BBM 205/05 Business Accounting I - Unit 1: Accounting in Business

A collection of vocabulary flashcards covering the basic principles of accounting, types of business entities, qualitative characteristics, accounting concepts, the accounting equation, and the Malaysian financial reporting framework.

Accounting

An information system that identifies, records, and communicates relevant, reliable, and comparable information on an entire organisation’s business activities.

Financial Accounting

The identification, collection, and recording of a business entity's transactions and the summarisation and communication of that financial information to external users to facilitate decision making.

Management Accounting

The provision of financial information of the business entity to internal management to facilitate planning, control, and decision making.

Sole Proprietorship

A type of business entity owned by only one person which is not separate from the owner for legal purposes, resulting in unlimited liability.

Partnership

A type of entity owned by two or more people, established under the Partnership Act 1961 or as a limited liability partnership (LLP).

Company

A separate legal entity from its owners (shareholders) where the owners have limited liability for the actions and debts of the business.

Limited Liability

A condition where the liability of shareholders is limited to the amount of money paid for the shares held or a nominated guaranteed amount.

Unlimited Liability

A condition where the owner is responsible for all losses incurred and all debts owed by the business to others.

Member-governed Bodies

Entities run by members for the benefit of members, such as sports clubs, social clubs, or mutual building societies.

Statement of Comprehensive Income

A financial statement that presents all items of income and expense recognised in the period to show financial performance.

Statement of Financial Position

Previously called the balance sheet, it lists the assets, liabilities, and owner’s equity of an entity at a specific point in time.

Statement of Changes in Equity

A statement presenting the movement or changes in owner’s equity from the beginning to the end of a specified period.

Statement of Cash Flows

A report on all inflows and outflows of cash of an entity for a specified period, categorised into operating, investing, and financing activities.

Notes to the Financial Statements

Additional details and information provided to supplement the financial statements, including basis of preparation and specific accounting policies.

Understandability

A qualitative characteristic assuming users have reasonable knowledge of business and economic activities and will study information with reasonable diligence.

Relevance

Information that assists users’ decision making by helping them evaluate past, present, or future events or confirming past evaluations.

Reliability

Information that is free from material error and bias, neutral, complete, and faithfully represents the substance of transactions.

Comparability

The quality of financial statements that allows for analysis over earlier periods and against the statements of other companies.

Historical Cost Concept

Under this concept, accounting transactions are recorded at the actual amount of cash paid or received at the time of the transaction.

Going Concern Concept

The assumption that the entity will carry out its business operations for an indefinite period of time.

Accruals Concept

The premise that effects of transactions are recognised in financial statements when they occur, not necessarily when cash is received or paid.

Matching Concept

The understanding that expenses incurred to generate revenue must be recognised in the same accounting period as that revenue.

Entity Concept

The principle that the business owner and the business entity are two separate, independent entities for accounting purposes.

Materiality Concept

Dictates that only material items—those whose non-disclosure could influence the economic decisions of users—should be disclosed.

Time Period Concept

The division of the lifetime of an entity into discrete periods of a fixed length, usually one year, for reporting purposes.

Money Measurement Concept

States that all accounting information, financial performance, and financial position are measured in monetary units (e.g., Ringgit Malaysia).

Duality Concept

States that every transaction has two effects that are always equal, underpinning the double entry system and keeping the accounting equation in balance.

Prudence Concept

Being conservative in preparing financial statements to ensure revenue and assets are not overestimated, and expenses and liabilities are not underestimated.

Substance over Form Concept

Financial information should be accounted for and presented in accordance with its economic substance rather than its legal form.

Consistency Concept

Ensuring that financial statements use the same methods, policies, and estimation techniques from year to year to allow for comparison.

Separate Determination Concept

The requirement that each component of any category of assets, liabilities, income, and expenditure should be valued separately.

Assets

Resources held by an entity that will help the entity to generate income in the future.

Liabilities

Present obligations of the entity that it has to meet in the future, such as bank loans or accounts payable.

Equity

Also known as capital, it represents the owner’s claims against the business entity or its net worth.

Accounting Equation

The fundamental formula expressing the relationship between resources: $\text{Assets} = \text{Liabilities} + \text{Capital}$.

Profit

The difference between revenue earned and expenses incurred, calculated as: $\text{Profit} = \text{Revenue} - \text{Expense}$.

Revenue

Income earned in a period from normal trading activities, such as sales, fees, or commissions.

Expenses

Costs incurred by the business entity in its operations to earn revenue for a specific period.

Current Assets

Assets that will be used or changed into cash within 12 months from the date of the statement of financial position.

Non-current Assets

Assets used in operations for more than one year from the date of the statement of financial position (e.g., land, motor vehicles).

Current Liabilities

Obligations that will become due and payable within 12 months from the date of the statement of financial position.

Malaysian Accounting Standards Board (MASB)

An independent authority established under the Financial Reporting Act 1997 to develop and issue accounting standards in Malaysia.

Financial Reporting Foundation (FRF)

A trustee body that oversees MASB’s performance, financial, and funding arrangements but does not set standards.

Malaysian Institute of Accountants (MIA)

The national statutory body established under the Accountants Act 1967 to regulate and develop the accounting profession in Malaysia.

Malaysian Financial Reporting Standards (MFRS)

Accounting standards issued by MASB for all companies other than private entities, which are aligned with International Financial Reporting Standards (IFRS).