Business documents used for classification include:
Transactions are recorded in:
Accounting data for a period are summarized in financial statements comprising the Statement of Comprehensive Income and the Statement of Financial Position.
Follow the path from transaction records to decisions: classify, record, summarize, analyze, interpret.
★ Must-know
📌 Accounting information users are divided into internal users, who work in the organization, and external users, who are indirectly involved with it.
Internal users include:
External users include:
Further detail
Owners use financial statements to assess business performance, profitability, and stability and to decide whether to maintain, increase, or stop their investments.
Management uses accounting information to plan, organize, and control the organization, analyze performance, and make investment, financing, and pricing decisions.
The finance department uses financial information to evaluate the organization's ability to pay its business debts.
Employees use accounting information to understand company performance, job prospects, income, and other benefits.
Banks use borrowers' accounting information to assess creditworthiness and ability to repay loans, and base lending terms on borrowers' financial health.
Suppliers use accounting information to assess a business's future creditworthiness and decide whether to continue supplying goods on credit.
Potential investors use published financial statements to assess a business's financial strength, profitability, investment valuation, and risk.
Customers use financial information to assess a business's current position and continuity.
External auditors examine financial statements and accounting records to form an independent opinion on the accuracy of financial statements.
Tax authorities analyze financial statements to determine whether a business declared the correct amount of tax in its returns.
Employee unions use accounting information to make decisions that benefit their members and protect employees' benefits, rights, and working environment.
The public, including journalists, analysts, academics, activists, and interested individuals, may use company accounting information to follow economic developments.
Internal users work within the organization; external users are indirectly involved.
★ Must-know
Accountants maintain journals, ledgers, and other financial records, reconcile bank statements and accounts, and classify income, expenses, assets, and liabilities.
Accountants prepare balance sheets, income statements, cash flow statements, and interim and annual financial reports in compliance with standards such as IAS or MFRS.
🔄 Accountants support budgeting and forecasting by: creating budgets to monitor and control spending, forecasting future revenue and expenses, comparing actual performance with budgets, proposing corrective actions for variances
Further detail
Accountants prepare and file tax returns, identify tax-saving opportunities and incentives, and keep up to date with changes in tax laws and regulations.
Accountants conduct audits, check compliance with organizational policies and regulatory standards, and identify and mitigate risks related to financial mismanagement or fraud.
Accountants support management decisions by advising on profitability, conducting cost-benefit analyses, and providing detailed financial modeling.
★ Must-know
📌 Financial accounting reports information for internal and external users, whereas management accounting produces information for internal users only.
📌 Financial accounting reports are legally required, whereas management accounting reports are not legally required.
Further detail
Tax accounting ensures accurate calculation and reporting of taxpayers' tax liabilities, is regulated by the Inland Revenue Commission, and is affected by tax laws that change from year to year.
In Malaysia, the Companies Act 2016 requires audited annual statutory financial statements to be submitted to the Companies Commission of Malaysia.
📌 Financial accounting reporting formats follow standards such as GAAP, IFRS, or MFRS, whereas management accounting formats are informal and tailored to business or departmental needs.
Financial accounting looks backward at historical data; management accounting supports high-level decisions.
★ Must-know
In Malaysia, accounting standards are issued by the Malaysian Accounting Standards Board (MASB).
Malaysia's approved accounting standards are the Malaysian Financial Reporting Standards (MFRS) and the Malaysian Private Entities Reporting Standards (MPERS).
📌 MFRS is the MASB-approved standard for entities but does not include private entities, whereas MPERS applies to private entities.
Further detail
In the United States, GAAP is issued by the Financial Accounting Standards Board (FASB), an independent nonprofit organization authorized to establish and interpret the principles.
MPERS replaced Private Entity Reporting Standards (PERS) and took effect on 1 January 2016.
Under MPERS, private entities can choose the MPERS framework or the Malaysian Financial Reporting Standards framework when preparing financial reports.
Foreign companies listed on the Malaysian Stock Exchange may prepare financial statements under certain internationally recognized standards, including IFRS, and MFRS is equivalent to IFRS.
★ Must-know
The Malaysian accounting profession is regulated by MASB, MIA, SSM, and IRBM.
MASB develops and promotes high-quality accounting and financial reporting standards consistent with international best practices for users, preparers, auditors, and the public in Malaysia.
MIA was founded as a statutory body under the Accountants Act 1967 and regulates, develops, supports, and enhances the integrity, status, and interests of the accountancy profession in Malaysia.
SSM incorporates companies, registers businesses, provides company and business information to the public, and monitors and enforces compliance with business registration and corporate legislation.
IRBM collects direct taxes, including individual income tax, corporate tax, real property gains tax, and stamp tax, for the Ministry of Finance and works to improve tax administration.
Further detail
MASB was established under the Financial Reporting Act 1997, and its board members are appointed by the Minister of Finance.
The Financial Reporting Foundation (FRF) was created under the Financial Reporting Act 1997 as a trustee body overseeing MASB's operation.
MIA awards the Chartered Accountant Malaysia designation, CA (M).
SSM was formed in 2002 and enforces the Companies Act 2016, the Registration of Businesses Act 1956, and the Trust Companies Act 1949.
The Royal Malaysian Customs Department governs indirect taxes, including sales tax, service tax, import and export duties, and excise duty.
★ Must-know
Further detail
Under the historical cost concept, Fajar Nadim Enterprise records its shop unit bought for RM300,000 in 2018 at RM300,000 even after its market price rises to RM480,000 one year later.
A disadvantage of historical cost is that it may not reflect an asset's market value, especially during periods of rising prices.
Under the matching concept, the RM1,500 sofa sale made on 22 December 2018 is matched with its RM450 cost in 2018, while the RM850 dining set sale in January 2019 is matched with its RM150 cost in 2019.
Transactions may be verified using:
★ Must-know
Further detail
Y2B Express Bhd violated consistency by changing its depreciation method from straight-line to reducing balance without advising shareholders.
For a sofa delivered on 28 December 2018 for RM1,000, the full RM1,000 is recorded as 2018 sales, with the RM200 deposit recorded as cash sales and the RM800 balance as accrued or credit sales.
Accounting periods may be a month, half a year, or a year, and each financial report states the period it covers.
For a business started on 1 January 2019 with a 12-month accounting period, the period ends on 31 December 2019.
★ Must-know
Further detail
📌 Omitting a RM100 sale from total sales of RM6 million is immaterial because it has no serious effect on decision-making, whereas recording RM40,000 of sales as expenses against sales of RM3 million is material because it changes reported profit into a loss.
Prudence restrains gains and assets; materiality determines what information or errors must be disclosed.
Financial and Management Accounting
| Dimension | Financial accounting | Management accounting |
|---|---|---|
| Objective | Disclose financial position | Support planning, control, and decisions |
| Users | Internal and external users | Internal users only |
| Legal requirement | Reports legally required | Reports not legally required |
| Format | Specified by GAAP, IFRS, or MFRS | Informal and tailored to needs |
Take a 30-question practice quiz on Introduction to Accounting, with every answer explained.
1. Which process uses monetary information about business transactions to help users make decisions?
2. A clerk records sales transactions in the journal, while another employee classifies, summarizes, analyzes, and interprets the resulting data. Which activity is bookkeeping?
Memorize the key concepts of Introduction to Accounting with 69 flashcards.
What is accounting?
The systematic process of classifying, recording, summarizing, analyzing, and interpreting business transactions in monetary units to support decisions.
What is bookkeeping?
The part of accounting concerned with recording transactions.
How are users of accounting information divided by their relationship to an organization?
Internal users work in the organization; external users are indirectly involved with it.
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