ACC60104

Introduction To Accounting
Dr. Muhammad Sadiq
B1.12, B, Ext. 5095

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 2 sessions of 2 hrs each

• 4 hrs. in a week i.e. 1hr Lecture, 1hr

online and guided learning, and 2hrs
Tutorial…
• 6hrs self-study is required in a
week….

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 COMMUNICATION WITH Dr. Sadiq
Consultation hours:
•Monday:       12.00pm - 2.00pm
•Thursday: 12.00pm - 2.00pm
• By appointment via Ext. 5095

Students can ring Dr. Sadiq via intercom phones

located in level 1 Block B.
•Or else, Email at:
[email protected]
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Ground Rules during lecture & tutorial:
1.Come to class on time...
2.Come to class with an open mind, learn to unlearn.
3.If you don’t understand, don’t wait, ask ASAP.
4.You are not allowed to sleep in a class
5.Attire. Male & female – NO short pants & NO slippers
6.Do HW and NO vulgar words #@*XyZ please!
7. Talking is allowed but NOT while a Lecturer/Tutor is
talking too.

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 1 Module Core Text, 1 book as below

•[Compiled by Ong Fong Yew, Business Accounting (2017), Taylor’s

Business School, Taylor’s University, Pearson/Prentice Hall (11th
Edition).
•Each student must buy new book or an access code as there is an
ACCESS code that comes together with each book for mid-term exam
purpose.
 Module Assessment
Modes of Assessment Weighting Due Date
Online Mid-semester Test 15% Week 8
Group Assignment 35% Week 13

Final Examination 50% Exam week

To PASS the module:

50% Overall
40% in Coursework
40% in Final Exam
 ACC60104
Introduction to Accounting
Lecture 1:
Introduction to Accounting & The
Accounting Equation

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 Learning Objectives…

1. Define what is accounting

2. Describe the users of financial information.
3. Describe the accounting profession in Malaysia
and the organisations that govern it.
4. Explore the different types of business
organisations and their distinctive characteristics.
5. Apply the entity concept.
6. Explain the accounting process.
7. Define the accounting equation and its elements.
8. Illustrate accounting for business transactions.
 What is Accounting?
Accounting, often called the language of
business, is an information system.

•Recording: Why? For future reference because we

cannot memorize.
•Classification: organizing – meaningful info can be taken
in timely manner.
•Summary: Sales Revenue – Expenses = Profit/Loss.
•Interpretation & Analysis: Analysis & comparison
between different branches and competitors.
The Accounting Process…
 Financial vs. Managerial Accounting

Financial Accounting Managerial Accounting

Provides information for

external decision makers Provides information for
internal decision makers
Investors

Managers
Creditors
Shareholders, business
owners
Taxing authorities
Financial Acct vs Mgmt Acct

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 Key Governing Organisations…
The Companies
The government agency that regulate all
Commission of
business and companies in Malaysia
Malaysia (CCM)

The Malaysian The technical body responsible for the

Accounting Standards development, review and the empowerment to
Board (MASB) issue accounting standards in Malaysia

The International The technical body responsible for the

Accounting Standards development of international accounting
Board (IASB) standards

Malaysian Institute of The professional accounting body formed

Certified Public under the Companies Ordinances by members
Accountants (MICPA) of the accounting profession

The statutory accounting body established to

Malaysian Institute
regulate and develop the accountancy
of Accountants (MIA)
profession in Malaysia
Types of Business Organizations…
 Types of Business Organizations…

Sole
Proprietorship Partnership Corporation LLP

Owners Sole Proprietor – Partners - Two Stockholders – Members

Only one owner or more usually many

Life of Limited by owner’s Limited by Indefinite Indefinite

Organization choice or death owner’s choice
or death

Liability of Owner is personally Partners are Stockholders are Members

owners for liable personally liable not personally are not
business (unlimited liability) liable personally
debts liable
 Sole Proprietorships
Distinguishing Characteristics & Organization

What distinguishes a proprietorship from

other types of business organizations?
 Characteristics of Corporations…

1. Incorporators obtain charter from the state

2. Charter authorizes corporation to:
• issue stock
• conduct business in accordance with state law and the
corporation’s bylaws
3. Corporations begins to exist when stock is issued

What are the advantages of corporations?

Structure of a Corporation…
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 The Accounting Equation

Measures the resources at the disposal of the business + claims

to those resources

Assets = Liabilities + Owner’s Equity

Economic Claims to Economic

Resources Resources
Resources : what Resources : where did
they are = the assets came from
[what the biz has] [Owner and Borrowings]
What the biz OWNS What the biz OWES
 Assets

• An asset is a resource controlled by the entity/business as a

result of past events from which future economic benefits
are expected to flow to the entity.
• Economic resources that have a future benefit (e.g.
generate future cash inflows)
 Claims to Assets
• Liabilities
– Present obligations arising from past events, the settlement of which is expected
to result in an outflow from the entity of resources embodying economic benefits
– Economic obligations/Debts payable to outsiders
– Examples:
• Accounts payable
• Bank loans
• Taxation owed
• Capital/Owners’ equity
– Owners’ claims to the
assets of the business
– Capital/Owner’s equity
= Assets Less Liabilities
 The Accounting Equation

Sole Proprietorship

Assets = Liabilities + Owner’s Equity

Capital
 The Accounting Equation
Sole Proprietorship

Beginning Capital Revenues

+ Net income
- Expenses
- Withdrawals*

= Ending Capital

*Appropriation of Profits
 Revenues & Expenses

Revenues
= Amounts earned by delivering goods or services to customers
• Sales revenue
• Service revenue
• Interest revenue
• Dividend revenue

Expenses
= cost incurred for something:
• Salary expense
• Rent expense
• Utilities expense
• Interest expense
 Accounting Equation
Once business commences, there will be income [revenues minus
expenses and gains minus losses] and perhaps additional capital
contributions (increase in capital) and withdrawals (drawings).
At the end of a reporting period, these will impact Owners Capital
as follows:
Assets = Liabilities + Capital
Impact on Owner's Capital
Revenue increase
Expenses decrease
Gains increase
Losses decrease
Contributions
/additional Capital increase
Drawings/taking
out cash/goods for
private use decrease

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 The Accounting Equation: Example 1

Assets Liabilities Owner’s Equity

Cool Café $? $25,000 $43,000

Klean Laundry 85,000 ? 54,000

Fresh Grocer 102,000 49,000 ?

 Example 2…
Sandra owns and operates an advertising firm called Awesome Ads. The following
amounts summaries her business on 30 June 2017:
Assets Liabilities Owner’s Equity
Accounts Accounts Sandra,
Date Cash Receivable Supplies Land Payable Capital

Bal 2,500 1,500 0 13,000 4,000 13,000

During July 2017, the business completed the following transactions:

a) Sandra invested cash of $10,000
b) Performed service for a client and received cash of $1,100
c) Paid off the beginning balance of accounts payable
d) Paid office rent for $1,000
e) Purchased supplies on account, $700.
f) Sandra sold her personal car for $15,000
g) Sandra withdrew $2,200

Required:
Analyze the effects of the above transactions on the accounting
equation of Awesome Ads.
 The Accounting Equation: Example 2

Assets Liabilities Owner’s Equity

Accounts Accounts Sandra,
Date Cash Receivable Supplies Land Payable Capital

Bal 2,500 1,500 0 13,000 4,000 13,000

Liabilities & Equity =

Assets = $17,000
$17,000
 Example 2 (continued)
a) Sandra invested cash of $10,000

Assets Liabilities Owner’s Equity

Accounts Accounts Sandra,
Date Cash receivable Supplies Land payable Capital

Bal 2,500 1,500 0 13,000 4,000 13,000

(a) 10,000 10,000

Bal 12,500 1,500 0 13,000 4,000 23,000

Liabilities & Equity =

Assets = $27,000
$27,000
 Example 2 (continued)

b) Performed service for a client and received cash of $1,100

Assets Liabilities Owner‘s Equity

Accounts Accounts Sandra,
Date Cash receivable Supplies Land payable Capital
12,500 1,500 0 13,000 4,000 23,000
Bal
(b) 1,100 1,100

Bal 13,600 1,500 0 13,000 4,000 24,100

Liabilities & Equity =

Assets =$28,100 $28,100
 Example 2 (continued)
c) Paid off the beginning balance of accounts payable

Accounts Accounts Sandra,

Date Cash receivable Supplies Land payable Capital

Bal 13,600 1,500 0 13,000 4,000 24,100

(c) (4,000) (4,000)

Bal 9,600 1,500 0 13,000 0 24,100

Liabilities & Equity =

Assets =$24,100
$24,100
 Example 2 (continued)
d) Paid office rent for $1,000

Accounts Accounts Sandra,

Date Cash receivable Supplies Land payable Capital
9,600 1,500 0 13,000 0 24,100
Bal
(1,000) (1,000)
(d)
8,600 1,500 0 13,000 0 23,100
Bal

Assets = $23,100 Liabilities & Equity

=$23,100
 Example 2 (continued)
e) Purchased supplies on account, $700.

Accounts Accounts Sandra,

Date Cash receivable Supplies Land payable Capital
8,600 1,500 0 13,000 0 23,100
Bal
700 700
(e)
Bal 8,600 1,500 700 13,000 700 23,100

Assets = $23,800 Liabilities & Equity =

$23,800
 Example 2 (continued)
f) Sandra sold her personal car for $15,000

Accounts Accounts Sandra,

Date Cash receivable Supplies Land payable Capital

Bal 8,600 1,500 700 13,000 700 23,100

(f)

Bal 8,600 1,500 700 13,000 700 23,100

Assets = $23,800 Liabilities & Equity =

$23,800
 Example 2 (continued)
g) Sandra withdrew cash $2,200

Accounts Accounts Sandra,

Date Cash receivable Supplies Land payable Capital

Bal 8,600 1,500 700 13,000 700 23,100

(g) (2,200) (2,200)

Bal 6,400 1,500 700 13,000 700 20,900

Liabilities & Equity

Assets =$21,600
=$21,600
 Example 3…
Activity - Mike Phonie decides to open a smart phone (sp) repair
shop
To get started he rents some shop space, buys initial stock of sp parts and
opens the shop for business.
Below is a listing of transactions that occurred in month 1 (Apr)

Date Transactions
Apr 1 Owner contributes RM7500 in cash to capitalize the business
Apr 8 Purchased RM2500 in sp parts on credit, payable in 30 days
Apr 15 Paid first months shop rent of RM1000
Apr 17 Repaired sp for RM1100, collected RM400 cash; billed customers for
the balance of RM700 (debtors)
Apr 18 RM275 in sp parts were used
Apr 25 Collected RM425 from customers (debtors paid)
Apr 28Paid RM500 to suppliers (creditors) for parts bought earlier in the
month
Show how transactions affect accounting equation
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 Example 3 (continued)
Mike Phonie – SP Repair shop – cont’d
ASSETS = LIABILITIES + OWNERS EQUITY
Capital Revenue
Date Cash + SP Parts + Debtors = Creditors + +
(Phonie) (Expenses)
April

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 Accounting Equation Summary
Summary of effect of typical transactions upon assets, liabilities and capital

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 The Financial Statements
After analyzing/recording all transactions – total assets equals total liabilities plus
capital/owner’s equity
How should people make use of such information? Is the company profitable? Will it be
able to pay off a loan?
In order to address these & to aid effective decision-making – financial statements must
first be derived – summary of transaction data
Financial statements
• business documents that report on a business in monetary terms
1. Income statement/Profit and Loss Account
2. Statement of Owner’s Equity
3. Statement of Financial Position/Balance Sheet
4. Statement of Cash Flows
 Example 3 (continued)
The Accounting Equation is expressed in a financial position statement
called the balance sheet.
The financial position is expressed AS AT a particular point of time
eg as at 31 Dec 2017.

Therefore, as at 30 Apr 2018, Mike Phonie’s transactions above would be

expressed as follows

Mike Phonie’s Balance Sheet / SOFP as at 30/4/18

Assets Liabilities
Creditors 2000
Debtors 275
Financed by
Stock (sp parts) 2,225 Capital 7,500
Cash 6,825 Loss for period (175)
9,325 9,325

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 Components of a SOFP / Balance Sheet
Assets
Non Current assets XX
Current Assets XX
Liabilities
Current Liabilities (XX)
Working Capital (Net current assets/(Liabilities)) XX
XXX
Non Current Liabilities (XX)
Total Net Assets YYY

Financed By
Capital (Share Capital / Capital Introduced) XX
Retained Earnings XX
Total Capital & Earnings YYY45
 Example 3 (continued)
For our learning purposes, we shall be using the vertical format rather than the
horizontal format.

Therefore, as at 30 Apr 2018, Mike Phonie’s SOFP should look like below:

Mike Phonie’s SOFP as at 30/4/2018

Assets
Debtors 275
Stock (bike parts) 2,225
Cash 6,825
9,325
Liabilities
Creditors (2000)
7,325
Financed by
Capital 7,500
Loss for period (175)
7,32546
 Tutorial Questions, kindly refer our
study guide…
 
Short Exercises Questions: S1-1, S1-3, S1-6,
S1-7, S1-8, S1-9, S1-10
 
Exercises: E1-19, E1-21, E1-26, E1-27
 
Problems: P1-40A, P1-45A (Part 1), P1-46A
(Part 1) 0102723912 Gregory
01128188585
See you next lecture
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