TOPIC 1 Lecture 1 & 2 ACCOUNTING ENVIRONMENT

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 2 ACCOUNTING ENVIRONMENT After studying this chapter, you should be able to: –Explain what accounting –Identify the process and flow of accounting information –Identify users and uses of accounting –Understand why ethics is a fundamental business concept..

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 3 WHAT IS ACCOUNTING –Understand what the four financial statements are and how they are prepared –Understand the relationship between financial statements –Understand the different between financial accounting and management accounting

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 4 Accounting in Action Ethics in financial reporting Generally accepted accounting principles Assumptions What is Accounting? The Building Blocks of Accounting The Basic Accounting Equation Using the Basic Accounting Equation Financial Statements Three activities Who uses accounting data Assets Liabilities Owner’s equity Transaction analysis Summary of transactions Income statement Owner’s equity statement Balance sheet Statement of cash flows

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 5 Three Activities What is Accounting? The accounting process includes the bookkeeping function.

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 6 Accounting is an information system that Identifies Records Communicates the economic events of an organization to interested users THE PURPOSE OF ACCOUNTING? STUDY OBJECTIVE 1

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 7 Accounting Includes bookkeeping Also includes much more Bookkeeping The recording of economic events One part of accounting BOOKKEEPING DISTINGUISHED FROM ACCOUNTING

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 8 History of Accounting Accounting record date back to ancient civilization of Chine, Babylonia, Greece, and Egypt 19 th century, the growth of corporation spurred the development of accounting Luca Pacioli a priest, first develop the double entry system

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 9 Accounting in The Quran Double entry accounting is mention indirectly in the Quran Many pairs of selected words found in The Quran are equal in number. Many phrases in The Quran address on accountability Many phrases address the subject of ethics

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 10 Accounting in The Quran Examples of opposite words in the Quran WordsNo. Words No. Al-dunya115 Al-Akhirat 115 Al-Hayat145 Al-Maut 145 Al-Rajul 24 Al-Mar’ah 24 Al-Malaikat 88 Al-Syayateen 88

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 11 Other words in the Quran Al-Shahru 12 Al-Yauum 365 (Moon) (Days) Al-Bahar 32 Al-Barr 13 (Sea) (Land) Sea:32/45 X 100% = 71.11% Land:13/45 X 100% = 28.88% = actual ratio of sea to land in the world

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 12 Identifies Records Communicates Relevant Reliable Comparable Importance of Accounting Importance of Accounting Accounting is a system that information that is to help users make better decisions.

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 13  Identifying Business Activities  Recording Business Activities  Communicating Business Activities Accounting Activities

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 14 Users of Accounting Information External Users Lenders Shareholders Governments Consumer Groups External Auditors Customers Internal Users Managers Officers Internal Auditors Sales Staff Budget Officers Controllers

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 15 Management Common Questions Human Resources IRS(LHDN) Labor Unions Security Commission Marketing Finance Investors Creditors Who Uses Accounting Data? Customers Internal Users External Users

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 16 Users of Accounting Information External Users Financial accounting provides external users with financial statements. Internal Users Managerial accounting provides information needs for internal decision makers.

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 17 QUESTIONS ASKED BY INTERNAL USERS

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 18 QUESTIONS ASKED BY EXTERNAL USERS

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 19 Opportunities in Accounting Financial Preparation Analysis Auditing Regulatory Consulting Planning Criminal investigation Preparation Analysis Auditing Regulatory Consulting Planning Criminal investigation Managerial General accounting Cost accounting Budgeting Internal auditing Consulting Controller Treasurer Strategy General accounting Cost accounting Budgeting Internal auditing Consulting Controller Treasurer Strategy Taxation Preparation Planning Regulatory Investigations Consulting Enforcement Legal services Estate planning Preparation Planning Regulatory Investigations Consulting Enforcement Legal services Estate planning Accounting- related Lenders Consultants Analysts Traders Directors Underwriters Planners Appraisers Lenders Consultants Analysts Traders Directors Underwriters Planners Appraisers Market researchers Systems designers Merger services Business valuation Human services Litigation support Entrepreneurs Market researchers Systems designers Merger services Business valuation Human services Litigation support Entrepreneurs

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 20 Financial Statements Let’s look at the Financial Statements There are four types of Financial statements 1.Income Statement 2.Statement of Owner’s Equity 3.Balance Sheet 4.Statement of Cash Flows

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 21 Net income is the difference between Revenues and Expenses. The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 22 The net income of $2,200 increases Scott’s capital by $2,200. The Statement of Owner’s Equity explains changes in equity from net income (or net loss) and from owner investments and withdrawals for a period of time.

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 23 The Balance Sheet describes a company’s financial position at a point in time.

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 24 The Statement of Cash Flows identifies cash inflows and cash outflows over a period of time.

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 25 Managerial accounting provides information for managers of an organization who plan and control its operations. Financial accounting provides information to stockholders, creditors and others who are outside the organization. Managerial and Financial Accounting

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 26 Nature of Managerial Accounting

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 27 COMPARING MANAGERIAL AND FINANCIAL ACCOUNTING

BKAF1023 SCHOOL OF ACCOUNTING UNIVERSITI UTARA MALAYSIA 28 End of Topic 1