TOPIC 1:

INTRODUCTION TO
ACCOUNTING

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 Learning objectives
At the end of this chapter, you should be able to:
● Differentiate between accounting and bookkeeping
● Identify the users of accounting information
● Understand the accounting process
● Distinguish the different types of business organizations

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 Introduction
• Accounting is concerned with the
provision of information which will be
useful to those who are directly or
indirectly connected with an organization
• The information provided would be useful
both in assessing the performance of the
managers and position of the
organization

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 Definition of accounting

● The art of classifying, recording and summarizing of

transactions and business events in monetary terms,
and interpreting the results to interested parties (users
of financial statements) to assist them in decision
making.

Classifying Recording Summarizing Interpreting Accounting

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 Process of accounting
• Sort out accounting data into orderly and
Classifying meaningful categories.
• Example: Sales, Purchases, Debtors, Expenses

• Record the transactions in the books of business.

Recording • Example: Record in journals and ledgers

• Summarized accounting data in the financial

Summarising statements.
• Example: Statement of Profit or Loss (SOPL) &
Statement of Financial Position (SOFP)

• Analyze the financial statement and used the

Interpreting result of that analysis as guidance to make
decision.

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 The purposes of accounting

To know the financial

status of the
organization

For easier reference –

human have
limitations in
memorising large info

To avoid misleading
financial statements –
task becoming more
complex

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 The purposes of accounting

As an evidence that
the transactions
have been taken
place.

To gather the accounting

information (firm financial
position) to prepare the
financial report.

To analyze and interpret the

business transactions
(based on financial report) to
make decision.

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 Bookkeeping vs Accounting

● Accounting is the process of classifying, recording and

summarizing of transactions and business events in monetary
terms, and interpreting the results to interested parties (users of
financial statements) to assist in decision making while

 bookkeeping is the mechanical aspects of accounting involving classifying,

recording and summarizing business transactions

● Bookkeeping is only a part of accounting which concerned with

the accurate recording of transactions.

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Users of Accounting Information
Internal users:
• those who are from within the business organization

OWNERS •interested in the profits earned from their investments and

the financial stability and growth of their business

•they need information as guidance in planning, organising

MANAGERS and controlling the organization and analysing the operation
of business

• To evaluate the firm’s ability to pay wages.

EMPLOYEES
• To get an idea of their employment prospects.

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Users of Accounting Information
External users:
• those who are not from within the business organization

CREDITORS • To determine the firm’s ability to repay loans.

• To evaluate the financial position of the business.

INVESTORS
• To evaluate whether the business is a good investment.

•To determine the taxable income of a business.

GOVERNMENTS •To make better financial decisions for the economy.

• To determine ability of the business to established good

PUBLIC/
CONSUMERS accounting controls and reduction of the prices of the goods
they purchase.
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 Accounting Cycle

journalising posting
Source Trial
Transaction Journals Ledgers
Documents Balance

YES

Adjustments

NO

Financial Statements:
SOPL & SOFP

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Types of business organization

Sole
proprietorship

Company
(private
Partnership limited &
Public
limited

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 Characteristics of types of business
1) OWNERSHIP
Sole Partnership Company: Company: Public
Proprietorship Private Limited Limited

 owned by single  Normal: 2-20  2-50  2 to unlimited

owner partners shareholders number of
shareholders
 On his/her own  Professionals:  Shares are
name 2-50 partners offered to a  The ownership
certain group of is opened to the
 Partners people only and public through
contribute capital not opened to the selling of
and are the legal the public shares
owners of the
business  Shares are not  Shares are
listed in the listed in the
share market share market

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 2) CAPITAL CONTRIBUTION
Sole Partnership Company: Private Company: Public
Proprietorship Limited Limited

 Get the capital  Get the capital  Collected from  Collected from
from personal from contribution the units of the selling of
savings, loans by the partners shares bought shares to public
from relatives and according to the
friends, loans percentage  The size of capital  The size of
from financial agreed. is quite large capital is large
institutions
 The size of
 The size of capital is larger
capital is small than sole
proprietor

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 3) Registration & Business establishment
Sole Partnership Company: Private Company: Public
Proprietorship Limited Limited

 Register with  register with  Register with  Register to CCM

Companies CCM under ROBA CCM as required as required by
Commission of 1956 by Companies CA 2016
Malaysia Act 2016
(CCM) under  There is an  Should put
Business agreement of  Should put “Public Limited”
Registration partnership which “Private Limited” (Bhd.) at the end of
Act 1956 contains: (Sdn. Bhd.) at the the company’s
(ROBA 1956) • Name of partners end of the name
 Easy to be • % of profit company’s name
established division
• Capital
 Less regulations contribution
and restrictions • Types of partners
(Active,
Sleeping, etc)
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 4) Liability & Profit or Loss
Sole Partnership Company: Private Company: Public
Proprietorship Limited Limited

 Unlimited liability  Unlimited Liability  Limited according  Limited according

- All debts and - All debts and to capital to capital
losses will be borne losses will be contribution. Private contribution. Private
by owner borne by partners assets are not in risk assets are not in risk
if company fails if company fails

Profit belongs to  Profit & losses

owner & losses shared according
incurred borne by to their profit-
the owner sharing ratio as Profit will be paid Profit will be paid
stated in the to the shareholders to the shareholders
Partnership in the form of in the form of
Agreement dividend dividend

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 5) Books of accounts & examples
Sole Partnership Company: Private Company: Public
Proprietorship Limited Limited

No legal obligation No legal obligation Proper books of Proper books of
to keep the books & to keep the books & account must be account must be
prepare accounts prepare accounts kept & annual kept & annual
accounts must be accounts must be
sent to CCM sent to CCM
 Kedai Runcit Pak  Usually in
Ali professional area,  Syarikat Amran  Zuhairi Bhd
eg medical or law Sdn. Bhd  Bank Islam
Poliklinik Dr Azhar Malaysia Bhd.
dan Rakan-Rakan

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