Chapter 1 Introduction to Accounting ACC117 Uitm

Which of the following does NOT define accounting?

• Classifying

• Making decision

• Summarising

• Recording

Answer explanation

Accounting can be defined as the art of classifying, recording and summarising transactions and business events in the monetary terms and interpreting and communicating the results to interested parties to enable them to make decisions.

Bookkeeping does not involve one of the following steps. Which one is it?

• Identifying

• Measuring

• Interpreting

• Recording

Answer explanation

Bookeeping is different from accounting as it is only part of accounting which stresses on the recording of business transactions.

It is the activity of keeping full documentation of every single financial transactions of the entity to form a base for the accounting process.

All the following statements about users of accounting information are correct EXCEPT…

• Taxing authorities are considered as external users.

• Present creditors are considered as external users.

• Management is considered as an internal user.

• Potential investors are considered as internal users.

Answer explanation

Internal users are those who work in a organisations or corporations such as owners, managers and employees.

Meanwhile, External users are those who are indirectly involved with the organisation such as creditors or bankers, current and potential investors, the government and consumers of products or services.

Which one of these types of business organisations are controlled by one individual ?

• Sole proprietorship

• Limited company

• Partnership

Answer explanation

Sole proprietorship is a business owned and run by one individual with no legal distinction between the owner and business. So, it is managed and controlled by one owner.

These types of business organisations are managed and controlled by a board of directors appointed by the shareholders.

• Sole proprietorship

• Partnership

• Limited company

Answer explanation

Corporation or company is a business entity that is owned by its shareholder(s), who then elect a board of directors to oversee the organisation’s activity.

If the business fails and the assets are not enough to cover the debt, the payables do not have a right against the owners’ personal properties.

• Sole proprietorship

• Partnership

• Limited company

Answer explanation

Limited company or corporation have limited liability.

If the business fails and the company’s assets are not enough to cover the debt, the payables or bankers have no right against the shareholders’ personal properties or belongings.

Profit will be paid to the shareholders in the form of dividends. This refer to

• Sole proprietorship

• Partnership

• Limited company

This type of business have the obligation to keep books and prepare accounts.

• Sole proprietorship

• Partnership

• Limited company

Answer explanation

For company, proper books of accounts must be kept and annual financial statement must be sent to the Companies Commission of Malaysia (CCM).

Meanwhile, for sole proprietorship and partnership, they have no obligation

to keep the books and prepare accounts.

Objectives of financial statements are…

• To measure the financial position and condition of a company

• To determine the financial performance of a company

• To find out the changes in the financial position

• All of the above

Which statements are TRUE ?

• Accounting is part of bookkeeping process.

• The partnership and sole proprietorship have limited liability.

• Shareholders contribute capital to the business

• The local authority is an internal user of accounting information.

Answer explanation

Bookkeeping is part of accounting process.

The partnership and sole proprietorship have unlimited liability.

The local authority is an external user of accounting information.