Naval Base Secondary School

Principles of Accounts
Topic 1 – Introduction to Accounting (Textbook Pg. 1 – 14)
Notes

Name: ______________________ ( ) Class:______ Date:______________

. 1.1 Forms of Business Ownerships

Sole Proprietorship Limited Liability Private Limited

Partnership Company

Capital Structure

- Ownership Owned by ________ Owned by Owned by

person. _______________ ______________
partners shareholders
Each partner Each shareholder
Owner contributes
contributes capital buys __________
capital to set up the
to set up the and contributes
business.
business capital

- Access to Less likely for banks to More likely for More likely for
funds lend money due to banks to lend banks to lend
lack of personal money as there are money as there
assets to serve as more sources of are business
______________. personal assets to assets of high
serve as collaterals value to serve as
collaterals
Get more persons
Usually limited to
to join as partners Company may
owner’s personal
and contribute issue more
funds
capital shares to raise
funds

Extent of Liability

- Risk Sole owner is obliged Partners are not Shareholders are

to pay for debts and personally liable for not obliged to pay
losses using personal debts and losses for debts and
assets except when the losses using
losses are due to personal assets
the wrongful
Only forfeit their
actions of the
investments
partners.
Only that partner
will be personally
liable for the losses

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Management of
Business

- Level of Sole owner has Control is shared Shareholders

Control ____________ control among the partners have _________
and usually runs the with at least one control over the
business on his own heavily involved in running of the
running the business
business
May hire
Hires
May hire professionals to
professionals to
professionals to help help
manage the
business on
behalf of the
shareholders

- Lifespan Exists as long as the Exists forever until Exists forever

owner is alive and ______________ until wound up or
desires to continue or struck off struck off
operation

- Transferability Sole owner can easily All partners need to Shareholders pay
of ownership transfer ownership by ____________ to a __________
updating the the addition or _________ to
corporate regulatory withdrawal of give their shares
authority partners to another person
or organisation

Decision-making: Which business should you start?

Question: Mr Lim will like to start an accounting business. He knows three friends
who are keen to start a business as well. The friends expressed interest in quitting
their current jobs and manage the business together. They are worried that they will
lose their personal assets though, if the business fails.
Structure Example
1) Make a decision I will advise Mr Lim to start a Limited Liability
Make a choice and state your Partnership (state the decision)
decision clearly
2) Support your decision Mr Lim’s friends are interested in the
- Extract relevant evidence from business and they will like to have some
the question; and control in the business as well. They are
- Explain why the evidence supports worried about losing their personal assets in
your decision the event that the business fails. (evidence
from question)
In a limited liability partnership, all the
partners will have control in the business
and they will also not be personally liable for
the debts and losses if the business fails
(explanation on how the evidence selected
supports your decision)

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 1.2 Types of Business

1. _________________________ – business that buys goods from suppliers and

sells to customers.
Examples: Bookshops, supermarkets
Any other examples that you can think of? _______________________

2. _________________________ – business that provides services to its

customers.
Examples: Cleaning services, Medical Services, Banking Services.
Any other examples that you can think of? ______________________

Assignment 1A: Workbook Pg 3 Ex 1 Qn 1, 3, 4, 5.

1.3 Stakeholders and their Decision Needs

Stakeholders are groups of people who will make use of information about the
business to ________________________________.

Stakeholder Interaction with the Example of decision made

Business
1) Contribute capital to the Whether to continue to
business and expect invest or to sell the
profit distribution in return business
2) Work for the business Consider ways to improve
and plan how to run the the performance of the
business efficiently business
3) Work for the business Whether to continue
and perform executive working at the business
duties
4) Lend money to the Whether to grant loans to
business and expect it to the business
be fully repaid with
___________.
5) Supply goods and/or Whether to sell to the
services to the business business on __________.
6) Buy goods and/or Whether to buy from the
services from the business, depending on
business whether the business can
provide good after sales
service
7) Enforce tax regulations Decides whether the
business complies with tax
regulations and the
amount of tax to collect
8) Sells similar goods Whether they are
and/or services as the comparable to the
business business and how to
improve their own
performance
Information can be both accounting information and non-accounting information.
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 1.4 Role of Accounting and Accountants

1. Role of Accounting
Accounting is an information system that provides accounting information for
stakeholders to make ____________________________ regarding the
management of resources and performance of businesses

2. Role of Accountants
Accountants are ________________ of businesses and they set up an
accounting information system (AIS) to prepare and provide accounting
information for decision-making.

- Adapt, solve problems, think critically and provide accounting and non-
accounting information for decision-making
- Provide timely, relevant and credible information, based on ________________
_________________.

3. Professional Ethics
It is important for accountants to have professional ethics in order not to mislead
users into making poor decisions

A. _______________ – being straightforward and honest in all professional and

business relationships.

B. _______________ - not let bias, conflict or undue influence of others override

his or her professional judgement.

Assignment 1B: Workbook Pg 3 Ex 2 Qn 1, 2, 3, 4, 7.

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 1.5 Accounting Theories

When accounting theories are followed, the accounting information will present a
_______________________________ view of the business and allow stakeholders
to make _________________________________________.
Accounting Theory General Explanation
Activities of a business are separate
from the actions of the owner and all
transactions are recorded from the
point of view of the business
Life of a business is divided into regular
time intervals
Business activities that have occurred,
regardless of whether cash is paid or
received, should be recorded in the
relevant accounting period
An accounting method should be
applied to all future accounting periods
to enable meaning comparison
Business is assumed to have an
indefinite economic life unless there is
credible evidence that it may close
down
Transactions should be recorded at
their original cost
Expenses incurred must be matched
against income earned in the same
period to determine the profit for that
period
Relevant information should be
reported in the financial statements if it
is likely to make a difference in
decision-making
Only business transactions that can be
measured in monetary terms are
recorded
Accounting information recorded must
be supported by reliable and verifiable
evidence
The accounting treatment should not
overstate assets and profits and should
not understate liabilities and losses
Revenue is earned when goods have
been delivered or services have been
provided

Assignment 1C: Workbook Pg 4 Ex 4 Q1, 5.