Topic

Accounting &
It’s

1 Environment
100 Shares

Accounting?
$1 par value

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 Learning Objectives
▪ What is Accounting
▪ Accounting Profession
▪ Internal and External
users of Accounting
Information
▪ Financial accounting vs
Management accounting
▪ Generally Accepted
Accounting Principles
(GAAP)
▪ Professional Accounting
Bodies and Standard
Setting in Malaysia
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▪ Financial Reporting
Framework in Malaysia
▪ International Accounting
Standards Board (IASB)
▪ Financial Statements
• Statement of Profit & Loss
• Statement of Changes in
Equity
• Statement of Financial
Position
• Statement of Cash Flow
• Notes to the Accounts
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 What is accounting?
is a
Accounting Identifies
system that

Records

information
Relevant Communicates
that is

Reliable
to help users make
Comparable better decisions.
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 Financial Accounting Definition:

▪ Financial accounting definition refers to the

process that documents, classifies, reports,
and analyzes business transactions to
assess the financial health of an
organization.

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 Accounting Activities
 Identifying  Recording
Business Business
Activities Activities

Communicating
Business
Activities

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 Accounting Transactions
▪ Accounting transactions refer to any business
activity that results in a direct effect on the
financial status and financial statements of the
business.

▪ Such transactions come in many forms,

including:

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 Accounting Transactions
▪ Sales in cash and credit to customers
▪ Receipt of cash from a customer by sending
an invoice
▪ Purchase of fixed assets and movable assets
▪ Borrowing funds from a creditor
▪ Paying off borrowed funds from a creditor
▪ Payment of cash to a supplier from a sent
invoice

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 Users of Accounting Information

External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers •Budget Officers
•Governments •Customers •Internal Auditors •Controllers
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 Exh.
1-2

Financial vs Managerial 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 relevance

versus relevance verifiability for planning and control

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focuses on segments

the whole organization of an organization

6. GAAP Must follow GAAP Need not follow GAAP

and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
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 FA vs MA

External Users
Internal Users

Financial accounting provides

external users with financial Managerial accounting provides
statements. information needs for internal
decision makers.
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 Characteristics of Accounting
Information
USEFUL
FINANCIAL
INFORMATION

RELEVANCE RELIABILITY
1. Predictive value 1. Verifiable
2. Feedback value 2. Faithful representation
3. Timely 3. Neutral

COMPARABILITY CONSISTENCY

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 Generally Accepted Accounting
Principles
Financial accounting practice is governed by
concepts and rules known as Generally Accepted
Accounting Principles (GAAP).

Relevant Affects the decision of

Information its users.

Reliable Information Is trusted by

users.

Comparable Is helpful in contrasting

Information organizations.
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 The Operating Guidelines of Accounting

ASSUMPTIONS PRINCIPLES CONSTRAINTS

Economic entity Historical costs Conservatism

Monetary unit Revenue recognition Materiality

Going concern Matching

Time period Full disclosure

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 Accounting Assumptions
Economic Entity
The business is accounted for
separately from other business
entities, including its owner
Monetary Unit Principle
Express transactions and events in
monetary, or money, units
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Now Future
Going-Concern Principle
Reflects assumption that the
business will continue operating
instead of being closed or sold
Time Period
The economic life of business can be
divided into artificial time period for
the purpose of financial reporting
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 Accounting Principles

Revenue Recognition
1. Recognize revenue when it is
Historical Cost
earned.
Accounting information is based
2. Proceeds need not be in cash.
on actual cost.
3. Measure revenue by cash
received plus cash value of items
received.

Full Disclosure
Matching
Report enough information for
Expenses are matched against
users to make knowledgeable
revenues, and recorded in the
decisions about the company
same period in which the related
revenues are earned 16
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 Accounting Constraints

Conservatism
Income and assets be reported at
their lowest reasonable amounts (i.e.
minimizing the assets and
understating the income) Materiality
Accountants are required to
accurately account for significant
items and transactions

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 Statutory and capital market
requirement

▪ Accountant Act 1967

▪ Companies Act 1965 (revised)
▪ Financial Reporting Act 1997
▪ Bursa Malaysia Listing Requirement

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 Professional Accounting Bodies and
Standard Setting in Malaysia
▪ Malaysian Institute of Accountant (MIA)
http://www.mia.org.my
▪ Malaysian Institute of Certified Public Accountant
(MICPA)
▪ Malaysian Accounting Standards Board (MASB)
http://www.masb.org.my
▪ Financial Reporting Foundation (FRF)

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 Malaysian Accounting Standards Board
(MASB)
▪ Established under the Financial Reporting Act 1997
(the Act) as an independent authority to develop and
issue accounting and financial reporting standards in
Malaysia.
▪ Working with FRF to make up the new framework for
financial reporting in Malaysia, with representation
from all relevant parties in the standard-setting
process, including preparers, users, regulators and
the accountancy profession.

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 Malaysian Institute of Accountant (MIA)
▪ established under the Accountants Act 1967
▪ regulating the accounting profession.
▪ play a significant role in the development and
advancement of accounting profession globally.
▪ Its membership in such bodies include the:
• Asean Federation of Accountants (AFA)
• Confederation of Asian and Pacific Accountants
(CAPA)
• International Federation of Accountants (IFAC)
• Intergovernmental Working Group of Experts on
International Standards of Accounting and Reporting
(ISAR)
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 Malaysian Institute of Accountant (MIA)
❑ Objectives:
• To promote and regulate professional and ethical
standards
• To enhance competency through continuous
education and training to meet the challenges of the
global economy
• To enhance the status of members
• To lead research and development for the
enhancement of the profession
• To inculcate a high sense of social responsibility
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 Malaysian Institute of Certified Public
Accountant (MICPA)
❑ Objectives:
• To advance the theory and practice of accountancy in
all its aspects.
• To recruit, educate, train and assess by means of
examination or otherwise a body of members skilled in
these areas.
• To preserve at all times the professional independence
of accountants in whatever capacities they may be
serving.
• To maintain high standards of practice and professional
conduct by all its members.
• To do all such things as may advance the profession of
accountancy in relation to public practice, industry,
commerce, education and the public service.
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 Opportunities/Profession in Accounting
Financial Managerial Taxation
•Preparation •General accounting •Preparation
•Analysis •Cost accounting •Planning
•Auditing •Budgeting •Regulatory
•Regulatory •Internal auditing •Investigations
•Consulting •Consulting •Consulting
•Planning •Controller •Enforcement
•Criminal •Treasurer •Legal services
investigation •Strategy •Estate planning

•Lenders •FBI investigators

•Consultants •Market researchers
•Analysts •Systems designers
Accounting- •Traders •Merger services
related •Directors •Business valuation
•Underwriters •Human services
•Planners •Litigation support
•Appraisers •Entrepreneurs
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 International Accounting Std. Board
(IASB)
▪ The International Accounting Standards Committee
(IASC) was set up in 1973 to develop a set of
international accounting standards for use by those
countries wishing to do so.

▪ The IASC was replaced in 2001 by the IASB.

▪ The main reason for replacement was that the IASC’s
standards allowed too many alternatives and it was
felt that international accounting standards should be
of a higher quality if they were to be accepted and
used for the purpose of listing a company’s shares on
stock exchanges around the world.
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 Financial Statements

1. Statement of Profit & Loss

2. Statement of Owner’s
Equity
3. Statement of Financial
Position
4. Statement of Cash Flows
5. Notes to the Accounts

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 Objectives of preparing financial
statements

1) Provide Information about Financial Position

2) Provide Information about Financial
Performance
3) Provide Information about Cash Flows
4) Facilitate Decision Making
5) Ensure Accountability and Stewardship
6) Provide Insights for Future Planning
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 Scott Company
Statement of Profit & Loss
Profit is the
For Month Ended 31 December 20XX difference
between
Revenues:
Consulting revenue $ 3,000 Revenues and
Less:Expenses Expenses.
Salaries expense 800
Profit for the period $ 2,200

The income statement describes a

company’s revenues and expenses
along with the resulting profit or loss
over a period of time due to earnings
activities.
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 Scott Company
Statement of Profit & Loss
For Month Ended 31 December 20XX

Revenues:
Consulting revenue $ 3,000 The profit of $2,200
Less Expenses: increases Scott’s
Salaries expense 800 capital by $2,200.
Profit for the period $ 2,200

Scott Company
The Statement of Statement of Owner's Equity
Owner’s Equity For Month Ended 31 December 20XX
explains changes in
equity from profit (or
J. Scott, Capital, 1 Dec. 20XX $ -
loss) and from owner
investments and Add: Investment by owner 20,000
withdrawals for a Net income 2,200
period of time. Less: Withdrawals 500
J. Scott, Capital, 31 Dec. 20XX $ 21,700

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 The Statement of Financial
Position describes a
company’s financial position
at a point in time.

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 SCOTT COMPANY
STATEMENT OF FINANCIAL STATEMENT
31 DECEMBER 20XX
ASSETS
Non-current assets
Equipment $16,000
Total non-current assets $16,000

Current Assets
Cash $ 9,700
Supplies 1,200
Total current assets 10,900
Total assets $ 26,900

EQUITY AND LIABILITIES

Equity
J.Scott, Capital $ 21,700

From Statement of Owner’s Equity

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 SCOTT COMPANY
STATEMENT OF FINANCIAL STATEMENT
31 DECEMBER 20XX

Current liabilities
Accounts payable $1,200
Notes payable 4,000
Total current liabilities $5,200

Total equity and liabilities $26,900

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 SCOTT COMPANY
STATEMENT OF CASH FLOWS
FOR THE MONTH ENDED 31 DECEMBER 20XX

Cash flows from operating activities:

Cash received from clients $ 3,000
Purchase of supplies (1,000)
Cash paid to employees (800)
Net cash provided by operating activities $ 1,200
Cash flows from investing activities:
Purchase of equipment (15,000)
Net cash used in investing activities (15,000)
Cash flows from financing activities:
Investment by owner 20,000
Borrowed at bank 4,000
Withdrawal by owner (500)
Net cash provided by financing activities 23,500
Net increase in cash $ 9,700
Cash balance, 1 December 2006 -
Cash balance, 31 December 2006 $ 9,700
The Statement of Cash Flows identifies cash inflows and cash outflows over a
period of time. 33
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 End of Topic 1

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