ACC 100 Introduction of Accounting
1. SUMMARY
Accounting has a broader scope than the savings account. Apart from recording transactions, accounting also involves a process of analyzing, interpreting, and reporting financial information to the parties of interest. Accounting information is important because it helps the management to make decisions and plans for future business. Accountancy to meet the requirements of the law or act of the company. At the same time, the accounting is measuring the performance of a business, making comparisons between a numbers of accounting periods.
2. INTRODUCTION
Business analysis is the evaluation of a company’s prospects and risks for the purpose of making business decisions. The goal of business analysis is to improve business decisions by evaluating available information about a company’s financial situation. The financial statements commonly prepared are: (i) Statements of Financial Position
(ii) Statements of Comprehensive Income
3. CONTENTS
3.1 Accounting Equation
The basic accounting equation is all the assets same with liabilities minus the equity.
Assets = Liabilities – Equity
Assets are the resources supplied by the owner(s) and other people / businesses. It includes current assets and non-current assets. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity. Non-current assets acquired for continuing use more than 1 year such as land, buildings, office equipment, motor vehicles, etc. Current assets likely to change within a year such as cash, receivables, bank, inventory, etc.
Liabilities refer to the resources supplied by entities other than the owner. It divides 2 categories non-current liabilities and current liabilities. A non-current liability is amount payable for more than 1 year. Examples of non-current liabilities include mortgage loan, bank loan, etc. A current liability is amount payable within one year such as short-term loan, bank overdraft, payables, etc.
Equity reports the amounts invested into the company by the owners plus the cumulative net income of the company that has not been withdrawn or distributed to the owners. Revenue causes owner’s equity to increase, and expenses cause owner’s equity to decrease. When the company incurs electricity charges, the company’s liabilities increase and owner’s equity decreases.
3.2 Profit Determination Equation
Profit means adding up all the revenue and minus the expenses. Profit is the revenue exceed than expenses for a set of transactions. Revenue is the income earned by the business from business activities. The term revenue means the sales value of goods and services that supplied to customers. Expenses are cost of goods sold to customers or purchased from suppliers.
Profit = Revenue - Expenses
Loss = Expenses > Revenue
3.3 Accounting Cycle
The accounting cycle is a series of steps which are repeated every reporting period. The processes begin with making accounting entries for each transaction and end with its inclusion in the financial statements. The entire accounting cycle of a business is shown below. Identify the transaction through an original source document such as an invoice, receipt , cancelled check, time card, deposit slip and purchase order. Business transactions are record in a journal and post the information from journal to ledger during the month. At the end on the month, adjusting entries are prepared and placed in the journal. A final set of closing entries are then placed in the journal. A final trial balance is calculated after the closing entries are made and the financial statement are prepared .The process begins again for the next accounting period.
Source: http://www.google.com.my/imgres?imgurl=http://www.accountingexplained.com/financial-accounting/cycle/images/accounting-cycle-diagram.png&imgrefurl
3.4 Users Of Accounting Information
There are two categories for user of accounting information in a complete accounting, which are external users and internal users. An external user is not a part of the company’s organizational level, but can participate in this company. Some examples for external users are investors, creditors, supplies, customer, taxing authorities, government, etc. It has a financial accounting which is provides all the information for external users. Otherwise, internal users are made up with the company’s owner, employees and the management. Internal users is mean that the people or group take part in the organizational level of a company. All the information for internal user is provides in managerial accounting.
3.5 Type Of Business In Malaysia
The most common business in Malaysia are trading business, service business and manufacturing business. (i) Trading businesses buy goods and also sell product to customer at a higher price in order to earn more profit in business. Example: Carrefour and Robinsons.
(ii) Service business provides different type of service which is a wide variety of business sector. Example: Printing and Bank Simpanan Nasional(BSN).
(iii) Manufacturing business is refer to change in basic raw materials that are once is produced it cannot be distilled back to its original components. The products are then sold to customer at a margin. Example: Royal Selangor Pewter and Adidas.
3.6 Financial Statements
John J. Wild, K.R. Subramanyam, Robert F. Halsey (2007, p.4) argued that Financial analysis is the use of financial statements to analyze a company’s financial position and performance, and to asses future financial performance. Bill Collins, John Mc Keith (2010, p.47) said that objective of financial statements is to provide information about the financial position of an enterprise that is useful to a wide range of users in making economic decisions. • Statement of Financial Position also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time. -------------------------------------------------
Non-current Assets + Current Assets - Current Liabilities = Non-current Liabilities + Equity • Statement of Comprehensive Income also referred to as Profit and Loss statement, reports on a company's income, expenses, and profits over a period of time. Comprehensive income is the sum of net income and other items that must by pass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses. Sales – Cost of goods sold = Gross profit
Gross Profit + Other Income – Other Expenses = Net Profit
4. CONCLUSION
As a student of accounting, we can know the accounting is very important for everyone though just a small company. Base on this coursework, we know that accounting have many methods to help us record the daily business transaction such as from the source document posting to the 7 books of prime entry and post it to ledgers. Without accounting information, the company does not know about the profits, expenses, revenue, etc.
Accounting has a broader scope than the savings account. Apart from recording transactions, accounting also involves a process of analyzing, interpreting, and reporting financial information to the parties of interest. Accounting information is important because it helps the management to make decisions and plans for future business. Accountancy to meet the requirements of the law or act of the company. At the same time, the accounting is measuring the performance of a business, making comparisons between a numbers of accounting periods.
2. INTRODUCTION
Business analysis is the evaluation of a company’s prospects and risks for the purpose of making business decisions. The goal of business analysis is to improve business decisions by evaluating available information about a company’s financial situation. The financial statements commonly prepared are: (i) Statements of Financial Position
(ii) Statements of Comprehensive Income
3. CONTENTS
3.1 Accounting Equation
The basic accounting equation is all the assets same with liabilities minus the equity.
Assets = Liabilities – Equity
Assets are the resources supplied by the owner(s) and other people / businesses. It includes current assets and non-current assets. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity. Non-current assets acquired for continuing use more than 1 year such as land, buildings, office equipment, motor vehicles, etc. Current assets likely to change within a year such as cash, receivables, bank, inventory, etc.
Liabilities refer to the resources supplied by entities other than the owner. It divides 2 categories non-current liabilities and current liabilities. A non-current liability is amount payable for more than 1 year. Examples of non-current liabilities include mortgage loan, bank loan, etc. A current liability is amount payable within one year such as short-term loan, bank overdraft, payables, etc.
Equity reports the amounts invested into the company by the owners plus the cumulative net income of the company that has not been withdrawn or distributed to the owners. Revenue causes owner’s equity to increase, and expenses cause owner’s equity to decrease. When the company incurs electricity charges, the company’s liabilities increase and owner’s equity decreases.
3.2 Profit Determination Equation
Profit means adding up all the revenue and minus the expenses. Profit is the revenue exceed than expenses for a set of transactions. Revenue is the income earned by the business from business activities. The term revenue means the sales value of goods and services that supplied to customers. Expenses are cost of goods sold to customers or purchased from suppliers.
Profit = Revenue - Expenses
Loss = Expenses > Revenue
3.3 Accounting Cycle
The accounting cycle is a series of steps which are repeated every reporting period. The processes begin with making accounting entries for each transaction and end with its inclusion in the financial statements. The entire accounting cycle of a business is shown below. Identify the transaction through an original source document such as an invoice, receipt , cancelled check, time card, deposit slip and purchase order. Business transactions are record in a journal and post the information from journal to ledger during the month. At the end on the month, adjusting entries are prepared and placed in the journal. A final set of closing entries are then placed in the journal. A final trial balance is calculated after the closing entries are made and the financial statement are prepared .The process begins again for the next accounting period.
Source: http://www.google.com.my/imgres?imgurl=http://www.accountingexplained.com/financial-accounting/cycle/images/accounting-cycle-diagram.png&imgrefurl
3.4 Users Of Accounting Information
There are two categories for user of accounting information in a complete accounting, which are external users and internal users. An external user is not a part of the company’s organizational level, but can participate in this company. Some examples for external users are investors, creditors, supplies, customer, taxing authorities, government, etc. It has a financial accounting which is provides all the information for external users. Otherwise, internal users are made up with the company’s owner, employees and the management. Internal users is mean that the people or group take part in the organizational level of a company. All the information for internal user is provides in managerial accounting.
3.5 Type Of Business In Malaysia
The most common business in Malaysia are trading business, service business and manufacturing business. (i) Trading businesses buy goods and also sell product to customer at a higher price in order to earn more profit in business. Example: Carrefour and Robinsons.
(ii) Service business provides different type of service which is a wide variety of business sector. Example: Printing and Bank Simpanan Nasional(BSN).
(iii) Manufacturing business is refer to change in basic raw materials that are once is produced it cannot be distilled back to its original components. The products are then sold to customer at a margin. Example: Royal Selangor Pewter and Adidas.
3.6 Financial Statements
John J. Wild, K.R. Subramanyam, Robert F. Halsey (2007, p.4) argued that Financial analysis is the use of financial statements to analyze a company’s financial position and performance, and to asses future financial performance. Bill Collins, John Mc Keith (2010, p.47) said that objective of financial statements is to provide information about the financial position of an enterprise that is useful to a wide range of users in making economic decisions. • Statement of Financial Position also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time. -------------------------------------------------
Non-current Assets + Current Assets - Current Liabilities = Non-current Liabilities + Equity • Statement of Comprehensive Income also referred to as Profit and Loss statement, reports on a company's income, expenses, and profits over a period of time. Comprehensive income is the sum of net income and other items that must by pass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses. Sales – Cost of goods sold = Gross profit
Gross Profit + Other Income – Other Expenses = Net Profit
4. CONCLUSION
As a student of accounting, we can know the accounting is very important for everyone though just a small company. Base on this coursework, we know that accounting have many methods to help us record the daily business transaction such as from the source document posting to the 7 books of prime entry and post it to ledgers. Without accounting information, the company does not know about the profits, expenses, revenue, etc.
Hello dear, this is a great post for those who are finding it difficult to understand the basics of accounting. I am also a student of accounting and looking for help with my thesis, somebody asked me to take help from Dr. Aloke Ghosh. Do you think it is a good idea?
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