BIT 163

INTRODUCTION TO
ACCOUNTING
Accounting Definition
 Definition
“Accounting maybe define as “A systematic
recording of information which involves
analyzing, classifying, summarizing and
interpreting business transactions”
What are the purpose of
Accounting
Purpose of Accounting
ii. Planning how you are going to use your
money
iii. Recording accounting data.

iv. Keeping specific records of information in

specific manual.
v. Enabling circulating information.

vi. Use accounting data to make decision.

Accounting Vs Finance
 Accounting
Systematic recording of information
Involves:
4) Analyzing

5) Classifying

6) Summarizing

7) Interpreting business transaction.

Accounting Vs Finance
Finance
“A process involved in an attempt to
obtain and allocate financial resources
effectively and efficiently to achieve the
firm’s goal: that is to maximize the
shareholder’s wealth by maximizing the
share price”.
Accounting Vs Finance
The management of the firm has the primary
goal of maximizing the wealth of its
shareholders by maximizing the common
stock share price
ii. Maximization of profit
iii. Ensuring the firm’s survival in the long run
-Time Horizon
-Timing of Returns
-Distribution of Returns
-Risk orientation
Sub field of Accounting
Accounting can be sub-classified as to:
 Financial Accounting

 Management Accounting

 Auditing

 Taxation
 Activities within an
organizations
EXECUTIVE
MANAGEMENT
Overall Strategy
Motivation
Final Decision Making
Public Accountability
Owner Relations

MARKETING FINANCE
Sales Identification analysis of
Advertising alternative sources of
Pricing funds
New Product Design Analysis of investments
Distribution

PRODUCTION HUMAN RESOURCES

Process design Employee Screening
Materials and Labor Employing benefits
Planning Payroll Management
Materials handling
Quality Control

RESEARCH AND
DEVELOPMENT
Research into new
technologies and processes
Developing products from
research
Users of Accounting
Information
 Internal
-Internal users comprise various management
and supervisory staff within the organization.
EG: EMPLOYEE AND MANAGEMENT.
 External

-External users comprise investors (present and

future), lenders, suppliers, customers,
government and public at large.
The internal and external roles
of accounts
Please refer
attachments:
INTERNAL

EXECUTIVE MANAGEMENT

Financial statements, budgets and performance reports

MARKETING FINANCE
Sales reports, cost reports Cash flow information
ACCOUNTING

Production reports, internal controls Payroll information

PRODUCTION HUMAN RESOURCE
Cost reports

RESEARCH AND DEVELOPMENT

EXTERNAL

External Decision Makers

Financial reports
(Including the statements)

Executive Management

Financial Statements

Accounting
The difference between
Accounting and Bookkeeping
 Discussion in class and notes given to
students with the handouts.
Accounting Information
Systems (AIS)
 Discussion in class and notes given to
students with the handouts.
 Types and activities of
Accountants
Fields of Accounting

Types of Accountants Financial Accounting Managerial Accounting Tax Accounting

Private Accountants Preparing Financial statements General Accounting Prepare Tax Returns
Cost Accounting Planning
Budgeting
Internal Auditing
Public Accountants Auditing financial statements Providing management advisory services Preparing Tax Returns
Planning
Government Accountants Preparing Financial statements General Accounting Reviewing Tax returns
Reviewing fisnancial repor Cost Accounting Assisting taxpayers
Writing regulations Budgeting Writing regulations
Assisting companies Internal Auditing Investigating violations
Investigating violations
Form of Business
 Sole Proprietor/Sole Trader
 Partnership

 Companies

 Co-operative

Short Assignment
1.Briefly explain for all stated form of
business.
Sole Proprietor or Sole Trader
 Business ownership is a single business carried on by
individuals and owned by individual full.
 Business owner have a power to control the business
operations.
 Owners and business is referred to as one of the
same entity. No separation between them.
 Owners will received all the profits and bear for all
losses from business.
 Unlimited liabilities
Advantages
 Easy to set up.
 The owner has absolute power to
control the business.
 Fast decision make by the owner of the
business.
 Individual Tax.
 No need the complex financial reports.
Disadvantages
 Difficult to grow because of the limited
capacity of capital
 Difficult to get capital financing from the
financial institution because they need a
strong assurance from the business.
 Liability is unlimited.
 Business will disband itself if the owner died.
Partnerships
 A partnership is defined as the relationship that exist
between person carrying on business. These person
agree to combine some or all their property, labor
and skill. This relationship is based on contract.
 Business owned by minimum of two persons and

maximum of 20 persons.
 Professional service partnerships consist of maximum

50 persons.
 There are two types of partnerships:

-Active partner
-Sleeping partner
Partnerships
 Strictly follow the Partnerships Act 1961 and
partnerships contract of agreement for profit
and loss distribution.
 Liability for partnerships is unlimited except
for the limited partnerships.
 General partners have unlimited liability for
partnerships debts, and the partnerships
terminates when a general partner wishes to
sell out or dies.
Advantages
 Partnerships allow for a greater amount
of money, skill and other resources to
be pooled.
 They are relatively easy to organize.
 They are subject to limited government
regulations and do not face high tax
rates.
Disadvantages
 Partnerships have a limited life.
 Each partner is subject to unlimited liability.
This means that if the company fails,
creditors can take action against both the
partnership and the persons who are in it.
 Partners have mutual agency. This means
that one partner can make decisions without
consulting to other(s).
Co-operative
 It is a business organization owned and
operated by a group of individuals for
their mutual benefits.
 A community based business
 Eg: Bank Rakyat, Koperasi Angkatan
Tentera Malaysia and Angkasa.
Corporation
 A business created as a distinct legal
entity composed of one or more
individuals or entities.
 In Malaysia, corporations are follow

strictly under Company Act 1965.

 Corporation are divide into two

-Private Limited
-Public Limited
Corporation
 Private limited can be held by minimum of 2 and
maximum of 50 shareholders.
 There is no maximum shareholders for Public limited
company.
 Shareholders will received their profit in the form of
dividend.
 Corporation managed by Board of Director that
appointed by shareholders in AGM.
 Liability of shareholders is limited base on the paid
up capital.
 Tax is paid, base on company profit.
 Eg: Tenaga Nasional Berhad, Safeguard Securicor
Sdn Bhd.
Financial Information
 One of the accounting functions is to provide
information about the enterprise. The financial
information generated must be useful to users. In
order to be useful, the information must have the
following basic characteristics:

 Understandability
 Relevance
 Reliability
 Comparability
The meaning of ethics
 Ethics are the “principles that determine
the rightness or wrongness of particular
acts or activities. “Ethics are also
“accepted standards of good behavior”