Lecture 1: Introduction to Accounting and Business PDF

Lecture 1 Introduction to Accounting and Business ACC1014 - Principles of Financial Accounting 1 Learning Outcomes By the end of this lecture, students should be able:-  explain the purpose and importance of accounting ...

Lecture 1 Introduction to Accounting and Business ACC1014 - Principles of Financial Accounting 1 Learning Outcomes By the end of this lecture, students should be able:-  explain the purpose and importance of accounting  identify users and uses of accounting  explain why ethics are crucial to accounting  explain the fundamental principles and assumptions that underlie accounting  define and explain the elements of financial statements according to the IFR S Conceptual Framework  Interpret and apply the accounting equation and each of its components  analyze business transactions using the accounting equation  identify and prepare basic financial statements and explain how they interrelate ACC1014 - Principles of Financial Accounting 2 Importance of Accounting Accounting Identifying Select transactions and events Measuring Input, measure and classify Communicating Prepare, analyze and interpret ACC1014 - Principles of Financial Accounting 3 Forms of Business Entities Sole Sole Partnership Partnership Corporation Corporation Proprietorshi Proprietorshi pp ACC1014 - Principles of Financial Accounting Watch Video: Business Entity Types 4 Users of Accounting Information External Users Internal Users  Lenders  Managers  Shareholders  Officers/directors  Governments  Internal auditors  Consumer groups  Sales staff  External auditors  Budget officers  Customers  Controllers ACC1014 - Principles of Financial Accounting 5 Users of Accounting Information External Users Internal Users Financial accounting Managerial accounting provides external users provides information needs with financial for internal decision-makers. statements. ACC1014 - Principles of Financial Accounting 6 Fundamental of Accounting Ethics Beliefs that Accepted distinguish standards of right from good and bad wrong behavior ACC1014 - Principles of Financial Accounting 7 Ethics – A Key Concept ACC1014 - Principles of Financial Accounting 8 Principles of Accounting Revenue and Expense Principle ❶ Revenue is recognized in a way that shows the transfer of Measurement Principle goods or services promised to customers in an amount reflecting Process of determining the monetary amounts at which the expected consideration (transaction price). the items of a financial statement are to be recognized ❷ Expenses should be recognizes in the same period as any revenue related with these expenses Full Disclosure Principle A company is required to report and present any additional details in its financial statements that would have an impact on the decision-making. ACC1014 - Principles of Financial Accounting Watch Video: Accounting Principles 9 Assumptions of Accounting Now Future Going-Concern Assumption Monetary Unit Assumption Reflects assumption that the business will continue operating Express transactions and events in monetary, or instead of being closed or sold. money, units. Separate Entity Assumption Time Period Assumption The activities of an entity are to be treated separately from Presumes that the life of a company can be divided into time periods, the activities of its individual owners. such as months and years. ACC1014 - Principles of Financial Accounting 10 Accounting Standards  International Accounting Standards (IAS)  International Financial Reporting Standards (IFR S)  Malaysian Financial Reporting Standards (MFR S)  International Accounting Standards Committee (IASC)  International Accounting Standards Board (IASB)  Malaysian Accounting Standards Board (MASB) ACC1014 - Principles of Financial Accounting Watch Video: IAS and IFRS 11 IFR S Conceptual Framework  The objective of General Purpose Financial Reporting (GPFR )  Qualitative characteristics of useful financial information  Financial statements and the reporting entity  The elements of financial statements Watch Video: Conceptual Framework ACC1014 - Principles of Financial Accounting 12 Elements of Financial Statements Accounting Equation Assets = Liabilitie + Equity s An asset is a tangible or intangible A liability is a legal obligation to Capital is the difference resource that is owned or controlled transfer assets or provide services to between an entity's assets and by an accounting entity, and which is another entity which arises from liabilities. expected to generate future economic some past transaction or event benefits ACC1014 - Principles of Financial Accounting 13 Transaction Analysis and the Accounting Equation Accounting Equation Assets = Liabilitie + Equity s ACC1014 - Principles of Financial Accounting 14 Transaction Analysis and the Accounting Equation Element Definition An income is… Increases in economic benefits during the accounting period in the form of enhancements of assets or decreases of liabilities that result in increases in Economic Benefits equity, other than those relating to contributions from equity Equity (  Assets,  Liabilities) participants. An expenses is… Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result  Economic Benefits in decreases in equity, other than those relating to distributions to equity  Equity (  Assets,  Liabilities) participants. ACC1014 - Principles of Financial Accounting 15 Transaction Analysis  Business activities can be transactions and events.  Record those that affect the accounting equation and can be reliably measured.  Examples of transactions: Selling of products and services (external transactions). The business used its supplies, which are reported as expenses (internal transactions).  Examples of events: Changes in the market value of certain assets and liabilities and natural events such as floods and fires that destroy assets and create losses. ACC1014 - Principles of Financial Accounting 16 Transaction Analysis The accounting equation MUST remain in balance after each transaction. Assets = Liabilities + Equity ACC1014 - Principles of Financial Accounting 17 Lecture Illustration – Apple Repair Enterprise Ms Apple started Apple Repair Enterprise, a new business that repair mobile phones. During the month, Apple Repair Enterprise completed the following transactions.  1st: Ms Apple invested RM20,000 cash into the business.  2nd: The business rented a stall in a mall and paid RM1,500 for the month’s rent.  3rd: The business purchased some furniture and paid RM4,000.  4th: The business purchased some spare parts amounted to RM1,500 on credit. ACC1014 - Principles of Financial Accounting 18 Lecture Illustration – Apple Repair Enterprise  6th : The business provided service for a customer and immediately collected RM800.  10th: The business paid RM550 for advertising service.  12th: The business provided RM700 of service for a customer on credit.  15th:The business paid RM150 for the month’s telephone bill.  20th: The business provided RM1,200 of service for a customer on credit. ACC1014 - Principles of Financial Accounting 19 Lecture Illustration – Apple Repair Enterprise  25th: The business received cash payment of services provided on 12th.  30th: Ms Apple withdrew RM2,000 cash from the business for personal use. Required: (a) Show the effects of transactions on accounts of the accounting equation by recording increases and decreases in the appropriate columns. (b) Prepare the Statement of Profit or Loss and Statement of Financial Position. ACC1014 - Principles of Financial Accounting 20  The end… ACC1014 - Principles of Financial Accounting 21