c1 - 1 1.the accounting equation and balance sheet 2.the double entry system for asset, liabilities...

C1 - 1

1. The Accounting Equation and Balance Sheet

2. The Double Entry System for asset, liabilities and capital

3. Inventory

4. The effect of profit and loss on capital and the Double Entry System for expenses and revenues

5. Balancing off the accounts

6. The trial balance

INTRODUCTION TO DOUBLE ENTRY BOOKKEEPING INTRODUCTION TO DOUBLE ENTRY BOOKKEEPING

PART 1

P1Prepared by: Miss Syarifah Fairuz Binti Syed Radzuan PPIPT,UniMAP

C1 - 2

1. What is accounting?

2. History of accounting

3. Relationship between bookkeeping and accounting

4. The main users of accounting information and what accounting information they interested in

5. Accounting Equation

6. Relationship between the Accounting Equation and the layout of the Balance Sheet

7. Terms Asset, Capital, Liabilities, Accounts Receivables (debtors) and Creditors Accounts Payables (creditors)

8. Accounting transaction affects the items in the accounting equation

The Accounting Equation and the Balance Sheet The Accounting Equation and the Balance Sheet

Chapter 1

P1

Learning Objectives

Prepared by: Miss Syarifah Fairuz Binti Syed Radzuan PPIPT,UniMAP

C1 - 3

1. What is Accounting?

• Accounting as a business language because it is a general system to communicate important information to the manager or administrator to make business decision.


C1 - 4

1. What is Accounting? (cont..)

• Accounting involved with the process of identifying, classifying, measuring, recording and summarizing of transactions and business events in monetary terms, and interpreting the results to the interested parties (users of accounting information) to enable them to make decision.


C1 - 5


• Accounting involved with the process of identifying, classifying, measuring, recording and summarizing of transactions and business events in monetary terms, and interpreting the results to the interested parties (users of accounting information) to enable them to make decision.


C1 - 6


Major purposes of accounting:

• As an evidence that the transaction have been taken place

• To identifying, classifying, measuring, recording and summarizing all transactions in monetary terms

• To analyze and interpret the business transactions based on the financial report to make decision


C1 - 7

2. The History of Accounting

Accounting began because people needed to :

• Record business transactions

• Know if they were being financially successful

• Know how much they owned and how much they owed


C1 - 8

2. The History of Accounting (cont..)

Italian Book Keeping:

• Luca Bartolomes Pacioli (1494), who wrote a mathematical treatise containing 36 chapters on accounting.

• Luca Pacioli wrote about keeping track of debits and credits in two separate columns, with the aim of making sure both columns always tailed, so all monies would be accounted for.


C1 - 9

3. The relationship between Bookkeeping and Accounting

• Until about 100 years ago all accounting data was kept by being recorded manually in books, so the part of accounting that is concerned with recording data if often known as BOOKKEEPING

• Nowadays although handwritten books may be used (particularly by smaller organizations)most accounting data is recorded electronically and stored electronically using computers

• Bookkeeping is the process of recording data relating to accounting transactions in the accounting books


C1 - 10

INTERNAL USER EXTERNAL USERS

Managerial accounting provides information needs for internal decision makers.

Financial accounting provides external users with financial statements.

Questions asked:Is cash sufficient to pay debts?What is the cost of manufacturing each unit of product?Can we afford to give employee pay raises this year?

Questions asked:Is the company be able to pay debts as they come due?Is the company’s performance has shown satisfactory income?

4. Users of Accounting Information


C1 - 11

EXTERNAL USERS

Financial AccountingFinancial Accounting• investors• creditors• regulators• customers• competitors

• owners• managers• employees

INTERNAL USERS

ManagerialManagerial AccountingAccounting

Users of Accounting InformationUsers of Accounting InformationUsers of Accounting InformationUsers of Accounting Information


C1 - 12

• Internal Users: Those individuals inside a company who plan, organize and run the

business.

Example: Owners interested in profits earned, financial stability and business

growth

Managers need accounting information to guide it in business planning, organizing and control

Employees interested in business stabilities to know whether the owners can pay increased wages and benefits


C1 - 13

• External Users:Individuals and organization outside a company who wants financial

information about the company.

Direct financial interest:Investors who use accounting information to make decision to buy, hold or sell the stockCreditors (suppliers/bankers) use accounting information to evaluate the risk of granting credits or lending money

Indirect financial interest:Government use accounting information for taxes and others regulatory requirements. Public (customers) interested in whether a company will continue to honor products warranties and support its product line


C1 - 14

Accounting PRINCIPLESAccounting PRINCIPLES1) Going Concern Principle The assumption from this principle of business is assumed to run in the longer period.

2) Business Entity Concept Business entity concept understood that the owner and the business are separate entity.

3) Historical Cost ConceptAll assets are recorded at the cost of acquiring them, adjusted for depreciation where applicable.

4) Duality Concepts For every transaction, there must be both a debit and

credit entry and for the same amount.


C1 - 15

Accounting PRINCIPLESAccounting PRINCIPLES

5) Objectivity All financial information must be reliable and free from bias. The objective evidence can be included some of

physical things. eg: bill, cheque, invoice or bank statement.

6) Time Period Principle The financial year or accounting period of the business

should be identified clearly in the business.

7) Money Measurement Principle The business transaction recorded only can be measured

in term of monetary value or terms of money and also known as quantitative measurement.


C1 - 16

Forms of Businesses

Sole Proprietorship – business with single or sole owner, who most often is also the manager of the business.

Partnership – business organization that is made up of two or more individuals or owners, who jointly own the business.

Companies – organizations which have many owners called shareholders or stockholders.


C1 - 17

Forms of Businesses (cont..)

There are EIGHT (8) business characteristics that can be identified, which are:

Ownership Capital contribution Control and management Business establishment Division of profit Liability Tax payment Documents and financial statements


C1 - 18

End of Chapter 1

If a problem has no solution, it may not be a problem, but a fact – not to be solved, but to be coped with over time – Shimon Peres
