BAC10103 / BAC20103 / WAC20103 FAC20103 /

CAC20103
Principles of Accounting
Introduction of Accounting
 Learning objectives
At the end of this topic, you should be able to:
• Differentiate between accounting and bookkeeping
• Identify the users of accounting information
• Distinguish the different types of business organizations
• Understand the accounting process

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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 The information provided
organization would be useful both in
assessing the performance of
the managers and position of
the organization

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 Definition of
accounting
• 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 them in decision making.

Classifying Recording Summarizing Interpreting Accounting

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

• Record the transactions in the books of business.

Recording • Example: Record in journals and ledgers

• Summarized accounting data in the financial

statements.
Summarizing • Example: statement of financial position &
statement of comprehensive income.

• Analyze the financial statement and used the result

Interpreting 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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 Difference between bookkeeping and
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
recording, classifying and summarizing business transactions
• Bookkeeping is only a part of accounting which concerned with the
accurate recording of transactions.

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 The users and the use of accounting information

Business owners Manager Employee

Interested in Need Interested to know the

the profits information to ability of the business to
progress and expand.
earned from guide them in
- Steady employment
their planning,
INTERNAL USERS - Monetary benefits
investment organizing and
and the controlling the
financial organizations
stability of the and analyzing
business. the operations
of the business.

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THE USERS AND THE USE OF ACCOUNTING INFORMATION

EXTERNAL USERS
Consumers of
Current/Potential Government Products/services
Creditor/Bankers Investors
Interested to Interested in Interested in Interested in the
know whether knowing the the business establishment of
the business financial accounting good accounting
can pay the strengths, its information for controls.
amount owing present and tax purposes.
to them. future earning -reducing cost of
capacity and the production
ability of - Selling and
management. distribution
- Reduction of the
prices of the
goods

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Types of business organization

Sole
proprietorship

Company
(private
Partnership
limited &
Public limited

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Characteristics of sole proprietorship,
partnership and company
1) OWNERSHIP
Sole Proprietorship Partnership Company: Private Company: Public
Limited Limited

 Usually owned by  Normal: 2-20  2-50 shareholders  2 to unlimited

single owner partners number of
Shares are offered shareholders
 On his/her own  Professionals: 2- to a certain group of
name 10 partners people only and not  The ownership is
opened to the public opened to the public
 Partners through the selling
contribute capital  Shares are not of shares
and are the legal listed in the share
owners of the market  Shares are listed
business in the share market

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2) CAPITAL CONTRIBUTION

Sole Proprietorship Partnership Company: Private Company: Public

Limited Limited

 Get the capital  Get the capital  Contributed by  Contributed by

from personal from contribution shareholders shareholders
savings, loans from by the partners through purchase through purchase
relatives and according to the of shares of shares
friends, loans from percentage agreed.
financial institutions The size of capital  The size of
 The size of is quite large capital is large
 The size of capital is larger than
capital is small sole proprietor

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

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

business registrar under BRA 1956 & required by CA 1965 required by CA 1965
under Business 1957
Registration Act  Should put  Should put “Public
1957  There is an “Private Limited” Limited” (Bhd.) at the
 Easy to be agreement of (Sdn. Bhd.) at the end of the company’s
established partnership which end of the company’s name
contains: name
Less regulations • Name of partners
and restrictions • % of profit division
• Capital
contribution
• Types of partners
(Active, Sleeping,
etc)

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4) Liability & profit and loss
Sole Proprietorship Partnership Company: Private Company: Public
Limited Limited

 Unlimited  Unlimited  Limited  Limited

liability - All debts Liability - All debts according to capital according to capital
and losses will be and losses will be contribution contribution
bear by owner bear by partners

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

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

No legal No legal Proper books of Proper books of

obligation to keep obligation to keep account must be account must be
the books & the books & kept & annual kept & annual
prepare accounts prepare accounts accounts must be accounts must be
sent to CCM sent to CCM

 Kedai Runcit Pak  Usually in  Syarikat Amran  Gamuda Bhd

Ali professional area, Sdn. Bhd  Bank Islam
eg medical or law Malaysia Bhd.
Poliklinik Dr
Azhar dan Rakan-
Rakan

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 Accounting Process
Journalising Posting

Source Trial
Transaction Journals Ledgers
Documents Balance

YES

Adjustments

NO

Financial Statements

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