THE BUSINESS ENVIRONMENT AND ACCOUNTING INFORMATION SYSTEMS

PREPARED BY: SYAZLIANA HJ. KASIM FACULTY OF ACCOUNTANCY UiTM SHAH ALAM

TYPES OF BUSINESS
FORMS OF BUSINESSES

SOLE PROPRIETORSHIP

PARTNERSHIP

COMPANY (CORPORATION)

Syazliana Hj. Kasim Faculty of Accountancy UiTM Shah Alam

SOLE PROPRIETORSHIP
A business with a single or sole owner, who most often is also a manager. For example, small retail establishments and individual professional businesses (accountants, engineers, doctors, lawyers). The owner contributes his/her own resources as the capital of the proprietorship and usually very limited.

From accounting viewpoint, each proprietorship is an individual entity that is separate and distinct from its owner.
Syazliana Hj. Kasim Faculty of Accountancy UiTM Shah Alam

SOLE PROPRIETORSHIP
Owners of proprietorships typically have unlimited liability, thus creditors can look for repayment beyond the business entitys assets to the owners personal assets. If a proprietorship gets into financial trouble, and the proprietorships assets are not enough to fully settle the claims of the creditors, the creditors can claim against owners personal asset. Transfer of ownership is not easy for proprietorships (in the case of death of the owner).

Syazliana Hj. Kasim Faculty of Accountancy UiTM Shah Alam

PARTNERSHIP
A business organisation that is made up of two or more individuals or owners, who jointly own the business. Under the Partnership Act 1961, a partnership is defined as the relationship which subsists between persons carrying on business in common with a view of profit.

A partnership other than a professional partnership must have a minimum of 2 and up a maximum of 20 members.
A professional partnership of accountants, doctors or lawyers can have a maximum of 50 members. From legal viewpoint, a partnership is not an entity.
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PARTNERSHIP
Partners are the entities and each partner is personally liable for the debts of the partnership. Owners of partnerships typically have unlimited liability, thus creditors can look for repayment beyond the business entitys assets to the owners personal assets. If a partnership gets into financial trouble, and the partnerships assets are not enough to fully settle the claims of the creditors, the creditors can claim against partners personal asset. Transfer of ownership is not easy for partnerships (in case any of the partners died).
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COMPANY/CORPORATION
Organisations which have many owners called shareholders or stockholders. Under the Companies Act 1965, a company becomes a legal entity, as well as an accounting entity, that conducts its business apart from its owners. Shareholders have limited liability, thus creditors (banks, suppliers) of the company can claim against only the companys assets.

If a company gets into financial trouble, and the companys assets are not enough to fully settle the claims of the creditors, the creditors cannot claim against shareholders personal asset.
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COMPANY/CORPORATION
Companies can also easily raise additional capital when needed. Transfer of ownership is easy for companies as compared to proprietorships and partnerships.

A company is taxed as a separate entity from its shareholders.

The income tax laws regard companies as being taxable entities.

Syazliana Hj. Kasim Faculty of Accountancy UiTM Shah Alam

Identify the basic principles of accounting information systems.

ACCOUNTING INFORMATION SYSTEMS

An accounting information system involves collecting and processing data and disseminating financial information to interested parties. An AIS may either be manual or computerized.

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM

The accounting system must be cost effective. Benefits of information must outweigh the cost of providing it.
Costs Benefits

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM

It must be relevant! It must be reliable!

Balance Sheet

It must be timely!

Income Statement It must be

accurate!

Other Financial Reports

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM

Technological Advances

Government Regulation

Changing Accounting Principles

Explain the major phases in the development of an accounting system.

PHASES IN THE DEVELOPMENT OF AN ACCOUNTING SYSTEM

Analysis
Planning and identifying information needs and sources

Follow-up
Monitoring and correcting any weaknesses

Design
Creating forms, documents, procedures, job descriptions, and reports

Implementation
Installing the system, training personnel, and making the system wholly operational

MANUAL ACCOUNTING SYSTEMS

In a manual accounting system, each of the steps in the accounting cycle is performed by hand. This means that transactions are entered into a journal and then posted to the ledger. Financial statements are thus derived from ledger balances. So.....why study manual systems if the real world uses computerized systems?

MANUAL VS. COMPUTERIZED SYSTEMS

Small businesses still abound and most of them begin operations with manual accounting systems and convert to computerized systems as business grows. To understand what computerized accounting systems do, one must understand how manual accounting systems work.

MANAGEMENT ACCOUNTING VS. FINANCIAL ACCOUNTING

The purpose of management accounting is to provide managers with whatever information they need to help them manage their resources efficiently and take sensible decisions. They are no externally imposed rules about how this is done: it depends on the needs of the organisation. The purpose of financial accounting is to provide accurate financial information for the company accounts, which will be used be both senior management and external parties (for example investors). The data used to prepare financial accounts and management accounts are the same. The differences between the financial accounts and the management accounts arise because the data is analysed in a different way.
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MANAGEMENT ACCOUNTS
They are distributed internally for use within a business only.

They are recorded and presented in a way that is decided by management.

They look at past data and also future data (for planning purposes). They are used to help management in planning, control and decision-making.

There is no legal requirement to prepare them.

They include both financial and non-financial information.
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FINANCIAL ACCOUNTS
They are used for external reporting.

There is a legal requirement for limited companies to prepare them.

They are concerned with past data only. They usually include only financial information. They provide details on the results of an organisation over a defined period (usually a year).
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USERS OF ACCOUNTING INFORMATION

OWNERS PUBLIC MANAGERS

GOVERNMENTS

USERS OF ACCOUNTING INFORMATION

CREDITORS

EMPLOYEES

INVESTORS

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USERS OF ACCOUNTING INFORMATION

WHO USES?
OWNERS The owner is the person who contributes resources to the business and own the business

WHAT THEY USE FOR?

They want to know how much profits they earn from their investments in the business. They want to assess the financial stability and growth of the business.

They have to ensure that the business is operated efficiently. Managers have to run the firm in the most efficient manner which maximize returns to the owners. MANAGERS They are hired to manage the Accounting information is used in planning, organizing and business for the owners controlling activities. Accounting information can also be used to appraise or analyze the operations of the firm.
CREDITORS Those who supply goods or services to the business Include bankers and money lenders

They are interested to determine the financial stability of the business. They want to know whether these businesses are able to repay the amounts owing to them.
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USERS OF ACCOUNTING INFORMATION

WHO USES? WHAT THEY USE FOR? Investors would want to inquire about the solvency of the business (the INVESTORS ability to repay debts as and when they are due). It could be either existing They also want to know about the financial strength of the business. investors or In addition, accounting provides information on business present and potential/prospective investors future earning capacity and the ability of the management. EMPLOYEES People working for the firm They are interested in the business ability to progress and expand. Employees would look for steady employment, earning capacity, and other monetary benefits which are to be gained from a financially stable business.

These bodies are interested in the accounting statements and reports of GOVERNMENTS businesses. Including the local, state and These statements would provide information on how much funds federal levels, which are the would be made available for running the country. tax authority bodies Governments also use these information for setting price controls, plans for expansion of industry and other government activities. THE PUBLIC The consumers of products/services They are interested in the establishment of good accounting controls as a means of reducing costs of production, selling and distribution. This will lead to the reduction of the prices of the goods they purchase
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USES OF ACCOUNTING INFORMATION SYSTEM

For decision making purpose To analyse the profitability of the company To ascertain the financial stability of the company To maximization the companys scarce resources

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