1. KPPSB THE TEN- DAY MBA TOPIC: ACCOUNTING
By: Norani Said

2. TOPICS Accounting Rules Accounting Concepts The Financial Statement
Ratio analysis
Managerial Accounting

3. Accounting means:
TO CONTROL
TO EVALUATE
and
TO PLAN OPERATIONS

4. Accounting answers: What does the company own?
How much does the company owe others?
How well did a company’s operations perform?
How does the company get the cash to fund itself?

5. Accounting concepts The Entity Cash & Accrual Accounting Objectivity
Conservatism
Going concern
Consistency
Materiality

6. THE FINANCIAL STATEMENT
1. THE BALANCE SHEET
2. THE INCOME STATEMENT
3. THE STATEMENT OF CASH FLOWS

7. THE BALANCE SHEET to show the financial position of the business with
respect to its asset, liabilities and owner’s equity on
that particular day.
show what the business owns is equal to what its owes both its external creditors and its owners.
It is not an account . It is divided into 2 sections. One for assets and another one for liabilities & owners’ equity.

8. ASSETS = LIABILITIES + OWNERS’ EQUITY
THE BALANCE SHEET
ASSETS =
LIABILITIES +
OWNERS’ EQUITY

9. RULES FOR ENTRIES INTO ACCOUNTS
Asset Accounts
Liabilities & OE Accounts
Debit
Increase
Credit
Decrease
Debit
decrease
Credit
increase

10. PERMATA PENAGA BALANCE SHEET AS AT 31/12/1992

11. The total assets equals the total of liabilities and owners’ equity
BALANCE SHEET:
THREE THINGS ARE WORTH NOTING:-
FIRST,
The total assets equals the total of liabilities
and owners’ equity
SECOND,
The assets are on the left and the liabilities & OE
are on the right
THIRD,
The BS is as of a point certain in time
eg 31st Dec 1992

12. CURRENT ASSETS - CURRENT LIABILITIES
Balance sheet:
The assets & liabilities are listed in order of their
liquidity from most liquid to least.
Working capital - it refers to the assets & liabilities
that a company constantly works with as part of its
daily business.
CURRENT ASSETS - CURRENT LIABILITIES
= WORKING CAPITAL

13. THE INCOME STATEMENT Revenue - Expenses = INCOME
Income statement shows the flow of
activity and transaction over a specific
“period” of time; may be a month, a qtr
or a year.
It is usually set up based on matching or
accrual concept
Revenue Expenses = INCOME

14. The income statement example:
Sales to customers ,200,000
COGS ,900,000
Gross margin ,300,000
Less: Selling, General and admin exp
Payroll 1,000,000
Rent ,000
utilities ,000
Advertising ,000
Depreciation ,000
Others ,000
,256,000
Operating Income (EBIT) ,000
Less: interest Expense ,000
Income before taxes ,000
Less: Income taxes ,000
NET INCOME ,000
=======

15. Sales - The ‘Direct’ COGS
GROSS MARGIN
Sales The ‘Direct’ COGS
Note: if the business has a negative margin,
either costs are out of control or the pricing
structure of the industry does not afford the
company profit

16. Beginning inventory + New Purchases
COST OF GOODS SOLD
Beginning inventory + New Purchases
- Ending Inventory

17. CASH FLOW STATEMENT Management tool to help avoid liquidity problems
Record the activities of cash inflows and outflows
Cash Flow is the management tools to tell us what’s going on in the business
Both, income statement & the BS are used to form the cash flow

18. The useful of cash flow:
Operations activities
Investing Activities
Financing Activities

19. Statement of cash flows example:
Operating Activities:
Net Income ,000
Add back Expenses not using cash:
Depreciation ,000
33,000
Adjust for changes in Working Capital:
Increase & decrease during the year
Current assets:
Customer receivables (increase) decrease (10,000)
Store inventory (increase) decrease (100,000)
Current Liabilities:
Vendor payable increase (decrease) ,000
Wages payable increase (decrease) ,000
Taxes payable increase (decrease) ,000
,000
CASH FLOW FROM OPERATING ACTIVITIES ,000

20. Statement of cash flows example:
Cont.
Investing Activities:
Purchase of store Equipment (30,000)
Cash \flow from Investing activities (30, 000)
(20,000)
Financing activities:
Proceeds from bank borrowing 10,000
Sale of stock to owners 15,000
Payment of dividends to owners
Cash flow from financing activities ,000
Increase in cash for the year ,000
=======
Cash at beginning of year
Cash at End of year ,000

21. Accounting Ratios 4 categories of ratios 1. Liquidity ratios
2. Capitalization ratios
3. Activity ratios
4. Profitability ratios

22. Accounting Ratios ------------------- current liabilities
1. LIQUIDITY RATIOS
- measures how much is on hand that can be converted to cash to pay the bills
Current ratio = current assets
current liabilities
E.g
RM 115,000 =
RM 87,000
A ratio greater than 1 shows liquidity

23. Accounting Ratios --------------------- OE 2. CAPITALIZATION RATIOS
- Is a company heavily burdened with debt?
Financial leverage = Tot liability + OE OE
E.g
RM 142,000 =
RM 45,000
Ratios of greater than 2 show an extensive use of debt

24. Accounting Ratios --------------------- Liabiliites +OE
2. CAPITALIZATION RATIOS
Long term debt to capital = Long term debt
Liabiliites +OE
RM 10,000
= = 7%
RM 142,000
E.g
A ratio of greater than 50% shows a high level of debt

25. Accounting Ratios Sales RM5,200,000
3. ACTIVITY RATIOS
- how actively are the firm’s assets being deployed?
Assets Turnover per period =
Sales RM5,200,000
e.g = 36.6 turns
Total assets RM142,000

26. Accounting Ratios 3. ACTIVITY RATIOS
COGS
Inventory turns per period =
Average inventory
held during the period
RM 3,900,000
= turns per year
RM 100,000
E.g

27. Accounting Ratios 3. ACTIVITY RATIOS
Ending inventory
Day sales in Inventory =
COGS / 365
RM 100,000
= days
RM 3,900,000/365
E.g

28. Accounting Ratios 4. PROFITABILITY RATIOS
Net Income
Return on Sales (ROS) =
Sales
RM 30,000
= = 0.58%
RM 5,200,000
E.g

29. Accounting Ratios 4. PROFITABILITY RATIOS
Net Income
Return on Equity (ROE) =
Owners’ Equity
RM 30,000
= = 67%
RM 45,000
E.g

30. Accounting overview Assets = Liabilities + Owner’s equity
Don’ t struggled too hard: In this chapter, you should
have remembered that:
Assets = Liabilities + Owner’s equity
3 basic financial statement: BS, IS & CFS
Accounting records and statement always balance
The statements can be interpreted by using ratios
Operating results can be analyzed and managed using variances

31. KEY ACCOUNTING TAKEAWAYS
Cash Basis Accounting
-The method of recording transactions only when
cash changes hands
Accrual Basis Accounting
- The method of recording transactions that matches
revenues and expenses regardless of cash flow movements
The Balance Sheet
- The listing of what a company owns and owes at a point in time