Introduction to Accounting & Basic Accounting Concepts

What is the definition of accounting?

The process of identifying, recording, classifying, summarising, communicating and interpreting business or economic transactions so users can make better decisions.

Name three internal users of accounting information.

Managers/management, Board of Directors/owners, Internal auditors.

Give two routine decisions managers make using accounting information.

Planning and controlling operations.

Which internal user verifies that a company complies with accounting standards?

The internal auditor.

State two external users who assess a firm’s ability to pay debts.

Creditors (suppliers) and bankers.

Which external user is interested in whether to continue supporting a company’s product lines?

Customers.

Differentiate bookkeeping from accounting in one sentence.

Bookkeeping records daily transactions in chronological order, whereas accounting also classifies, summarises, reports, analyses, and interprets financial information.

Who is usually in charge of bookkeeping?

An accounting clerk.

Who is responsible for accounting (beyond bookkeeping)?

An accountant.

List four branches of accounting.

Financial accounting, Management accounting, Cost accounting, Auditing. (Others include Public sector, Taxation, Forensic accounting.)

Which branch of accounting supplies information mainly for internal users?

Management accounting.

What is forensic accounting primarily used for?

Investigating illegal acts related to accounting such as fraud or theft.

State the maximum number of owners in a partnership in Malaysia.

2 to 20 owners.

Which type of business ownership has limited liability?

Company.

Under which Act are sole proprietorships governed?

Businesses Act 1956.

Name the three major types of business activities.

Services, Manufacturing, Merchandising.

Give an example of a merchandising business.

Giant, Mydin, or Econsave.

Identify the four main financial statements.

Statement of Comprehensive Income (or Profit or Loss), Statement of Changes in Equity, Statement of Financial Position (Balance Sheet), and Statement of Cash Flows.

Which statement shows inflows and outflows from operating, investing, and financing activities?

Statement of Cash Flows.

What are the three components of the Statement of Financial Position?

Assets, Liabilities, and Owner’s Equity.

Name the three professional accounting bodies in Malaysia.

Malaysian Accounting Standards Board (MASB), Malaysian Institute of Accountants (MIA), Malaysian Institute of Certified Public Accountants (MICPA).

Which Malaysian body issues new accounting standards (FRS/MFRS)?

Malaysian Accounting Standards Board (MASB).

State two fundamental ethical principles for accountants.

Integrity and Objectivity. (Others: Professional competence & due care, Confidentiality, Professional behaviour.)

What ethical principle prevents accountants from disclosing sensitive information for personal gain?

Confidentiality.

List four potential career areas in accounting.

Public accounting, Private/Corporate accounting, Governmental accounting, Forensic accounting.

In which career path would you likely work for the Internal Revenue Service or LHDN?

Governmental accounting.

What does GAAP stand for?

Generally Accepted Accounting Principles.

Which accounting framework is simplified for smaller Malaysian private entities?

Malaysian Private Entities Reporting Standard (MPERS).

Give one key difference between MFRS and MPERS.

MPERS has reduced disclosure requirements and exemptions from complex treatments, making it simpler than MFRS.

Name two regulatory bodies in Malaysia other than MASB, MIA, and MICPA.

Securities Commission Malaysia (SC) and Bursa Malaysia Berhad. (Others include LHDN, Bank Negara Malaysia, SSM.)

State the basic accounting equation.

Assets = Liabilities + Owner’s Equity.

Rewrite the expanded accounting equation including revenues, expenses, and drawings.

Assets = Liabilities + (Capital + Revenues – Expenses – Drawings).

Define current assets.

Assets expected to be converted into cash or used within one accounting year, e.g., inventory, accounts receivable, cash.

Give two examples of non-current tangible (fixed) assets.

Buildings and vehicles.

What distinguishes current liabilities from non-current liabilities?

Current liabilities are debts payable within one year; non-current liabilities are payable after one year.

List the four elements that affect owner’s equity.

Capital, Drawings, Revenues, Expenses.

What is the double-entry system?

A bookkeeping method where every transaction affects at least two accounts, with debits equalling credits.

According to the rules of debit and credit, which side increases an asset account?

Debit.

Which side records increases in revenue accounts?

Credit.

Name three basic accounting concepts related to measurement.

Historical Cost, Monetary Measurement, Fair Value Measurement.

Explain the Historical Cost concept.

Assets and services are recorded at their actual purchase cost, a reliable measure that remains in the accounts over the asset’s useful life.

What does the Monetary Measurement concept require?

All transactions and events must be expressed in monetary units, such as Ringgit Malaysia.

What is the Economic Entity concept?

Business activities must be kept separate from those of the owner or other entities.

Describe the Going Concern concept.

Assumes the entity will continue operating long enough to fulfil its objectives and commitments.

Why is the Consistency concept important?

Using the same accounting methods year-to-year permits meaningful trend analysis; changes must be disclosed.

What does the Accounting Period concept state?

Business activities can be divided into specific time periods (month, quarter, year) for reporting purposes.

Define the Materiality concept.

Information is material if its omission or misstatement could influence decisions of a reasonable user.

When is revenue recognised according to the Revenue Recognition concept?

When ownership changes and