Chapter 1Introduction to Accounting

Studying this chapter should provide you with the overview of basic accounting, which this knowledge needed to:

◦ Distinguish between the different types of business organization

◦ Define, explain and differentiate the terms bookkeeping and accounting

◦ Identify the users and the uses of the accounting information

◦ Describe the accounting cycle

Particular Sole

Proprietorship

Partnership Companies

Public

(Bhd)

Private

(Sdn Bhd)

Own by 1person 2-20 persons 2-based on ASC 2-50 members

Contribution of

Capital by

Owner

-Cash or Property

-i.e motor van

Partner based on their agreement

Through issue of shares

Through issue of shares

Control and manage by

Owner or get help from family

Partners or by board

BOD appointed by shareholders

BOD appointed by shareholders

Liability Unlimited Unlimited Limited Limited

Legal requirement

No legal requirement for its formation

Partnership Agreement

Govern by Companies Act 1965

Govern by Companies Act 1965

Profit/losses Belong to the owner Shared based on sharing ratio

Paid to shareholders in form of dividend

Paid to shareholders in form of dividend

Particular Accounting Bookkeeping

Definition - The art of 1classifying, 2recording, 3summarizing of transactions and business events in monetary terms and 4interpreting the results to interested parties to enable them to make decision.

- It is the mechanical aspects of accounting such as classifying, recording, summarizing of transactions systematically in accordance with certain principles or rules.

Explanation & Differences

Involve 4 stages;

a) Classifying – sorting out to category i.e sales,payments

b) Recording-ledger,journal

c) Summarizing- TB,TPL,BS

d) Interpreting- analyzed FS

- Only a part of accounting

- The needs of recording transactions systematically give rise to the double entry principles

Particular Users Uses

Internal

Users & Uses-work directly in the organization

Owner Interested in the profits earned from their investment in the business and the financial stability.

Manager To guide them in planning,organizing, and controlling the organization and analyzing the operations of the business.

Employees Business ability to progress and expand and other monetary benefits that are gained from a financially stable business

Particular Users Uses

External

Users & Uses

-indirectly involved with the organization

Creditors/

Bankers

Interested to know whether the business can pay the amount owing to them.

Current & Potential investor

Requires information regarding the solvency and financial strength of the business, its present and future earning capacity.

Government For tax purposes

Consumers Establishments of cost accounting controls. When there is reduction on cost production, there is reduction of the prices of goods they purchase.

TransactionsSource

Documents

JournalsLedgers

Trial Balance Adjustments

FinancialStatements

Journalizing

Posting

Yes

No

1

2

3

4

5

6

6

Thank you