ACC 406
Intermediate Financial
Accounting and Reporting
Lecture 1:
Introduction to Accounting
Learning Outcome:
Ability to:
• explain the definition, and functions of financial
statements.
• differentiate between accounting and bookkeeping. SAMMD | UiTM Puncak Alam
NO | UiTM Puncak Alam
• identify different groups of users and explain how they
use the financial statements.
• explain the different types of business
Financial Statements
• Written records about the business
activities and the financial
performance of a company
• Financial statements include:
Balance sheet
Income statement
Cash flow statement
Seri Ayu Masuri Md Daud | UiTM Puncak Alam
2
Norliza Omar | UiTM Puncak Alam
What is accounting?
The art of classifying, recording and summarizing
Accounting transactions and business events in monetary terms
and interpreting the results to interested parties to
enable them to make decisions.
Relevant
Reliable
To help users make
Comparable Information better decisions
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Accounting versus
Bookkeeping
Bookkeeping refers to
the mechanical aspects
of accounting such as
classifying, recording
and summarising
transactions
systematically.
Hence, bookkeeping is
only part of accounting.
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Forms of Business
Sole Limited
proprietorship Partnership Companies
• Owned by
shareholders
• Registered under
the Companies Act
2016
• Either public or
private limited
company
Owned by one person Owned by at least
two people
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Forms of Business Organizations
Sole trader Partnership Limited Companies
Registration Registered with Registered with Registered with Companies
business registrar Companies Commission Commission of Malaysia under
under Business of Malaysia under Companies Act 2016
Registration Act 1957 Business Registration Act
1956 & 1957
Capital Contributed by owner Contributed by partners Contributed by shareholders
through purchase of shares
Ownership Owned by one person Owned by 2-20 partners Private company: 2-50
(exception for shareholders
professional partnership Public company: min 2, no
i.e. 2-50 partners) max number of shareholders
Management Managed and Managed and controlled Managed and controlled by a
and control controlled by owner by partners board of directors appointed
by shareholders
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Forms of Business Organization
(cont’d)
Sole trader Partnership Limited Companies
Liability Unlimited liability Unlimited liability Limited liability
Profit or loss Profits belong to Profit or loss shared by Profit paid to shareholders in
owners and losses partners according to the form of dividend
borne by owner profit-sharing ratio stated
in partnership agreement
Books and accounts No legal obligation to No legal obligation to Proper books of account must
keep the books and keep the books and be kept and annual accounts
prepare accounts prepare accounts must be filed with the
Companies Commission of
Malaysia
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Advantages and disadvantages
Sole Limited
proprietorship Partnership Companies
• Easy to set up • More capital than • More capital
• Run as you like sole trader • Limited liability of
• More skills from owners
owners • Run by highly skilled
managers
• Unlimited liability • Unlimited liability • Complicated to set
• Hard to raise capital • Profits to be shared up and run
or expand • Potential conflict • Agency problem
among partners
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Accounting cycle
Source Trial
Transactions Journals Ledgers
documents balance
YES
Adjustments
NO
Financial
statements
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