
5. He purchased office equipment amounting to

$25,000 Cash
Equipment
Cash
–$25,000
Equipment
+$25,000
ASSETS
Cash Prepaid Rent Inventory Equipment
+50,000
+20,000
–12,000 +12,000
+30,000
–25,000 +25,000
33,000 12,000 30,000 25,000
LIABILITIES OWNER’S EQUITY

Accounts Payable Notes Payable H.Jacobs, Capital
+50,000
+20,000
+30,000
30,000 20,000 50,000
Balance Sheet
Assets Liabilities and Owners’ Equity
Cash 33,000 Liabilities
Accounts receivable 12,000 Accounts payable 30,000
Inventory 30,000 Notes payable 20,000
Equipment 25,000 Total liabilities 50,000
H.Jacobs, capital 50,000
Total assets 100,000 Total liabilities and
owners’ equity 100,000
Accounting for
Business Transactions Let’s Do It
1 Paula Lee invests RM30,000 to begin Paula

Lee eTravel.
2 Lee purchases land, paying RM20,000 in
cash.
3 She buys office supplies, agreeing to pay
RM500 in 30 days.
4 She earns and collects RM5,500 revenues.
Accounting for
5 Lee performs services, and the client agrees to pay

RM 3,000 within one month.
6 During the month, she pays RM 3,100 for expenses
incurred.
7 Lee pays RM 300 to the store from which she
purchased RM500 worth of supplies.
 What is the effect of these transactions on the
accounting equation?
Accounting for
Owner’s
Assets = Liabilities + Equity
1) Cash + RM30,000 + RM30,000
2) Cash – 20,000
Land + 20,000
3) Supplies + 500 + 500
4) Cash + 5,500 + 5,500
5) Receivable + 3,000 + 3,000
6) Cash – 3,100 – 3,100
7) Cash – 300 – 300
Totals + RM35,600 + 200 + RM35,400
Accounting for
 Notice that the equation always stays in

balance.
 Each transaction affects at least two
accounts, sometimes more.
 Some transactions affect only one side of
the equation; some affect both sides.
Accounting for
 Other transactions that took place were as follows:

 The business collected RM1,000 from the client.
 She sold some land at cost for RM 9,000.
 She withdrew RM 2,100 from the business.
Objective 5
Prepare and use

financial statements.
Financial Statements...
– are the final

product of the
accounting process.
– tell how the

business is performing
and where it stands.
Financial Statements
– Statement of financial performance

– (For the Year [or Month] Ended 30/6/2018)
– Statement of owner’s equity
– (For the Year Ended 30/6/18
– Statement of financial position
– (As at 30/6/18)
– Statement of cash flows
– (For the Year Ended 30/6/18
Objective 6
Evaluate the performance

of business.
Relationships Among the Statements:
Statement of Financial Performance
Revenue:
Fees earned $8,500
Expenses:
Salary expense $1,200
Electricity and phone expense 400
Equipment rental expense 400
Office rent expense 1,100
3,100
Net profit $5,400
Statement of Owner’s Equity
P. Lee, capital, April 1, 2018 $ 0

Plus Contribution of capital 30,000
Net profit $ 5,400
Less Drawings – 2,100
P. Lee, capital, April 30, 2018 $33,300
Statement of Financial Position
Assets Liabilities
Cash $ 20,000 Accounts payable $ 200
Accounts receivable 2,000 Owner’s Equity
Supplies 500 P. Lee, capital 33,300
Land 11,000
Total liabilities and
Total assets $ 33,500 owner’s equity $33,500
Statement Of Cash Flows
Cash flows from operating activities:

Cash receipts from services rendered $6,500
Cash payments:
To suppliers $ 2,200
employees 1,200 3,400
Net cash flows from
Operating activities $3,100
Cash flows from investing activities
Purchase and sale of land ($11,000)
Statement Of Cash Flows
Cash Flows from Financing Activities:
Beginning Balance 0
Investment by Owner $30,000
Drawings 2,100
Net Cash Flows from Financing Activities $27,900
Net Increase in cash $20,000
Cash at Beginning of Year 0
Cash at End of the Year $20,000
End of
Chapter 1

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Accounting and the

 Assessment Methods Due Date

 Lesson 1 and 2 - Assignment 1

1. Use accounting vocabulary for decision

Use accounting vocabulary

is an information system that...

measures business activities,

processes information, and...

communicates financial information.

is called the language of business.

Accounting can be defined as:

The process of identifying, measuring and

External users Internal users

Financial Accounting Managerial Accounting

2. Time focus Historical perspective Future emphasis

5. Subject Primary focus is on Focus on

MIA and MASB Standards of

 What is the primary objective of financial

To provide information useful

 Standards to govern measurement rules and level

Use the accounting equation

Assets = Liabilities + Owner’s Equity

 This is a mathematical equation which must balance.

The balance sheet is an expanded expression of the accounting

 Liabilities are present obligations of the firm.

 Owners' equity represents the owners' residual interest

OWNER’S EQUITY OWNER’S EQUITY

Owner Investments Owner Withdrawals

 What are revenues?

 What are expenses?

Use the accounting

 It may cause both an increase and a decrease on the

 Regardless of what transaction occurs, the

b Bought fixtures RM200 paying by

c Bought goods on credit RM 275

d The owner put in RM500 cash to the

e Jena lends the firm RM200 in cash

f A debtor pays RM50 by cheque

g Return goods cost RM60 to supplier

Bought additional shop premises

b Repaid by cash a loan owed to Dafi

c Bought goods for RM1400 paying by

d The owner puts a further RM 4000

e A debtor returns to us RM150 goods.

f Bought goods on credit RM760

g The owner takes out RM200 for

h Pay creditor RM 1150 by cheque

1. H. Jacob started his business with $50,000 Cash

Owners’ Original Investment

2. H. Jacob took a loan amounting to $20,000

3. He paid rents in advanced amounting to $12,000 cash.

4. He purchased inventory on credit amounting to

5. He purchased office equipment amounting to

LIABILITIES OWNER’S EQUITY

30,000 20,000 50,000

1 Paula Lee invests RM30,000 to begin Paula

5 Lee performs services, and the client agrees to pay

 Notice that the equation always stays in

 Other transactions that took place were as follows:

Prepare and use

– are the final

– tell how the

– Statement of financial performance

Evaluate the performance