Exercise; chapter 1&2

1. (a) state TWO internal users and TWO external users of the accounting information
and explain their purpose for using the information. (12 MARKS)

Internal Users
- Management
Managers are the primary internal users. They require precise performance data for each
company segment in order to make ongoing repairs and improvements to the organisation. Their
goals are to maintain a consistent or increasing amount of cash flow while also keeping debt risk
to a minimum. They may also require this information in order to make acquisition decisions.

- Employees
If employees have access to accounting data (which is not always the case), they can use it to
evaluate the firm's ability to pay them a fair wage and fund any pension plans that the company
offers. This can lead to judgments about whether to stay with the company or look for work
elsewhere.

External users
- Creditors
Before lending money to an economic entity, creditors or lenders utilise accounting information
to determine the borrower's ability to repay the loan, the amount of assets and liabilities of the
borrower, proof of income, economic standing, and so on.

- Investors
Before investing, an investor examines the financial report to determine the business's future
prospects. An investor needs financial information to ensure that his or her investment is safe.

(b) identify THREE purposes of recording and analysing accounting information of an

organization. (3 MARKS)
- Verify and audit the financial statements
 - Help identify trends or give an indication of how a particular account is performing.
- proof of monetary and non monetary transactions.

(c) Explain the characteristics of sole proprietorship in term of registration, capital,

ownership, liability and profit or loss. (10 MARKS)

- Capital
The capital required for a sole proprietorship business structure is arranged by the sole proprietor
himself. He pays it out of his own pocket or borrows it from friends, relatives, banks, and other
financial organisations.
- Ownership
A sole proprietorship is a type of business organisation that is always owned by a single person.
That person is the only owner of the company's assets and properties. As a result, he is the sole
bearer of the company's risks. As a result, the sole proprietor's business comes to an end with the
owner's will or upon his death.
- Liability
A solo proprietor's liability is unrestricted.This means that in the event of a loss, the business
assets, as well as the proprietor's personal assets, will be utilised to pay out the business's debts.
- Profit or Loss
The sole proprietor receives the entire profit from a sole proprietorship business. If there is a
loss, it is solely the responsibility of the sole proprietor. Nobody else in the business shares the
profit or loss with the solitary proprietor.
- Registration
A sole proprietorship is a type of company organisation that requires essentially minimal legal
procedures to set up and operate. It also does not necessitate registration. However, depending on
the nature of the firm, a single proprietorship is required to have a seal. Whenever necessary, he
may be obliged to seek a licence from the local administration or the government's health
department.

2. (a) State the accounting concepts that relates to each of the independent situation
below
i. Encik Abdullah Hussin, the owner of a sundry shop included his family’s
personal use of some of the goods from his shop as expense of the business. (2
MARKS)
- Economic entity
ii. A motorbike shop reports all its assets at current market value instead of its
original cost less accumulated depreciation. (2 MARKS)
- Prudence/conservatism

iii. Mr.Ayden argues that since a business premise similar to his has been sold for
RM450,000, he should change the value of his business premise from the original
RM150,000 to RM450,000. (2 MARKS)

iv. Ms. Aishwarya Rai wants to change the accounting period of her 15 years old
business from the calendar year to one that starts on the 10 of October of each
year, as that is the date of her wedding anniversary. (2 MARKS)
- Periodicity

v. Azlina , an eager junior bookkeeper is concerned that the firm she is working for
does not record depreciation expense for the company’s pencil sharpeners. The
cost price of these sharpeners amount to RM100 and can be used for 2 years. She
decided that these sharpeners should be depreciated and to be recorded under
the non current asset. (2 MARKS)
- Prudence/conservatism

vi. Clark Kent is thinking of setting up a petrol station, with the help of his father.
Clark is of the opinion that since the business is his and his father’s, the money
earned from the business belongs to his father and him, he can therefore spend
the money as he pleases. (2 MARKS)

vii. Once a particular financial period is adopted by a business , it will not be change
from one period to another. (2 MARKS)
- Consistency

viii. Generally a business is assumed to have an indefinite life , unless there is

evidence to indicate otherwise. (2 MARKS)
 - Going concern

ix. The cost of dustbin in an office is treated as a period expense rather than
depreciating its cost over its useful life. (2 MARKS)

(b) Differentiate accounting from bookkeeping. (5 MARKS)

Bookkeeping
- The practise of recording and classifying an organization's financial transactions is known as
bookkeeping. Bookkeeping is regarded to be the foundation of accounting, whereas accounting is
a subset of finance. The most fundamental goal of bookkeeping is to keep an accurate record of
all a company's monetary transactions. This data is used by businesses to make big investment
decisions. The bookkeeper is in charge of keeping track of the books. Accurate bookkeeping is
essential for business since it provides dependable information about a company's success.
Accounting is the systematic recording, measurement, and communication of information
regarding a business's financial transactions.

Accounting
- Accounting assists in determining a company's financial situation and presenting it to
stakeholders. It helps a company's decision-making in the short and long term, as well as
expressing the company's credibility to the market. It's also known as the business language.
Accounting's goal is to give users, such as investors, creditors, employees, and the government, a
clear picture of financial statements.

3. (a) Accounting is concerned with the provision of information , which will be useful to
those who are directly or indirectly affiliated to an organization. Explain briefly the
complete accouting process. (13MARKS)
Accounting is one of the most important aspects of practically any company. It could be handled
by a bookkeeper or accountant in a small business or by big financial departments with dozens of
staff in larger corporations. Various accounting reports, such as cost accounting and managerial
accounting, are important in helping management in making educated company decisions.
Financial statements are brief and summarized reports that explain a major company's
operations, financial status, and cash flows over a specific time period. They are based on
hundreds of individual financial transactions. As a result, all accounting qualifications are the
result of years of research and examination. Accountants come from many different
backgrounds. However, accountants must be able to recognise and repair tiny flaws or errors in a
company's finances, therefore attention to detail is a fundamental component of accountancy. To
assist in problem-solving, the capacity to think logically is also required. Due to the widespread
availability of computers and calculators, mathematical abilities are useful but less necessary
than in earlier generations.

(b) State the accounting concepts that relates to each of the following :

i. An assumption that the business activities be subdivided into time periods for
reporting purposes. (2MARKS)
- Periodicity

ii. Ramli is the owner of the business is of the opinion that the money earned from
the business belongs to him. He can therefore spend the money as he pleases.
(2MARKS)
-