ACT 2112 INTRODUCTORY ACCOUNTING. 4 kredit hrs (3+1) Lecturer : Dr. Mazrah Malek Room : #A302

1. ACT 2112 INTRODUCTORY ACCOUNTING. 4 kredit hrs (3+1) Lecturer : Dr. Mazrah Malek Room : #A302 E-mail : mazrah_80@hotmail.com

2. Act2112: Introductory to accounting • Administrative matters: • Course outline • Assessment • Lecture: Introduction

3. Definition of Accounting

4. Definition of Accounting • Accounting: information system that provides reports to stakeholders about the economic activities and condition of a business. • The process of identifying, measuring, recording and communicating economic information to permit informed judgment and decisions by users of the information.

5. 0 The process by which accounting provides information to business stakeholders is as follows: • Identify stakeholders. • Assess stakeholders’ information needs. • Design the accounting information system to meet stakeholders’ needs. • Record economic data about business activities and events. • Prepare accounting reports for stakeholders.

6. Accounting Profession • 2 types of accountant: • Private accountant- experience from industry or public sector. • Activities – costing, financial planning, preparing accounting system, taxation, internal audit. • Public accountant- establish or working at accounting firm • Professional Activities- auditing, taxation, consultation, preparing financial statements.

7. Roles of Accounting&Users of Accounting Information

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9. 0 A business stakeholderis a person orentity having an interest in the economic performance and well-being of a business.

10. 0 Capital market stakeholdersprovide the major financing for the business in order for the business to begin and continue its operations.

11. 0 Product or service marketstakeholdersinclude customers who purchase the business’s products or services as well as the vendors who supply inputs to the business.

12. 0 Government stakeholdershave an interest in the economic performance of a business. City, county, state, and federal governments collect taxes from businesses within their jurisdiction.

13. 0 Internal stakeholdersinclude individuals employed by the business. Managers have an incentive to maximize the economic value of the business. Employees have an interest because their jobs depend on it.

14. Roles • Language of Business • Decision making tool • Create accountability and control • As an Information system

15. Financial Accounting & Management Accounting

16. 0 Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business. Managerial accounting uses both financial accounting and estimated data to aid management in running day-to-day operations and in planning future operations.

17. Two areas of accounting

18. Accounting Professional Bodies MALAYSIAN INSTITUTE OF ACCOUNTANTS (MIA) • Established in 1967 • Monitoring accountant in Malaysia. • Audit and accounting firms need to register and follow rules and procedure of MIA • Providing exam and courses. MALAYSIAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS (MACPA) • Established in 1958 • Coordinate exam and courses.

19. MALAYSIAN ACCOUNTING STANDARD BOARD (MASB) • Established in 1997 • independent authority to develop and issue accounting and financial reporting standards in Malaysia. • mission - to develop and promote high quality accounting and reporting standards that are consistent with international best practices for the benefit of users, preparers, auditors and the public in Malaysia.

20. Who Makes All the Rules? Generally accepted accounting principles • Malaysian Accounting Standards Board • Used by Malaysian companies • International Accounting Standards Board • Used by most international companies

21. Accounting Concepts • Also called accounting conventions, postulates, principle. • Rules of accounting that should be followed in preparing accounts and financial statements.

22. Separate Entity • Entity as organisational unit for which accounting record are maintained. • Entity is considered to be separate from its individual owners. • The accounting records of business must be kept separate from the personal finances of the owner. • Example.

23. Arm’s Length Transaction • Accountants assume arm’s length transaction. • Assumption that parties involved in the business (e.g. seller and buyer) are rational and free to act independently. • Each try to make the best deal possible in establishing the term of the transaction. For financial statements to be informative, the reported financial results must come from arm’s length transaction. • Example

24. Historical cost • Accountants record transaction at historical cost • The amount originall paid or received for goods and services in arm’s length transactions • Historical cost reflects the actual use of resources by independent parties. • Example

25. The Monetary Measurement • Not all activities of business entities will be recorded by accountants. • Only records transactions that can be measured in monetary units. • All transaction are recorded in monetary amounts, whether or not cash involved. • RM is the measuring unit. • Example- morale of employee, management quality, product reputation, relationship with customers- unquantifiable, not recorded • Example- wages, quantifiable, recorded

26. Qualitative Characteristics of Accounting • Reliability • Relevant • Comparability • Understandability • Cost & Benefit

27. Reliability • Information disclosed by business entity is complete, free from significant error and bias. • Information faithfully represent events happen in the business

28. Relevant • Relevant in making decision • Information has a predictive value that helps users forecast future events • Information has confirmatory value to conform the prior expectation.

29. Comparability • Consistently camparable • Year comparison • Industry comparison

30. Understandability • User understand the financial information presented by business

31. Cost and Benefit • Benefits outweigh the cost of producing information.

32. Other Accounting Assumptions:

33. Going Concern • Assumption of the entity will continue in business for the foreseeable future. • Example- Balance Sheet of AAA Co. was prepared under the assumption that AAA Co. will coutinue it’s business for the forseeable future.

34. Accrual Basis of Accounting • In preparing financial statements, transaction and event is recognised and recorded when it happened, not when cash is received or paid. • Except for Casg Flow Statements. • Transactions and events are reported in financial statement of the period to which they are related.

35. Matching Concept • Transactions affecting both revenues and expenses should be recognized in the same accounting period; • Profit or loss is calculated by matching the revenue for a period with expenses needed to gain the revenue.

36. Prudent and conservative • revenue and profits are included in the balance sheet only when they are realized • but liabilities are included when there is a reasonable 'possibility' of incurring them.

37. Objectivity • financial statements should be based only on verifiable evidence, comprising an audit trail

38. Realisation Concept • Revenue is recognised when it happened, not when cash is received

39. Accounting Period • financial records pertaining only to a specific period are to be considered in preparing accounts for that period; • example

40. Consistency of Presentation • once an entity has chosen an accounting method, it should continue to use the same method, except for a sound reason to do otherwise. • The classification of items should be applied consistently from one accounting period to another. • To ensure the financial statements can be comparable • Between year & between industry. • Inconsistencies allowed • Changes on nature of business • Change could demonstrate more appropriate presentation of events and transaction • Change is required by regulation.

41. Materiality • relatively minorevents may be ignored, but the major ones should be fully disclosed • Omission of material item need to be disclosed, non-disclosure of the item will influence the economic decision of users. • How to identify material- size & nature of item. • Omission item must be presented separately in the financial statement.

42. Concept of double entry • Each transaction will have two effect on the financial position of business entity. • Exercise: • Buying stock in credit RM 1000 • Owner withdraw RM 2000 cash • Selling stock for RM 2000 (stock is bought for RM 1000)

43. Accounting Standard and Policy • Financial Reporting Standard • Example • FRS 1- First time adoption of FRS • FRS 2- Share Base payment • FRS 3- Business Combination

44. Identify the accounting principles… • Land worth RM70,000 is reported at its original purchase price at RM60,000. • Including private costs incurred in running a car as business costs would violate the principle of? • Bought goods from a supplier on credit in December 2008. Paid only in February 2009. Recorded the purchase in 2008 books. • Companies usually close their accounts and prepare financial statements quarterly. • Maintenance costs of a rental house are deducted from the rental revenue received each month