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chapter 2, - - Coggle Diagram
chapter 2
Purpose of financial statements: to report on the financial position of an entity
Accounting information types:
Financial account
: geared toward external users of accounting information
Management accounts
: aimed more st internal users of accounting information
Main financial statements: - The profit and loss accoutn for the reporting period
A balance sheet for the business ar the enf of the reporting period
A cash flow statement for the reporting period
ASSETS
a resources with economic value that an individual, corporation or country owns or controls with th expectation that it will provide future benefit
representing what a firm owns
Current assets : inventory, consumed within one year.
Fixed assets : items as buildings and equipment, expected to keep providing benefits for more than one year
Example: Cash, Receiveables, Supplies, Machinery, Land, Inventory held for sure.
LIABILITY
a company's legal debt or obligations that arise during the course of business operations
Example: Accounts payable, Notes payable, Bank loan payanble, Mortgage payable
OWNER EQUITY
ownership in any assets after all debts asspciated with that asset are paid off.
OWNER EQUITY = ASSETS - LIABILITIES
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EXPENSES
money spent or costs incurred that are tax-deductible and reduce taxable income
Includes payments upplier, employess wages, factory leases and depreciation
Example: Advertising expense, Supplies expense, Telephone expense, Utilities expense, Wages expenses, Rent expenses, Insurance expenses.
REVENUE
the amount of money that is brought into a company by its business activities
In goverment, revenue recive from taxation, fees, fines, inter-govermental grants or transfer, securities sales.
Example : Sales, Commision earned, Rent revenue, Interest earned.
PROFIT AND LOSS STATEMENT
Definition: a financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time.
Income Statement : The statement of profit and loss follows a general form.
Main component :
Revenue
Cost of goods sold
Gross profit
Expenses
Net profit
the improtance :
Show the business growth and fiancial halth over time
Provide proof of income if you need a loan or mortgage
calculate your income and expenses when completing and submitting your tax return
The Basic Management Function in Business
Planning
Organizing
Leading
Controlling
Planning
the function of management of systematically making decisions about goals to be achieved and activities or actions needed to achieve those goals that an individual, a group, a work unit, or the overall organization will pursue in the future
Activities
Analyzing the current situation
Anticipating the future
Determining the organizing
Deciding the activities to be involved
Choosing strategies
Determining resources to achieve organizational goals
Organizing
The management function of assembling and coordinating human, financial, physical, information, and other resources and other resources needed to achieve organizational goals.
Activities
Specifying job responsibilities
Grouping jobs into work units
Resources allocation
Leading
The management that involves the manager's efforts to stimulate high performance by employees and includes directing, motivating, and communicating with employees, individually and in groups.
Activities
Directing the workforce
Motivating the subordinates
Communicating with employees
Controlling
The function of management of monitor progress and make needed changes to make sure the organizational goals are achieved.
Activities
Setting performance standards that indicate progress toward long-term goals
Monitoring staff performance through performance data evaluation
Identifying performance problems by comparing performance data against standards and taking corrective actions.
The formation of new business
1) Sole proprietorship
owned by one person but it needs to be operated by that person alone
have a large scale of employees.
Advantages
Owners have absolute freedom in decision-making
All profits will be the owner's personal property
No reports of accounts are required
The owner needs to pay personal income tax and business tax
Disadvantages
Limited source of capital, limited business activity
The liability business is limited. The owner must be prepared to settle the debt with his assets.
The future development is limited and depends on the management capability of the owner and the condition of his health.
Limitation of Sole Proprietorship
Owners are responsible for debts and risks of the business
No difference between the owner's personal and business property.
The Theliabilitiess are limited, which means risks and failures in the business will involve e owner's personal property.
Partnership
Advantages
Partnership means having more expertise and more resources for
capital
Partnership means business risks can be distributed and shared among
partners
Limitations of Partnership
All partners carry the same responsibilities. This means that you are liable for risks and debts of the business even if it is caused by the actions of your partners. With unlimited liability, each partner is also liable to use their private resources to meet the partnership's debts.
Disagreements and disputes may occur among partners and this may disrupt business plans or
operational efficiency.
Private Limited Company
Sendirian Berhad (SDN BHD) is a private limitedcompany, where it prohibits any invitation to thepublic to subscribe to any of its shares, depositmoney with the company for investment orsubscription
Sendirian Berhad (SDN BHD) is a private limitedcompany, where it prohibits any invitation to thepublic to subscribe to any of its shares, depositmoney with the company for investment orsubscription
Advantages
the liability "protection" to its shareholders limited their exposures to the amount of share capital that they subscribed for.
Existing members can transfer his
shareholding, wholly or partially, through the selling of his shares
Disadvantages
The company's financial affairs will be accessible to the public/
The company had to perform annual audits on its financial statements.
Incorporation cost is high, and there are yearly recurring fees to be paid such as
audit, accounting, company secretarial, and tax fees
Public Limited Company
Berhad (BHD) is a public limited company where its
shares can be offered to the public forfixed periods
and any otherforms ofsubscription.
The minimum amount of members (shareholders) are TWO (2) and maximum of unlimited amount of members.
3 types of limited companies in M'sia
Limited by share
Limited by guarantee
Unlimited company with/without share capital
Various ways to start a new business
1) Establish a new business
Create a business plan
Choose a busines structure
Choose and register your business
Obtains business licenses and permits
Filing and paying taxes
Choose location and equipment
Hire and retain employees
Disadvantages
High commitment
High risk
Delayed profitability
Limited finacing
2) Buying an existing business
Buying a business can be quicker, easier and less risky than starting one from scratch.
easier to borrow money to buy a business with an established customer base, supplier network and healthy balance sheet.
Advantages
Some of the groundwork will already have been done.
easier for you to get finance
A market for the product or service will have already been demonstrated.
A business plan and marketing method should already be in place
Diadvantages
often need to invest a large amount up front, and will also have to budget for professional fees for solicitors, surveyors, accountants etc.
If the business has been neglected you may need to invest quite a bit more on top of the purchase price to give it the best chance of success
3) Franchise
enables you to buy into a ready-made brand, usually one with an established trade mark and successful format, which can improve your chances of success.
Advantages
an use a recognized brand name and trade mark.
The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same region, though there will be competition from other businesses.
Risk is reduced and is shared by the franchisor.
Disadvantages
Costs may be higher than you expect.
The franchise agreement usually includes restrictions on how you run the business.
Reduced risk means you might not generate vast
profits.
The Sources of Capital for Entrepreneurship activities :
Personal funds
Family and friends
Banks and otherfinancial institutions
Support agencies
The facilities provided by government agencies and private sector to help implement and develop the industrial enterprise
Financial institution
Financial institutions include banks, credit unions, asset management firms, building societies, and stock brokerages, among others.
Example: MIDF, MARA, Bank Pembangunan Malaysia, AgroBank, Bank industri Malaysia.
Management and Entrepreneurship
•Offering courses and training on the systematic management of financial,
quality control, sales, marketing, layout, etc.
Example: MDEC MARA MARDI SIRIM
Technical and Technology Support
To increase the technical knowledge available among the
entrepreneurs to attend the education provided
•Entrepreneurs can learn about the latest technology, especially in
the areas of manufacturing and management
Example: SIRIM MARA MARDI PORIM
Marketing Support
Will provide support services to entrepreneurs in the distribution, produced by entrepreneurs in and outside the country
Promote marketing and export of local products
-Example: MITI FAMA PERNAS EDAR MATRADE
Research and Project Recognition
Identify projects viable
Doing research on marketing, technology, statistics and other
Making research-based products such as wood products, textiles, machinery
-Example: MITI FAMA PERNAS EDAR MATRADE
Infrastructure Support (location and premise)
•Provide site preparation services in accordance with the pattern of business location business or enterprise will be developed
Example: MARA, UDA, SEDCs (State Economic Development Corporation)
BALANCE SHEETS
The financial statement used to report on the financial position of the business to the owner and other stakeholders such as banks and investors.
summary of business financial position at a particular point in time
KEY SECTION
ASSETS
,
LIABILITIES
,
OWNER EQUITY
.
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