Content Standard 1.1

Accounting, Sub-fields of Accounting, Careers and Professional Bodies

Perakaunan, sub bidang perakaunan, kerjaya dan badan profesional

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Explanation

Accounting is the process of identifying, recording, measuring, classifying, summarising and reporting the financial information of a business so that users of the information can make sound economic decisions. This financial information is produced in the form of financial statements such as the Income Statement (Penyata Pendapatan) and the Statement of Financial Position (Penyata Kedudukan Kewangan). Users of accounting information include internal parties (owners and managers) and external parties (creditors, banks, investors, the government and employees). Accounting is often called the language of business because it communicates the financial condition of an entity in a form that can be understood and compared.

Students must be able to distinguish the function of bookkeeping from that of accounting. Bookkeeping is the early stage that only involves recording daily transactions systematically into books of entry such as the journal and the ledger. It is routine and mechanical in nature. Accounting is wider in scope; in addition to recording, it also classifies, summarises, analyses, interprets and reports financial information to help decision making. In short, bookkeeping is a part of the accounting process, and accounting begins where bookkeeping ends.

The Accounting Cycle is a series of repeated steps or stages carried out every accounting period, starting from the occurrence of a transaction until the preparation of financial statements. Students should be able to state its meaning, sketch the cycle and explain each stage. The stages are: (1) source or business documents such as invoices, receipts and vouchers that serve as evidence of transactions; (2) the journal, the book of prime entry where transactions are recorded using double entry; (3) the ledger, where entries from the journal are posted to their respective accounts; (4) the Trial Balance (Imbangan Duga), which lists account balances to check the arithmetical accuracy of the double entries; (5) adjustments for accrued and prepaid income and expenses; and (6) the preparation of financial statements, namely the Income Statement and the Statement of Financial Position. The cycle then repeats in the following accounting period.

Accounting has several sub-fields that students must recognise. Financial accounting focuses on preparing financial statements for external users based on set standards. Management accounting provides financial and non-financial information for internal management to use in planning, control and decision making, for example budgeting and cost analysis. Auditing is the independent examination of financial records and statements to give an opinion on whether the statements are true and fair. Taxation deals with tax computation and compliance with the country's tax laws.

The accounting field offers a variety of careers such as accountant, auditor, tax accountant, management accountant and bookkeeper. To regulate the profession, there are professional bodies such as MIA (Malaysian Institute of Accountants), the statutory body that registers accountants in Malaysia; MICPA (Malaysian Institute of Certified Public Accountants); MASB (Malaysian Accounting Standards Board), which issues accounting standards; and international bodies such as ACCA (Association of Chartered Certified Accountants) and CIMA (Chartered Institute of Management Accountants). Every professional accountant is bound by a code of ethics that emphasises integrity, objectivity, professional competence and due care, confidentiality and professional behaviour so that public trust in the profession is protected.

Worked examples

Distinguishing bookkeeping from accounting

Sinar Maju Grocery Store buys goods for resale worth RM1,200 on credit. At the bookkeeping stage, the bookkeeper merely records this transaction using double entry: Debit Purchases RM1,200; Credit Payables RM1,200. This is routine work: recording only.

At the accounting stage, the accountant takes those records, classifies and summarises them, then interprets the information, for example finding that purchase costs are rising and advising the owner to control credit purchases. This shows that accounting covers analysis and interpretation, not merely recording.

Sketching and explaining the Accounting Cycle

Suppose Indah Furniture Enterprise sells furniture for RM3,000 cash. The cycle begins with a source document, namely the cash receipt. The transaction is recorded in the journal: Debit Cash RM3,000; Credit Sales RM3,000.

The entry is posted to the Ledger (the Cash Account and the Sales Account). The account balances are then listed in the Trial Balance to check that total debits equal total credits. Adjustments are made if there is any accrued or prepaid income or expense. Finally the Income Statement and the Statement of Financial Position are prepared. The cycle repeats in the following period.

Sub-fields of accounting in a real situation

Bijak Technology Sdn. Bhd. uses various sub-fields. Its financial accounting department prepares the annual financial statements for the bank and investors. Its management accounting department prepares budgets and cost reports for managers.

An independent audit firm is engaged to audit the financial statements and give an opinion on whether they are true and fair. Meanwhile a tax accountant prepares the company's tax computation according to tax law. This example shows the four sub-fields functioning differently yet complementing one another.

Practice

State the meaning of accounting and list TWO users of accounting information.

Answer: Accounting is the process of identifying, recording, measuring, classifying, summarising and reporting the financial information of a business so that users can make economic decisions. Two users of accounting information are internal parties such as the owner/manager, and external parties such as creditors or the bank.

Compare the function of bookkeeping with the function of accounting.

Answer: Bookkeeping only involves recording daily transactions systematically into the journal and ledger; it is routine and mechanical. Accounting is wider because, besides recording, it classifies, summarises, analyses, interprets and reports financial information to help in decision making. Bookkeeping is a part of accounting; accounting begins where bookkeeping ends.

State the meaning of the Accounting Cycle and arrange its stages in the correct order.

Answer: The Accounting Cycle is a series of repeated steps carried out every accounting period, from the occurrence of a transaction until the preparation of financial statements. The order is: (1) source documents, (2) journal, (3) ledger, (4) trial balance, (5) adjustments, (6) financial statements (Income Statement and Statement of Financial Position).

Briefly explain the FOUR sub-fields of accounting and name TWO accounting professional bodies.

Answer: Four sub-fields: (1) financial accounting: prepares financial statements for external parties; (2) management accounting: provides information for management to plan and control; (3) auditing: independent examination of financial statements to give an opinion on whether they are true and fair; (4) taxation: tax computation and compliance with tax law. Two professional bodies: MIA (Malaysian Institute of Accountants) and MASB (Malaysian Accounting Standards Board). (Others: MICPA, ACCA, CIMA.)

Exam tips

Key terms

Accounting (Perakaunan): The process of identifying, recording, classifying, summarising and reporting financial information to help decision making.
Bookkeeping (Simpan kira): The early stage of accounting that only involves recording transactions systematically in books of entry.
Accounting Cycle (Kitaran Perakaunan): A series of repeated stages each period, from source documents to the preparation of financial statements.
Code of ethics (Kod etika): Guidelines for an accountant's conduct covering integrity, objectivity, competence, confidentiality and professional behaviour.

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 4

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