Lecture 1 Intro To FA Jan2018
Lecture 1 Intro To FA Jan2018
Lecture 1
Introduction to
Financial Accounting
Overview
What is accounting?
Accounting process
Users of accounting information
Branches/types of accounting
The regulatory system
The Conceptual Framework
Accounting concepts/assumptions
Types of business entities
Introduction to Accounting
Accounting is an information system
that:
identifies
records
communicates
the economic events (transactions) of
an entity to interested users to permit
informed judgement and decisions.
The Accounting Process
Communication
Accounting
Prepare accounting
reports
SOFTBYTE
Select economic events Record, classify Annual Report
Management accounting
involves gathering & preparing costing information
intended for management
for planning, controlling, decision-making, performance
evaluation and managing the organization as a whole.
Types of Accounting (cont’)
Auditing
Activity of examining the accounts and providing
assurance services
Taxation
Calculating individual/business tax for the purpose of tax
assessment
Public accounting
involves accounting for legislative bodies and
government departments
Forensic accounting
Involves the application of knowledge and accounting
standards in the court of law.
The Regulatory System
Aimed to produce better quality
standards with the purpose to give a
true and fair view of the financial
position and profit/loss (performance)
for the period
Note:
Generally accepted accounting principles (GAAP)
- Is a set of accounting standards/rules applied to
prepare accounting reports for external parties.
The Regulatory System in Malaysia
Securities Commission of Malaysia (SC)
- To promote and maintain fair, efficient, secured and
transparent securities and futures market/capital
market
Note:
Substance over form – Need to present the accounting
information in accordance with their substance and
economic reality and not merely its legal form.
Comparability
Comparability is the qualitative characteristic
that enables users to identify and
understand similarities in, and differences
among items.
Accrual concept
Accrual basis vs cash basis
Revenue and expense are recognised and recorded
when earned and when incurred, and NOT when
cash is received/paid
Matching
Determining the expenses used up to obtain the
revenue is referred to as matching expenses against
revenues
Accounting concepts/Assumptions
Separate entity
The activities of the business is captured in the financial
statement; i.e. affairs of business must be kept separate
from owners
Time period
Businesses can divide its economic activities into
time periods & can prepare Financial Statements at
regular interval of 12 months
Money measurement
All business transactions that are measured in terms
of money, which is a common denominator as it is
relevant, simple, understandable and useful
Accounting concepts/Assumptions
Historical cost
Realisation concept
Revenue recognition - generally occurs:
(1) when realized or realizable and (2) when earned
Types of Business Entity
SOLE PROPRIETORSHIP
Owner: 1 individual
Simple incorporation procedures
Easily dissolved
Small capital & limited financial
resources
Owner reaps all profits and bears all
losses alone
Unlimited liability characteristics
Owner pays individual income tax
PARTNERSHIP
Owner: Two or more partners
Relatively simple incorporation procedures
Relatively easy to dissolve
Partners can bring in cash, assets and
expertise to the business
Partners share all profits or losses
Unlimited liability characteristics
May be s.t. Partnership Act 1961
COMPANY
Owner: Shareholders
Able to attract large financial resources
Separate entity from its owners
Limited liability characteristics – the
maximum the shareholder may lose is up to
the maximum of capital contributed; personal
assets cannot be claimed by the creditors
Formed under Companies Act 2016
Financial statements audited by auditor
COMPANY
Private company Public company