TUNKU ABDUL RAHMAN UNIVERSITY COLLEGE
FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS
ACADEMIC YEAR 2017/2018
COURSEWORK 1 (GROUP ASSIGNMENT)
ABFA1013 INTRODUCTION TO ACCOUNTING
DIPLOMA IN BUSINESS STUDIES (ALL PROGRAMS)
YEAR 1 – SEMESTER 1
Basic Accounting Research Project
Tutorial class?1DAC3 2017
Group members: Lee Zi Hong
Sua Xing Yuan
Cheong Wai Lun Lee Sze Hong
Ethan Sinclair CulasTutor: Lim Pei Ling
Accounting Equation 3
Profit Determination 4
Accounting Cycle 5
.Users of Accounting Information 5 – 6
Types of Businesses in Malaysia 6 – 7
Purpose of Financial Statement 7 – 8
The aim of making this research project is to learn about basic of accounting in group work. In this research project have included 6 titles of basic accounting such as: accounting equation, profit determination, accounting cycle, users of accounting information, type of businesses in Malaysia and purpose of financial statement. Each title has their introduction and formula. From this research project, it has shown what the learning objective for the titles and ways to use it in accounting. In this report, only contains the main point of the titles with the references from websites, books and knowledge that we have learnt before. We using our own sentences and some sentences from the books and websites to finish this research project. We have followed the rules of Harvard Referencing Method when done this project. This research project is just for the coursework 1 (Group Assignment) FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS
ACADEMIC YEAR 2017/2018.Accounting Equation
The basic accounting equation, also called the balance sheet equation (Wikipedia). Accounting equation is using to relate the three main items of a business (assets, liabilities and owner’s equity).
Assets are the items inside the business for the use of running the business. Liabilities are the item which supply from outsider to run the business. Owner’s equity is the resources provide by owner to the business. For the simple meaning of assets, liabilities and owner’s equity:
Assets – What the owner have in the business.
Liabilities – What the owner owes for the business.
Owner’s equity – The difference between assets and liabilities.
45427251020Assets = Liabilities + Owner’s Equity
00Assets = Liabilities + Owner’s Equity
The formula of the accounting equation:
History of Accounting
The history of accounting or accountancy is thousands of years old. The Italian Luca Pacioli, recognized as The Father of accounting and bookkeeping was the first person to publish a work on double-entry bookkeeping, and introduced the field in Italy (Wikipedia).
The advantages of Accounting Equation
This accounting equation is very helpful for all the business. It have simplify the work of business and can help business to check out balance or amounts correctly. It enable accountants to do their works fast and easy.
References: https://en.wikipedia.org/wiki/History_of_accounting https://en.wikipedia.org/wiki/Accounting_equation
Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to operate the activity.
Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise.
Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.
Types of revenue are:
Sales – income earned from selling goods and services, e.g. selling spare parts to customers, repairing vehicles.
Other income – other sources of income earned that are not directly related to the main business activities, e.g. rent received, discount received, etc.
Expenses is an outflow of cash or other valuable assets from a person or company to another person or company.
This outflow of cash is generally one side of a trade for products or services that have equal or better current or future value to the buyer than to the seller.
Technically, an expense is an event in which an asset is used up or a liability is incurred. In terms of the accounting equation, expenses reduce owners’ equity.
Types of expenses are:
Cost of goods sold – cost of inventories sold to customer
Expenses – other form of resources, e.g. salaries to worker, rental, etc.
Advantages of profit and loss account
Profit and loss account gives the actual information about net profit or net loss of the business for an accounting period.
Profit and loss account gives the actual information about indirect expenses.
Profit and loss account helps in determining the ratio between net profit to operating expenses.
Disadvantages of profit and loss account
Data on depreciation and asset value is usually subjective or volatile
The equation of profit determination
Profit = Revenue – Expenses
http://www.investopedia.com/terms/p/profit.asphttp://www.investopedia.com/terms/r/revenue.asphttps://en.wikipedia.org/wiki/Expensehttp://accountlearning.blogspot.my/2010/01/advantages-of-profit-and-loss-account.htmlhttp://business-finance.blurtit.com/607531/what-are-the-advantages-and-disadvantages-of-profit-and-loss-accountingThe Accounting Cycle
The accounting cycle is a process of recording and processing the accounting events of a company. It begins when a transaction occurs and ends with its inclusion in the financial statements.
The cycle is a methodical set of rules to ensure the accuracy and conformity of financial statements.
The steps of the accounting cycle:
Source documents are checked for accuracy.
Transaction, information from source documents are recorded in the journals.
The journal entries are posted to the ledgers.
A draft of the trial balance and financial statement are prepared.
Adjusting the trial balance and financial statement
Adjusting of trial balance and financial statement are done.
An organisation begins its accounting cycle by recording the transactions using journal entries. The entries are based on the receipts of an invoice, recognition of a sale or completion of other events. After journal entries are posted to their individual general ledger accounts, and unadjusted trial balance is prepared. The trial balance ensures the total debit equals to the total credit in the financial records. At the end of the period, adjustments of the entries are done. These are the results of correction that need to be made as well as results from the passage of time. Upon posting of adjusting entries, an adjusted trial balance and financial statement are prepared. An entity will close the temporary accounts at the end of the period using closing entries.
References: www.investopedia.com/terms/a/accounting-cycle.asp https://quizlet.com/9219177/flashcardsUsers of accounting information.Users of financial information may be both internal and external to the organization: Internal Users:
-Managers. These are the decision-makers. They need to know how well things are progressing financially and about the financial status of the business
-Owner of the business. They want to be able to see whether or not the business is profit-able.
-Employees: for assessing company’s profitability and its consequence on their future remuneration and job security.
Accounting information is presented to internal users usually in the form of management accounts, budgets, forecasts and financial statements.
-A prospective buyer. When the owner wants to sell a business the buyer will want to see such information.
-The bank. If the owner wants to borrow money for use in the business, then the bank will need such information.
-Tax inspectors. They need it to be able to calculate the taxes payable.
-A prospective partner. If the owner wants to share ownership with someone else, then the would-be partner will want such information.
-Investors. They want to know whether or not to invest their money in the business.
External users are communicated accounting information usually in the form of financial statements. The purpose of financial statements is to cater for the needs of such diverse users of accounting information in order to assist them in making sound financial decisions.
References: http://accounting-simplified.com/financial/users-of-accounting-information.html Frank Wood & Alan Sangster 2008, ‘Business accounting 1 11th edition’, Users of accounting information, pp.7
Type of Business in Malaysia
There are three difference type of business in Malaysia which is Sole Proprietorship, Partnership and Limited Company. First and foremost, Sole Proprietorship is a business owned by one person and it can own property in individual’s name. Its advantages is business’s profit is owner’s profit as business is owned by owner only. Besides, it can change to limited company easily because less credential and document is required and less step only. Furthermore, owner has the most decision – making power. Nonetheless, sole proprietorship have unlimited liability, it means owner need to face all the debts of business and personal assets may be affected. Other than that, limited growth is also a disadvantage of sole proprietorship because business doesn’t have too many financial resources to expand. Business will be broken up also when owner passed away if owner’s heirs do not want to take over the business.
In addition, Partnership is a business in which two or more person but not more than 20 operate for earning profit and it cannot own property in firm’ name. The advantage of partnership is no need to explode too much taxes because they only need to pay personal tax. Moreover, compared to sole proprietorship,the most advantages of partnership are more financial resources and skill and knowledge are pooled to operate business. Nevertheless, partnership also has its disadvantages. Its disadvantages include unlimited liability, conflict between partners, partner need to share profit based on the money put into the business, need to calculate partners’ assets again if a partner in or out.
Last but not least, there are two type of limited company. It is private limited company and public limited company. The minimum number member of private limited company (Sdn Bhd) is 2 and maximum is 50 shareholders whereas the numbers of shareholders can more than 5 is public limited company (Bhd). The advantages of limited company are more financial resources, limited liability for business’ debts and ease of ownership change by selling shares to party or people. Its disadvantages are shareholders and board of director will disagree each other easily, extensive paperwork and taxes. The taxes of company include personal and corporation taxes. Step to set up a company are company name is chosen, company formation package is purchased, any required company address service is chosen, filled in the application form and submitted to Companies House.
Financial statement is a formal record of financial activity of an entity. Financial statement includes Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement and Statement of Change in Equity. Firstly, Statement of Profit or Loss can be broken down into two parts. The first parts of the Statement of Profit or Loss calculate Gross Profit or Loss. Gross Profit or Loss calculated by sales minus cost of goods sold. The second parts calculate Net Profit or Loss. Net Profit or Loss can be calculated by Gross Profit or Loss plus Income minus Expenses. The purpose of this statement is record all the revenue and expenses to calculate the profit or loss earned by the business during a particular period. Secondly, Statement of Financial Position shows the financial position of a business during a period to help business evaluate liquidity risk, credit risk, business risk and financial risk. Moreover, it can also help owner of business predict what should do in future. Statement of Financial Position can be categorized to assets, liability and equity. It applies the accounting equation: Assets = Liability + Equity. Apart from that, the cash flow of activities is illustrated in Cash Flow Statement over a particular accounting period. It can be categorized to operating, investing and financial activity. Lastly, Statement of Change in Equity statement will report the changes in company’s share capital, accumulated reserves and retained earnings.Beginning equity balance, Additional and Subtraction (net income, dividend payments and withdrawals) and ending balance will be illustrated in Statement of Changes in Equity. It will help owner to determine reasons that cause the change in the owner’s equity during a period.
This research project has taught us a lot of thing that are useful in our future and help us more understand the topic that are researched. We learn about the advantages and disadvantages of accounting equation and profit determination. Besides, we know about the type of business that are available in Malaysia. Furthermore, accounting cycle this topic teach us the proses of recording so that we can record business transaction step by step in future if we are accountant. Other than that, we will not confuse the purpose of each type of financial statement again and learn its component.
AppendixType of Business Sole Proprietorship Partnership
Definition A business owned by one person A business in which two or more person but not more than 20 operate for earning profit
Advantages Business’ profit is owner’s profit
Ease to change from sole proprietorship to limited company
Less credential & Dokumen required
Has the most decision – making power No need explode too much taxes
Ease to organize
Skill and knowledge are pooled
More finance resources
Disadvantages Unlimited liability- owner need to face all the debts of business
Limited growth – difficult to expand as no too much financial resources
Business will be broken up if owner passed away Unlimited liability
Conflict between partners
Need to calculate the partner’s assets again if partner in or out
Legal Status Can own property in individual’ name Cannot own property in firm ‘name
https://www.ignitespot.com/the-four-basic-financial-statementshttps://en.wikipedia.org/wiki/Statement_of_changes_in_equityhttp://www.investopedia.com/terms/p/profit.asphttp://www.investopedia.com/terms/r/revenue.asphttps://en.wikipedia.org/wiki/Expensehttp://accountlearning.blogspot.my/2010/01/advantages-of-profit-and-loss-account.htmlhttp://business-finance.blurtit.com/607531/what-are-the-advantages-and-disadvantages-of-profit-and-loss-accountingFrank Wood ; Alan Sangster 2008, ‘Business accounting 1 11th edition’, Users of accounting information, pp.7