CHAPTER 1:

INTRODUCTION

LEARNING OUTCOME

 Demonstrate knowledge and

understanding on the
introduction to accounting

 Define and differentiate

bookkeeping and accounting

 Explain the concepts and

principles of accounting

a. Business Entity
b. Going Concern
c. Monetary
d. Accounting Period
e. Matching
f. Historical Cost
g. Double Entry
h. Full Disclosure
i. Conservatism
j. Objectivity

 Demonstrate knowledge and

understanding of accounting
cycle.
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION

1.0 DEFINITION OF ACCOUNTING AND BOOKKEEPING

• Definition of Bookkeeping is the process of classifying,

recording and summarizing business transactions.

• Definition of Accounting is the process of classifying,

recording and summarizing business transactions in
monetary units and interpreting the financial data of a
business in order to assist stakeholders in making decisions.

Classifying

Bookkeeping Recording

Summarizing Accounting

Analysing

Interpreting

Figure 1.1: Activities involved in bookkeeping and the accounting process

Accounting involves the following four phases:

1. Classifying: Accounting data from business documents are
arranged and categorized. Example of business documents are
receipts, invoices and cash bills.

2. Recording: Transactions are recorded in day books and ledgers.

3. Summarizing: Accounting data for a particular period is

summarized in the form of financial statements. Examples of
financial statements are Trading Accounts, Profit and Loss
Account and Balance Sheet.

4. Analysing and Interpreting: Financial statements are analysed

and the result of the analysis is used as a guide to make decisions.

Bookkeeping Accounting
Bookkeeping is the initial step Involve all steps in accounting process.
in the accounting process.
Is a basic process involved Covering a wide field of bookkeeping.
debit and credit.
Bookkeeping is the process of Accounting is the process of
classifying, recording and classifying, recording and summarizing
summarizing business business transactions in monetary units
transactions and interpreting the financial data of
a business in order to assist
stakeholders in making decisions.

Table 1.1: Differentiate between bookkeeping and accounting

1
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION

1.1 ACCOUNTING CONCEPTS AND PRINCIPLES

Separate Business Entity

A business and its owner are two separate entities. The business’s
transactions must be accounted separately from the owner’s
transactions.

For example the accountant for a business with one owner

would record the activities of the business only, not the personal
activities, property, or debts of the owner.
Going Concern
It is assumed that a business will continue to expand and operate
in the future without being closed or sold.

This assumption allows companies to record all the fixed assets at

cost and allocated depreciation expenses throughout the
economic useful life of the fixed assets.
Monetary unit
Monetary unit means we should report all the business
transactions or events in monetary units. The monetary value is
assumed to be stable.

Example of monetary unit include Ringgit for Malaysia, Dollar for

United states, Singapore and Australia, Pound Sterling for United
Kingdom, Rupiah for Indonesia and Bhat for Thailand.
Accounting Period
Business activities can be divided into specific periods for
example a month, a quarter, six months or a year. The
accounting period must be consistent in order to enable
comparison of business performance between accounting
periods.
Accounting period is not necessarily follow a calendar year,
which ended on 31 December. Companies may start operation
anytime and report their business activities after twelve months
of operation.
Matching
In contrast to revenue recognition principles, matching principles
provides guidance in recognizing expenses. It main concern is to
report the expenses incurred in the same period as of the
revenue is actually earned because of these expenses.

This principle helps business to determine the profit or loss incurred

for the period by deducting the related expenses from the
revenue earned in the same period.
Historical Cost
Business should record the business activities based on the cost
value or the actual price stated in the source document, that is
the current value at the time of the transaction.

2
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION

For example, Izaq Enterprise purchases a lorry worth RM 80,000.

For the next year the price of the lorry was reduce to RM 75,000.
The value must be recorded is RM 80,000 because it is a cost
value.
Double Entry
Basic of an accounting recording system. It must have debit and
credit for every transaction.

For example, on 1 July 2008 cash purchase RM 5000. To record

this transaction we must debit the Purchase Account and credit
the Cash Account with the same amount RM 5000.

Business should report relevant, reliable, timely, unbiased and

free from mistakes or errors information about the business
activities.
Conservatism
A concept o care in recording transactions and preparing a
report. Revenue and expenses only recorded when it is happen.

Business must avoid overstating values of assets and revenue,

and understanding liabilities and expenses when recording
transactions.
Objectivity
Objectivity principle requires the accounting records and reports
be based upon objective evidence.

Examples for objective evidence are invoice, receipt, cash bill,

debit note, credit note and others.

1.2 ACCOUNTING CYCLE

[Link]
documen
t
[Link]
[Link] of prime
Reports entry

[Link]
[Link] s
Statements

[Link]
[Link]
Balanc
d Trial
e
Balance

[Link]

Figure 1.2: The accounting cycle

3
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION

Steps in the accounting cycle

1. The recording process consists of eight important steps as

shown in Figure 1.2.
a. The first step in accounting cycle is to identify the
transactions through the original source documents.
Examples of source documents are invoices, receipts,
debit notes, credit notes, purchase order and others.

b. Secondly, the transaction is recorded in the books of

prime entry. This is done by preparing journal, cash book
and petty cash to record the transaction.

c. Thirdly, post the transaction into the ledger account. The

ledger account should be close at the end of month.

d. The next steps are preparing the trial balance.

e. After trial balance is prepared, adjustment must be

made when there are have some error.

f. Then, the adjusted trial balance is prepared to ensure

that the debits and credits equal after making the
adjustment.
g. The financial statements which consists of Trading
Account, Profit and Loss Account and Balance Sheet
are prepared after the adjusted trial balance.

h. Lastly, these financial statements would be

incorporated into the firm’s financial reports.

1.3 USERS OF ACCOUNTING INFORMATION

1. The users of accounting information can be classified into

two categories:
a. Internal Users
b. External users

2. Internal users of accounting information can be defined as

a person who are inside the business and use the information
for day to day business decisions.

3. Examples of internal users are:

a. Management
Management uses financial information as a
guideline to plan, organize and control the
organization, and analyze the performance of the
business.
4
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION

b. Business owners
Owners contribute capital in the business and thus,
are exposed to maximum risk. Naturally, they are
interested in knowing the profit earned or loss
suffered by the business besides the safety of their
capital. The financial statements give the
information about profit or loss and financial position
of the business.

c. Current investors
Current investors need financial information about
the business’s liquidity position and finances, the
business’s prospects and ability to generate profit
and the ability of the management to handle the
business.

d. Employees and Workers

4. External users of accounting information can be defined as

individuals or other firm, institutions outside a business and
who are not involve in the day to day business operations or
decisions.

5. Examples of external users are:

a. Bank / Financial institutions
Banks or financial institutions need to know the ability
of a company or business to repay loans or debts.

b. Employee unions
Employee union uses financial information to ensure
that their demands to the employer such as salary
increments and other benefits are reasonable
compared with the company’s financial ability.

c. Suppliers
Financial information enables suppliers to evaluate
the company’s ability to pay its debts.

d. Government
Government bodies for example the Lembaga Hasil
Dalam Negeri (LHDN) refers to accounting
statements and financial reports in order to
determine the amount of tax to be paid.

e. Creditors
For determining the credit worthiness of the
organization. Creditors according to the assessment
of their customers’ financial health set terms of

5
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION

credit. Creditors include suppliers as well as lenders

of finance such as banks.

f. Investors and Potential Investors

Investment involves risk and the investors do not have
direct control over the business affairs. Therefore,
they rely on the accounting information available to
them and seek answers to the questions such as -
what is the earning capacity of the enterprise and
how safe is their investment?

g. Public
They want to see the business running since it makes
substantial contribution to the economy in many
ways, e.g., employment of people, patronage to
suppliers, etc. Thus, financial accounting provides
useful financial information to various user groups for
decision-making.

1.4 IMPORTANCE OF ACCOUNTING INFORMATION

1. The importance of accounting information is to give a

picture of the financial performance and financial position
of a company or business.

2. The purposes of recording and analyzing accounting

information are as follows:
a. To ensure the financial position of an organization
whether it is making a profit or loss.

b. Recording of accounting information will be easy for

future reference.

c. Management’s responsibility in a large organization

may be complicated if transactions are not
recorded accurately. Financial statements may
provide an inaccurate description of the business.

6
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION

INTRODUCTION

Definition of Bookkeeping and Accounting

Bookkeeping is the process of classifying, recording and

summarizing business transactions.

Accounting is the process of classifying, recording and

summarizing business transactions in monetary units and
interpreting the financial data of a business in order to
assist stakeholders in making decisions.

Accounting Concepts and Principles

 Separate Entity  Historical Cost

 Going Concern  Double Entry
 Monetary Unit  Full Disclosure
 Accounting  Conservatism
Period  Objectivity
 Matching

Accounting Cycle

[Link]
document

[Link] [Link] of
Reports prime entry

[Link] [Link]
Statements

[Link]
[Link] Balance
Trial Balance

[Link]

Users of Accounting Information

Internal users
 Management
 Business Owners
 Current Investor

External users
 Bank / Financial
Institution
Employee Union
 Suppliers 7
 Government
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION – QUESTION REVIEW

CHAPTER 1: INTRODUCTION TO ACCOUNTING

1. Complete the crossword:

Across Down
3. Users of financial information are informed of 1. all transactions are recorded at their
any facts necessary for the proper original cost
interpretation of the statements 2. a stable currency is used as a unit of
5. a business should generally use the same measure.
accounting methods from one period to the 4. to report the expenses incurred in the
next. same period as of the revenue is actually
7. This concept assumes that the business will earned because of these expenses.
continue to operate indefinitely 6. caution is used by recording losses when
8. Basic of an accounting recording system. It expected but gains when certain
must have debit and credit for every
transaction.
9. is the process of classifying, recording and
summarizing business transaction.
10. is each transaction must be recorded
based on objective evidence or verified and
unbiased information.

8
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION – QUESTION REVIEW

2. Complete the following accounting cycle:

1. ______________________
[Link]
document
2. ______________________
2.
8.
3. ______________________

4. ______________________
3
7. 5. ______________________

6. ______________________
4.
6.
7. ______________________

5. 8. ______________________

3. Based on the picture below, identify the accounting period:

i- ___________________

1st January 20X7 1st January 20x8 1st January 20X9

ii- __________________

1st January 20X9 31ST March 20x9 31st June 20X9

iii- _____________________

1st January 20X9 1st February 20x9 1st March 20X9

iv- ___________________

1st January 20X9 1st July 20x9 1st January 20X9

9
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION – QUESTION REVIEW

4. State the accounting concepts for the following transactions:

Bil Situation Accounting

Concepts
1. Malinja Travel will continue to operate the business
for a long time.
2. Berjaya Resorts assets is record at cost price, not at
market price.
3. Stable currency unit must used in business
transactions.
4. Purchases will debit, whereas Cash account will
credit; because of Cash Purchases transactions.
5. Financial report that prepared by account is based
on certain period.
6. Azman must record the cash drawing he made from
his own company.
7. Accounting is the real thing and based on evidents
of each transactions.
8. Expenses and revenues are recorded at the time
they occurred rather than at the time they are paid.

5. List THREE (3) Internal and External users of accounting information.

No Internal Users External Users

a a

b b

C c

Activity

One day you have visited your friend Merlina who runs a grocery shop and casually
talked about the accounts he maintains of his business unit. You were surprised to
note that he did not maintain accounts. Enquire from other businesspersons you
know about their accounting records and about the uses and purposes of
accounting. Explain them to your friend Merlina to motivate her to maintain
accounts of his business unit.

10
PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION – END OF CHAPTER 1

END OF CHAPTER 1
INTRODUCTION TO ACCOUNTING

INSTRUCTION: ANSWER ALL QUESTION BELOW

Question 1:
Define bookeeping and accounting.
Solution:
Bookeeping______________________________________________________________________

__________________________________________________________________________________

_________________________________________________________________________________

Accounting_______________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

Question 2:
Based on the situation in the box, explain the accounting concept that applied and
reason.
Situation 1:
If Jimmy Jones started a clothing retail store by investing RM 20, 000 cash into a
bank account in the business name and bringing in RM 8000 in value of clothing
inventories for resale, this is viewed as involving both the business Jones’ Clothing
Store and Jimmy Jones personally. The business now has RM 20 000 cash and RM
8000 in value of inventories that it now owns. An amount of RM 28 000 is owed by
the business to Jimmy Jones in a special account called ‘Capital’ (part of Equity)
which comprises the difference between the assets and liabilities of the business.

SOLUTION: Write you answer here

__________________________________________________________________________________

__________________________________________________________________________________

11
 PRINCIPLES OF ACCOUNTING FOR TOURISM & HOSPITALITY
CHAPTER 1_INTRODUCTION – END OF CHAPTER 1

Situation 2:
Accountants might recognize losses but not gains in certain situations. For example,
the company might write-down the cost of inventory, but will not write-up the cost
of inventory.

SOLUTION: Write you answer here

__________________________________________________________________________________

__________________________________________________________________________________

Situation 3:
1. An asset with a cost of RM 120000 is depreciated over its useful life of 10 years rather
than expensing the entire amount when it is purchased.

SOLUTION: Write you answer here

__________________________________________________________________________________

__________________________________________________________________________________

Question 3:
Identify the accurate date for the following accounting periods:
Duration Starting Date Closing Date

Yearly 30 June 2019

Monthly 1 February 2019

Semi Annually 1 March 2019

Quarterly 31 March 2019

12