THE BUSINESS ENVIRONMENT

AND ACCOUNTING
INFORMATION SYSTEMS
PREPARED BY:
SYAZLIANA HJ. KASIM &
KAMARUZZAMAN MUHAMMAD
FACULTY OF ACCOUNTANCY
UiTM SHAH ALAM
 TYPES OF BUSINESS

FORMS OF
BUSINESSES

SOLE COMPANY
PARTNERSHIP
PROPRIETORSHIP (CORPORATION)

Syazliana Hj. Kasim & Kamaruzzaman Muhammad

2
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.

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Faculty of Accountancy UiTM Shah Alam 3
 SOLE PROPRIETORSHIP
 Owners of proprietorships typically have unlimited liability,
thus creditors can look for repayment beyond the business
entity’s assets to the owners’ personal assets.

 If a proprietorship gets into financial trouble, and the

proprietorship’s assets are not enough to fully settle the
claims of the creditors, the creditors can claim against
owner’s personal asset.

 Transfer of ownership is not easy for proprietorships (in the

case of death of the owner).

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Faculty of Accountancy UiTM Shah Alam 4
 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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Faculty of Accountancy UiTM Shah Alam 5
 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 entity’s
assets to the owners’ personal assets.

 If a partnership gets into financial trouble, and the

partnership’s 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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Faculty of Accountancy UiTM Shah Alam 6
 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
company’s assets.

 If a company gets into financial trouble, and the company’s

assets are not enough to fully settle the claims of the creditors,
the creditors cannot claim against shareholders’ personal asset.

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Faculty of Accountancy UiTM Shah Alam 7
 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.

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Faculty of Accountancy UiTM Shah Alam 8
TYPES OF BUSINESS ACTIVTIES

BUSINESS
ACTIVITIES

TRADING MANUFACTURING SERVICING

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Faculty of Accountancy UiTM Shah Alam 9
 TRADING ACTIVITIES
In general, trade is an exchange involving goods,
services or currency.
Trade is also loosely known as commerce or
financial transaction.
However, for the purpose of this course, the
definition of trading activities is restricted to the
activities of buying and selling of finished goods.
Examples of trading establishments are book
stores and shoe shops.

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Faculty of Accountancy UiTM Shah Alam 10
 MANUFACTURING ACTIVITIES
 Manufacturing is the use of materials, machines, tools and
labor to produce goods for use or sale.
 Companies undertaking manufacturing activities will be
involved in acquiring raw materials and using the
machines, tools and labor to transform them into finished
products.
 Such finished products may be used for manufacturing
other, more complex products or sold to wholesalers, who
in turn sell them to retailers, who then sell them to end
users, who are the consumers.
 Examples of manufacturing establishments are car
manufacturers and clothes manufacturers.
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Faculty of Accountancy UiTM Shah Alam 11
 SERVICING ACTIVITIES
A service is a business which sells services
directly to consumers or other businesses.
Services are intangible in nature, only
appearing when required by the consumer,
which makes the nature of a service business
very different from that of other types of
businesses.
Examples of service establishments are
consulting firms and health care providers.

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Faculty of Accountancy UiTM Shah Alam 12
ACCOUNTING INFORMATION SYSTEM

An accounting information system (AIS)

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

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Faculty of Accountancy UiTM Shah Alam 13
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

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Faculty of Accountancy UiTM Shah Alam 14
PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM

It must be
relevant! BALANCE It must be
SHEET timely!
It must be
reliable! It must be
INCOME accurate!
STATEMEN
T

OTHER
FINANCIAL
REPORTS

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Faculty of Accountancy UiTM Shah Alam 15
 PRINCIPLES OF AN EFFICIENT AND EFFECTIVE
ACCOUNTING INFORMATION SYSTEM

Technological
Advances
Or g
aniz a sed
e
Gro ational In c r
t ition
wt h p e
Co m

Government Changing
Regulation Accounting
Principles

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Faculty of Accountancy UiTM Shah Alam 16
PHASES IN THE DEVELOPMENT OF AN
ACCOUNTING SYSTEM
Analysis

Planning and
identifying information
needs and sources

Follow-up Design

Monitoring and correcting Creating forms,

any weaknesses documents, procedures,
job descriptions, and
reports
Implementation
Installing the system,
training personnel, and
making the system
wholly operational

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Faculty of Accountancy UiTM Shah Alam 17
MANUAL ACCOUNTING SYSTEM
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?

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Faculty of Accountancy UiTM Shah Alam 18
 MANUAL VS COMPUTERIZED
ACCOUNTING SYSTEM
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.

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Faculty of Accountancy UiTM Shah Alam 19
 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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Faculty of Accountancy UiTM Shah Alam 20
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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Faculty of Accountancy UiTM Shah Alam 21
 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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Faculty of Accountancy UiTM Shah Alam 22
USERS OF ACCOUNTING INFORMATION

OWNERS
PUBLIC MANAGERS

USERS OF
ACCOUNTING
GOVERNMENTS INFORMATION CREDITORS

EMPLOYEES INVESTORS

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Faculty of Accountancy UiTM Shah Alam 23
 USERS OF ACCOUNTING INFORMATION
WHO USES? WHAT THEY USE FOR?
OWNERS  They want to know how much profits they earn from their
 The owner is the person
investments in the business.
who contributes resources to
the business and own the
 They want to assess the financial stability and growth of
business the business.
 They have to ensure that the business is operated
efficiently.
 Managers have to run the firm in the most efficient manner
MANAGERS
which maximize returns to the owners.
 They are hired to manage
the business for the owners
 Accounting information is used in planning, organizing and
controlling activities.
 Accounting information can also be used to appraise or
analyze the operations of the firm.
CREDITORS  They are interested to determine the financial stability of
 Those who supply goods or
the business.
services to the business
 Include bankers and money  They want to know whether these businesses are able to
lenders repay the amounts owing to them.

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Faculty of Accountancy UiTM Shah Alam 24
 USERS OF ACCOUNTING INFORMATION
WHO USES? WHAT THEY USE FOR?
INVESTORS  Investors would want to inquire about the solvency of the business
 It could be either existing (the ability to repay debts as and when they are due).
investors or  They also want to know about the financial strength of the business.
potential/prospective  In addition, accounting provides information on business’ present and
investors future earning capacity and the ability of the management.
 They are interested in the business’ ability to progress and expand.
EMPLOYEES  Employees would look for steady employment, earning capacity, and
 People working for the firm other monetary benefits which are to be gained from a financially
stable business.
 These bodies are interested in the accounting statements and reports
GOVERNMENTS of 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.
 They are interested in the establishment of good accounting controls
THE PUBLIC
as a means of reducing costs of production, selling and distribution.
 The consumers of
 This will lead to the reduction of the prices of the goods they
products/services
purchase
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Faculty of Accountancy UiTM Shah Alam 25