ACN3101 Accounting & Financial Information PDF

ACN3101 ACCOUNTING & FINANCIAL INFORMATION Lecturer: Dr. Zaidi Mat Daud Contact Information: Room: A218, Tel: 016-6647500 Email: [email protected] 1  TOPIC 1 ACCOUNTING IN THE BUSINESS Learning Outcomes:  Understand the rol...

ACN3101 ACCOUNTING & FINANCIAL INFORMATION Lecturer: Dr. Zaidi Mat Daud Contact Information: Room: A218, Tel: 016-6647500 Email: [email protected] 1  TOPIC 1 ACCOUNTING IN THE BUSINESS Learning Outcomes:  Understand the role of accounting  Understand the forms of business entity  Understand the types of business entity 2  ROLES OF ACCOUNTING 1. Language of business o accounting uses words and symbols to communicate financial information that is intended to be useful for decision making by internal and external users. o the terminology and symbols were developed in an effort to communicate effectively. Slide 3 simplify technique 1. Accounting shares information: Accounting uses simple language and symbols (like numbers and terms) to tell the financial story of a business. 2. It helps with decisions: This information is helpful for people inside and outside the business, like managers, investors, and banks, to make decisions. 3. Easy to understand: The language and symbols in accounting were designed to make the financial picture clear. Real-World Example: Example: Imagine a grocery chain like Walmart. They publish their earnings reports every quarter. In these reports, Walmart uses accounting terms like "revenue" (money coming in from sales) and "expenses" (money spent on things like salaries and supplies). Investors and managers look at this information to decide on their next steps, like whether to open new stores or adjust prices. The accounting language here helps everyone understand how well Walmart is doing financially. 2. Accountability and Control Accountability: o management accountable to prepare and present an accounting report as their main responsibility. o the report must be adequate enough to measure financial performance and position. Controlling: o control the limited economic resources by looking at the financial structure. S5 Accountability and Control 1.Accountability: - Management’s job is to prepare and share financial reports that show how well the business is doing. 2.Control: - These reports help keep track of money and resources, making sure they’re used wisely. Example: For example, Amazon’s managers prepare reports to show how much they earned and spent. This helps them stay accountable and lets them see where they can control spending to keep the company profitable. 3. Information System o Accounting is not an end in itself” but is an information system that measures, process, and communicates financial information about an identifiable economic entity. o Accounting provides a vital service by supplying the information that decision makers need in order to make “reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities”. S7 K.I.S.S.USB (Detailed): Accounting is a system that collects, processes, and shares information about a business's money and resources. It’s not just for record-keeping; it helps in planning and decision-making. The main job of accounting is to provide important information. This information allows managers and decision-makers to make smart choices about how to use limited resources efficiently in business. By understanding where money comes from, where it goes, and how it’s being used, businesses can make better decisions. K.I.S.S.USB Example: Take Amazon, for example. Their accounting system tracks sales, expenses, and profits across all countries. This system helps managers decide how to spend on things like warehouses, delivery trucks, and advertising. By knowing exactly where profits are coming from and what costs are involved, they can decide which products to promote, where to expand, or where to cut expenses. This way, Amazon uses accounting information to make smart choices with its money and resources globally. S7 Information System in Accounting 1. Accounting is an info system: - It gathers, processes, and shares financial data for a business. 2. Helps with decisions: - This info helps people make smart choices about limited resources. Example: Think of Tesla. Its accounting system collects data on costs, profits, and investments. Decision-makers use this data to choose where to spend, save, or expand, like in developing new models or increasing production. Management Information System Provide accounting information Accounting Information System Provide accounting information Transaction Processing System S10 Explanation of Each System: 1. Transaction Processing System (TPS): - The TPS is like a digital record keeper. It tracks every transaction that happens in real-time, such as a customer purchasing an item. It’s very important for handling large volumes of daily transactions quickly and accurately. - Think of it as the foundation of information. Without TPS, there would be no raw data for the other systems to work with. 2. Accounting Information System (AIS): - Once the TPS gathers all transaction data, the AIS processes it and organizes it into meaningful reports. - These reports help the finance and accounting team understand things like total sales, expenses, and profit for a specific period. The AIS turns the raw data into clear financial information that can be used by other parts of the business. 3.Management Information System (MIS): - The MIS is at the top level and uses the data from the AIS to give managers a "big picture" view of the business. - This system analyzes trends, provides summaries, and helps managers make strategic decisions. For example, the MIS can help a manager understand which products are most popular or if there’s a need to adjust pricing Current Situation Example with E-commerce (Amazon): 1.TPS (Transaction Processing System): - When a customer buys something on Amazon, the TPS records all details of the transaction—what product was bought, the price, the quantity, and payment details. - Imagine Amazon processing thousands of orders in a minute. The TPS efficiently records each of these transactions to ensure nothing is missed. 2.AIS (Accounting Information System): - After gathering all these transactions, Amazon’s AIS takes the data and organizes it into financial reports. - These reports show how much Amazon earned or spent in a day or a month. It also helps them track how profitable they are and where money is being spent. 3.MIS (Management Information System): - The MIS looks at the AIS reports and finds patterns or trends in the data. - For example, if the MIS finds that certain items are selling well, Amazon’s managers can decide to stock more of those items or promote them further. If the reports show a decrease in sales, they might review their pricing or marketing strategy. Summary: - TPS collects raw data on each transaction. - AIS*organizes this data into financial insights. - *MIS* uses these insights to guide decision-making. This three-step flow helps e-commerce businesses like Amazon understand their performance, respond to trends, and make data-driven decisions. FORMS OF BUSINESS ENTITY Sole Proprietorship Owned by one person e.g. restaurants, mini market Partnership Owned by more than one person e.g. accounting firms, legal firms, clinics Company organised as a separate legal entity and owned by shareholders BHP, Coles Myer, CSR, Westpac S13 K.I.S.S.USB (Detailed): Forms of Business Entity 1. Sole Proprietorship - Owned and operated by one person. - Simple to start, with the owner getting all profits but also taking all the risks. - Examples: small businesses like restaurants or mini markets. 2. Partnership - Owned by two or more people who share profits and responsibilities. - Each partner brings skills or money to help the business grow. - Examples: accounting firms, law firms, and clinics. 3. Company - A separate legal entity, owned by shareholders (people who invest in it). - Profits go to shareholders, and company debts don’t affect their personal finances. - Examples: large companies like BHP, Coles Myer, CSR, and Westpac. Each type has different levels of risk, responsibility, and reward for the owners. K.I.S.S.USB (Detailed) with Current World Examples for Forms of Business Entities 1. Sole Proprietorship - Example: A local bakery or small online shop. - Current Situation: Many sole proprietors face challenges from rising costs and competition with bigger businesses. However, because they’re small, they can adapt quickly, adjusting prices or offering new products to attract customers. 2. Partnership - Example: A small law firm or medical clinic with multiple partners. - Current Situation: Partnerships benefit from combined resources and expertise, which is helpful during tough economic times. In healthcare, clinics owned by partners work together to offer a range of services and share costs. This allows them to compete more effectively and offer better care. 3. Company - Example: Global corporations like Amazon and Apple. - Current Situation: Companies often have access to more resources and a larger customer base. In 2024, many large companies are investing in technology and sustainability to meet consumer demands and stay competitive worldwide. Shareholders benefit from these investments, but these companies also face scrutiny over environmental impact and data privacy. Each business type adapts to today’s challenges differently, using its structure to survive and grow.  Comparison Between Sole trader and Partnership Characteristics Sole Trader Partnership1, 1. Member Only one (owner) 2 or more, but less than 20 2. Capital Contribution Amount contributed by the By each partner owner 3. Liability Unlimited liability Unlimited liability 4. Act No specific act The partnership Act 1961 5. Legislation No legal separation between Same as sole trader the business entity and the owner (the business debt will be the debt of the owner) 6. Agreement No written agreement Written agreement between partners 7. Examples of Business Laundry shop, mini market, Accounting firm& law firm etc COMPANY Company Private Limited Company Public Company General Characteristics Under Malaysia Company Act 2016 Separate legal entity Legal bodies to own assets, make credit, sign contract, sued and to be sued by court. Set up for the purpose of increasing the shareholder wealth.  Comparison Between Public and Private Ltd Company. Characteristics Public Limited Co Private Limited Co 1. Members Min 2; Max unlimited Min 2; Max 50 2. Issue of share Public are invited to buy the Share are not allowed to be share sold to public 3. Listing requirement listed Not listed 4. Financial information Publish to the shareholders Have a right not to publish to the shareholders 5. Management Hired group of professional Run by the shareholder or hired management to run the a professional management to business run the business 6. Liability Liability limited to the amount Liability limited to the amount invested (separate legal entity) invested (separate legal entity) 7. Examples Telekom, Tenaga Nasional, MEASAT Broadcast Network Petronas Systems Sdn Bhd TYPES OF BUSINESS ENTITY Services Business Supply services only – accounting firms, banks Supply services & goods – saloon In a **services business**, companies primarily offer help, advice, or expertise rather than physical products. Here’s a look at two types of service businesses: 1. **Supply Services Only** These businesses provide services without selling any products. Examples include: - **Accounting firms:** They help clients manage money, taxes, and financial records. - **Banks:** They offer financial services like loans, savings accounts, and money management. 2. **Supply Services & Goods** These businesses offer services but may also sell some related products. For instance: - **Salons:** Salons provide services like haircuts and styling, and may also sell beauty products, such as shampoos or conditioners. **Current World Situation for Services Businesses:** In today's world, service businesses are increasingly moving online. For example, many banks and accounting services now operate partially or fully on digital platforms, allowing them to serve clients virtually. Salons and other hands-on services have also been impacted, with some offering online consultations or home- care kits to adapt to changing customer needs. Merchandising/trading/retailing Purchase goods in bulk from manufacturer and sell to customers Range from hypermarket to specialist store Manufacturing Manufacturing firm produces good for sale by processing raw materials in factory. Sell this goods either as finished products to a wholesaler, retailer or partly finished products to other manufacturer. Business Stakeholders A business stakeholder is a person or entity that has an interest in the economic performance and well- being of a business. Their interest is on the report produced by a business before they can make sound decision What are the Two Types of Reports from Accounting Information? Internal Reports External Reports (Management Accounting) (Financial Accounting) Lenders Investors Management Suppliers/Customers Employees Competitors Government Agencies The Press  What Are Accounting Reports Used For? Used by management for Used by external parties who have an economic planning interest in the firm. implementing plans Balance sheet controlling costs Income statement making decisions Statement of cash flows Financial Accounting vs Management Accounting Financial Accounting Management Accounting Provision of financial Internal needs of information on a business’s business recent financial performance targeted at external users Unlike financial such as shareholders accounting, not required by law Double-entry bookkeeping Management accounting Profit and loss account, can be split into cost balance sheet and cash flow accounting and decision- statement making User Information Requirements