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ACCOUNTING AND BUSINESS


DEFINITION OF ACCOUNTING:
The process of identifying, measuring, and communicating economic
information of an organizations to its users who need the
information for decision making.
BOOK KEEPING:
Is the process of recording data relating to accounting transactions
in the accounting books.
Includes recording of transactions in a journal, posting in the
ledgers and balancing of accounts (all the records before the
preparation of trial balance)
OBJECTIVES OF ACCOUNTING:
To keep systematic records
To ascertain the result of the operations
To ascertain the financial position of a business
To portray the liquidity position
To protect business properties
To facilitate rational decision-making
To satisfy the requirements of law
INTERNAL EXTERNAL
Managers Potential investors
Owner (s) Creditors
Tax inspectors
Bank
Prospective buyers
NATURE FINANCIAL ACCOUNTING MANAGEMENT
ACCOUNTING
USERS Info for external parties Info to internal parties
PURPOSE Reports on past performance Provides info for planning,
(fin st) to helps making controlling, evaluating and
investment decision / credit continuous improvement to
rating aid decision making process
SEGMENT REPORTING Pertains to the entire org. Pertains to smaller business
units/department in
addition to entire org.
REPORTING Well-defined (annually, semi As needed (daily, weekly,
FREQUENCY annually or quarterly) monthly)
LEGAL REQUIREMENT Subject to public and Optional and not subjected
regulators scrutiny (comply to rules and regulations
with GAAP, Securities
Commission, Companies Acts)
TYPES CHARACTERISTICS ADVANTAGES DISADVANTAGES
SOLE ? ? ?
PROPRIETORSHIP
PARTNERSHIP ? ? ?
CORPORATION ? ? ?
PRINCIPLES / EXPLANATIONS
CONCEPTS
HISTORICAL COST The transaction recorded in the books at cost at the time of
purchase.
BUSINESS ENTITY Each business org/entity exists as an economic unit and has
an existence separate from its owner(s)
MONEY MEASUREMENT Economic entity is initially recorded and reported in a
common monetary unit of measure RM in Malaysia.
GOING CONCERN Transactions are recorded assuming that the business will
exist for a long period of time (at least 12 months)
DUAL ASPECTS Every transaction has a two-fold aspect: assets and claims
against them (asset = capital + liabilities)
TIME INTERVAL This requires that entity to prepare financial st at regular
interval during the year (actg period)
ACCRUAL The revenue is recognised on its realization and not on its
actual receipts. While costs are recognised when they are
PRINCIPLES / CONCEPTS EXPLANATIONS
REVENUE RECOGNITION In accrual basis, revenue is recognised by the seller when
it is earned irrespective of whether cash from the
transaction has been received or not
REALISATION This refers to the application of accruals concept towards
the recognition of revenue. Revenue must be recognised:
(a) When the rewards and benefits associated with the
items sold or services provided is transferred
(b) When the consideration for the transfer is measurable
and is realised
2 exception: (i) hire purchase (ii) contracts account
MATCHING All costs which are associated to a particular period
should be compared with the revenue associated to the
same period to obtain the net income of the business
FULL DISCLOSURE All material information must be disclosed in the fin st.
UNDERSTANDABILITY : Require the fin info to be
understandable by users

RELEVANCE: Affected by the materiality of the info. influence


the economic decision of its users
MATERIALITY: info is materials if its omission or misstatement effect the
decision of the users

RELIABILITY : is reliable if a user can depend upon it to be


materially accurate and if it faithfully represents the info that it
purports to present
FAITHFUL REPRESENTATION: require fin info to be true and fair view
and free from misstatement
SUBSTANCE OVER FORM: require transaction and events to be
accounted for so that it represent the true economic substance rather than
the legal form
PRUDENCE: exercise degree of caution in the estimates (assets and
income are not overstated, and liability and expenses are not overstated)
COMPLETENESS : reliability achieved only if complete fin info provided

COMPARABILITY: require the fin info to be comparable


across periods and companies
CONSISTENCY: once adopted, accounting method should be applied
consistently in the future.
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