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Business Accounting Summary Of Unit I

1462 words - 6 pages

Summary of Unit 1
Dear students, Now that the first tutorial is over, I hope you are getting gear-up to start your semester! As usual, many students may feel that 2 hours are not enough for tutors to go through everything. There are two important points here that I want to stress on: - Accounting concepts build on each other. So, it's essential that you master the concepts right from the beginning. Besides, please read up the course materials or at least go through the slides before each tutorial. - Studying accounting is not as hard as you may think, but practice is important. We strongly encourage you to try out all the exercises in your course materials and also the relevant questions in ...view middle of the document...

E.g. Ali, Mutu and Meng

Advocates and Solicitors (a legal firm with 3 partners). Partnership Act 1961 in Malaysia to govern. iii. Corporation – 1 – 50 owners for Sdn. Bhd. Companies. No limit of owners for Berhad companies. Owners/shareholders are NOT liable for the debts of the business. Company’s financial statements need to follow Financial Reporting Standards in Malaysia (FRS). Companies Act 1965 in Malaysia to govern. 1.1 The importance of Accounting Accounting is a system/process of identifying, recording and communicating information that is relevant, reliable and comparable for the users to make better decisions. There are 2 main users of accounting information: i. Internal users – E.g. Managers in the company, internal auditors of the company. – Management/managerial Accounting provides internal reports and information. – Internal users need accounting information to make decisions about the company business and operations. E.g. need accounting information to do costing about the products of the company, need accounting information to evaluate whether want to close down a loss-making branch or not, need information to know if there are any weaknesses in the internal control of the company. ii. External users – E.g. shareholders/investors, creditors, government bodies, external auditors. – Financial accounting provides financial statements to external users. – Shareholders/investors need information from the financial statements published in annual reports to evaluate the health of the company – whether worth their investment or not, whether they still want to keep their shares of the company or not. Creditors/banks/financial institutions also need the financial information about a company before deciding whether want to grant any credit to the company. 1.2 Fundamentals of Accounting 7 Accounting Principles – concepts and rules about accounting i. Objectivity principle – accounting information need to be supported with independent evidence and not bias. ii. Cost principle – accounting information is recorded based on cost – which can be supported by receipt of purchase (and not based any market value claimed).

iii. Going concern principle - assume that once the business is started, it will continue operating as long as it can, and not intended to be closed down or sell off. iv. Monetary unit principle – transactions and business events are recorded in monetary form $, RM, …. v. Revenue recognition principle – recognize revenue/sales only when it is earned (Record the sales in the account books when the sale is made, not at the point when money is received. Sales made and money received is 2 different issues.) vi. Business entity principle – separate the transactions of the individual owners and the business. vii. Time period principle – accounting reporting period is often divided in equal time period of usually 1 year. The Accounting Equation – helps to explain “Why Accounts Need to...

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