CHAPTER 1: BASIC ACCOUNTING: CONCEPTS, AND CONVENTIONS BASIC FINANCIAL ACCOUNTING MGT 2304 MOHD ZARIR YUSOFF

Basic accounting terminology IDENTIFYING ECONOMIC ACTIVITIES One must identify that the transaction will affecting the company’s economic condition. E.G payment of staffs’ salaries BOOK KEEPING ACCOUNT RECORDING After identified the transaction, it must be record in accordance to certain sequence or system COMMUNICATING The activity of reporting the identified and recorded information to potential users.

USERS OF ACCOUNTING DIRECTORS CREDITORS MANAGERS INTERNAL USERS EXTERNAL USERS INVESTORS EMPLOYEES UNIONS PUBLIC GOVERNMENT

BRANCHES OF ACCOUNTING AUDITING TAXATION FORENSIC GOVERNMENT ACCOUNTING COST AND MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING

BASIC ACCOUNTING RULES ETHICAL BOUNDARY RULES MEASUREMENT RULES

BOUNDARY RULES ONGOING CONCERN – Assumption that the entity of the organization will operate forever. SEPARATE ENTITY – The business is treated as separate entity from its owner. This is differentiate between the drawings transactions with purchase of asset. ACCOUNTING PERIOD – Accounts must be prepared at the end of the accounting period, as determined by the organization

MEASUREMENT RULES MATERIALITY- The accountant must only record the transaction that will affect the company’s financial condition (economics transactions) HISTORICAL COST – Financial data must be recorded based on the transaction date’s result MATCHING – Expenses incurred must be offset with revenue occurred REALIZATION – Refer to the recognition of revenue ( once its occurred not once it is paid) MONEY MEASUREMENT – Data must be presented in monetary value. E.G RM in Malaysia, SGD in Singapore DUALITY – All transaction must have at least two effect on financial statement. It also refer o double entry.

ETHICAL RULES CONSISTENCY RELEVANCE INTEGRITY OBJECTIVITY PRUDENCE CONFIDENTIALITY INTEGRITY OBJECTIVITY PRUDENCE

Sole proprietor Sole proprietorship is a business owned by one person who is involved in running and managing the business for profit. The law does not recognize sole proprietorship as a legal entity. Advantages Disadvantages Easy to establish and dissolve. The owner has sole control over the business. No profit sharing. Flexible regulations compared to other types of business. Difficult to expand due to limited skill and capital. The risk is solely on the owner. Unlimited liability

partnership Partnership exists when two or more (2 - 20) individuals share the ownership of a single business for profit. Contractual relationship can be formed through written or verbal agreement. The details of the agreement normally cover the management of the business such as capital contributions and how profits/losses are to be shared. In Malaysia, this type of business is registered under the Partnership Act 1961. Legally, partnership is not a separate entity. Partners are jointly responsible for their business. This means that anyone with outstanding payment from the company can claim payment from any or all of the partners. Each of the partners is liable towards the partnership’s debt.

ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP Advantages Disadvantages Larger capital as the owner is more than one. Partners with skills and abilities can strengthen the business. Not bound by requirement on disclosure of business information to public as imposed on limited company. Unlimited liability. Possible clashes among the partners that can affect the stability of the management. Problem on business continuity arising from the death of a partner.