Importance of Bookkeeping in Business

Coach name: Victor Yong

E-mail: victoryong.uwealth@gmail.com
About Me
Victor Yong is a Licensed Financial Advisor, FAR licensee under Bank Negara Malaysia and Licensed Financial Planner with expanded
scope to advise on equities, debentures or warrants listed on Bursa Malaysia, CMSRL licensee under Securities Commission Malaysia.
He is with UOB Kay Hian Wealth Advisors Sdn Bhd. He helps clients in a variety of areas in managing their finances, such as
comprehensive financial plan, retirement, investing, education, insurance, and taxes. In his previous engagements, he played various roles,
from Head of Finance, Head of Internal Audit, Certified Trainer and Entrepreneur. He has co-authored a book titled “Money Guide for
Individuals and Companies”. This book was published by DOCR Business Advisory Services and is currently being sold in bookstores
nationwide and online including Popular and MPH.

QUALIFICATIONS:
Master of Finance (RMIT University, Australia)
Chartered Global Management Accountant (CGMA®) (CIMA, UK)
Certified Financial Planner (CFP®) (CFP Board, USA)
Certified Internal Auditor (CIA®) (IIA, USA)
Bachelor of Economics (Hons) (Industrial Economics) (National University of Malaysia)
Digital Marketing Quantum Degree (Next Academy, Malaysia)
Design & Deliver Effective Derivatives Training / TTT (Securities Industry Development Corporation, Malaysia)
Certified Trainer / TTT (IRS/HRD CORP, Malaysia)
HRD CORP Registered Trainer (Malaysia)
Licenced Independent Financial Adviser (BNM/SC Malaysia – CMSRL/C0035/2020)
The FIFA Certificate of Franchising Management and Leadership, Philippines

PROFESSIONAL AFFILIATIONS:
Malaysian Institute of Accountants – Chartered Accountant
Financial Planning Association of Malaysia – Certified Member
 About Me (Continued)

https://mphonline.com/products/money-guide-for-individuals-companies
https://www.popularonline.com.my/malay/catalog/product/view/_ignore_category/1/id/180137/s/9789671898000/?did=5897
The purpose of coaching is to unlock people's potential to maximize their own
performance. It is helping them to learn rather than teaching or telling them. Take
learning to walk as an example – most people don't learn how to walk by instruction.
Learning Objective:

Bookkeeping refers to the recording of financial transactions, and is part of the process
of accounting in business and other organisations. Bookkeeping is important to any
business because it facilitates budgeting. With your income and expenses properly
organised, it is easy to review your financial resources and costs. Bookkeeping is also
important to file your personal tax return, because for any business owners, a large
part of their income comes from business.

Learning Outcome:

At the end of this session, you will be able to:

1. Understand the importance of bookkeeping to provide information for decision-
making
2. Use information from bookkeeping for performance management
3. Learn about the significance of bookkeeping for audit and taxation purpose.
Section 1 - Introduction
Definition

Bookkeeping - the job or activity of keeping an accurate record of

the accounts of a business.

Source: https://www.oxfordlearnersdictionaries.com/definition/english/bookkeeping#:~:text=bookkeeping-
,noun,a%20businessTopics%20Jobsc2
Section 1 (Lecture 1) – Bookkeeping vs. Accounting

 The distinctions between accounting and bookkeeping are subtle yet essential when
considering a career in either field. Bookkeepers record the day-to-day financial
transactions of a business. Accountants, by contrast, focus more on the big picture.

 With bookkeepers, there are a lot of minutiae involved, and keen attention to detail is
paramount. Meanwhile, accountants tend to use the bookkeeper's inputs to create financial
statements and periodically review and analyze the financial information recorded by
bookkeepers. They conduct audits and forecast future business needs.

 The two careers are similar, and accountants and bookkeepers often work side by side.
These careers require many of the same skills and attributes. However, significant
differences exist, like work conducted in each career and needed to be successful. For
example, the education requirements, skills required, typical starting salaries, and job
outlooks.

 It is not an unusual career move for a bookkeeper to gain experience at a job and then
study, get certified, and work as an accountant.

Source: https://www.investopedia.com/articles/professionals/091715/career-advice-
Section 1 (Lecture 2) – Education Requirements

Bookkeeper – no statutory requirements, with or without paper qualification.

Accountant – essential to be a member of Malaysian Institute of Accountants

(MIA) to practise in Malaysia. For example, C.A. (M).

Source: https://www.mia.org.my/v2/default.aspx
 Section 2 – Requirements of MIA
The recognised bodies for the purposes of sections 14(1)(b) and 15(b) are:
[Am. Act A1099]
(a)
Malaysian Association of Certified Public Accountants;
(b)
Institute of Chartered Accountants of Scotland;
(c)
Institute of Chartered Accountants in England and Wales;

(d)
Institute of Chartered Accountants in Ireland;
(e)
Association of Chartered Certified Accountants (United Kingdom);
(f)
Institute of Chartered Accountants in Australia;

(g)
Australian Society of Certified Practising Accountants;
(h)
New Zealand Chartered Accountants;
(i)
Canadian Institute of Chartered Accountants;
(j)
Institute of Chartered Accountants of India; and
(k)
Chartered Institute of Management Accountants (United Kingdom).
Source: https://www.mia.org.my/v2/membership/services/legislation_details.aspx?ID=6
Section 2 – Requirements of MIA
(a) the final examination of the University of Malaya for the Diploma Perakaunan
(Diploma in Accounting);
(b) the final examination of the University of Malaya for the Ijazah Sarjana Muda
Perakaunan (Degree of Bachelor of Accounting);
(c) the final examination of the Universiti Kebangsaan Malaysia for the Ijazah Sarjana
Muda Perakaunan (Kepujian) (Degree of Bachelor of Accounting (Honours));

(d) the final examination of the MARA Institute of Technology for the Diploma
Lanjutan Perakaunan (Advanced Diploma in Accountancy);
(e) the final examination of the Universiti Teknologi MARA for the Ijazah Sarjana Muda
Perakaunan (Degree of Bachelor of Accounting);
(f) the final examination of the Universiti Utara Malaysia for the Ijazah Sarjana Muda
Perakaunan (Kepujian) (Degree of Bachelor of Accounting (Honours));
(g) the final examination of the Universiti Pertanian Malaysia for the Ijazah Bacelor
Perakaunan (Kepujian) (Degree of Bachelor of Accounting (Honours));

(h) the final examination of the Universiti Putra Malaysia for the Ijazah Bachelor
Perakaunan (Kepujian) (Degree of Bachelor of Accounting (Honours));
(i) the final examination of the Universiti Islam Antarabangsa for the Ijazah Sarjana
Muda Perakaunan (Kepujian) (Degree of Bachelor of Accounting (Honours));

(j) the final examination of the Universiti Sains Malaysia for the Ijazah Sarjana Muda
Perakaunan (Kepujian) (Degree of Bachelor of Accounting (Honours));
Section 2 – Requirements of MIA
(k) the final examination of the Universiti Utara Malaysia for the Degree of Bachelor of
Accounting (Honours)(Information System);
(l) the final examination of the Universiti Tenaga Nasional for the Degree of Bachelor of
Accounting (Honours), the academic programme for which first commenced from the
academic year 2002/2003 onwards;
(m) the final examination of the Universiti Multimedia for the Degree of Bachelor of Accounting
(Honours), the academic programme for which first commenced from the academic year
2002/2003 onwards;
(n) the final examination of the Kolej Universiti Sains dan Teknologi Malaysia for the Degree of
Bachelor of Accounting (Honours);
(o) the final examination of the Universiti Malaysia Sabah for the Degree of Bachelor of
Accounting (Honours);
(p) the final examination of the Universiti Industri Selangor for the Degree of Bachelor of
Accounting (Honours);
(q) the final examination of the Universiti Sultan Zainal Abidin for the Degree of Bachelor of
Accounting (Honours);
(r) the final examination of the Universiti Sains Islam Malaysia for the Degree of Bachelor of
Accounting (Honours);
(s) the final examination of the Universiti Tunku Abdul Rahman for the Degree of Bachelor of
Accounting (Honours);
(t) the final examination of the INTI International University for the Degree of Bachelor of
Accounting (Honours);
(u) the final examination of the Management and Science University for the Degree of Bachelor
in Accountancy (Honours), the academic programme for which first commenced with the
academic session November 2010 onwards.
Source: https://www.mia.org.my/v2/membership/services/legislation_details.aspx?ID=6
Section 3 (Lecture 1) – Providing Bookkeeping Service

What are bookkeeping costs?

 The average hourly wage for a bookkeeper in the U.S. is $22 per hour.

 CPAs typically charge $200 – $250 per hour. Top bookkeepers in major
cities may charge $500 per hour (or more).
Section 4 (Lecture 1) – The Basic Steps Of Double Entry Bookkeeping

1.Business transactions produce documents.

2.The information from the documents is recorded into journals.

3.The data is taken from the journals and entered (posted) into ledgers.

4.Each ledger contains various accounts, listed in the chart of accounts.

5.These accounts are totaled and balanced in line with the accounting equation.

6.The accounts are balanced by using debits and credits, which is the core foundation of
double-entry bookkeeping.

7.A trial balance can be produced to ensure that the books actually balance and that the
debits and credits have been posted correctly.

8.Finally Financial Statements are prepared.

Source: https://www.beginner-bookkeeping.com/double-entry-bookkeeping.html
Section 4 (Lecture 2) – Types of Journal

•Purchase journal.

•Purchase return journal.

•Sales journal.

Sales return journal.

•Cash receipts journal.

•Cash payment/disbursement journal.

•Journal proper/General journal.

Source: https://www.iedunote.com/types-of-accounting-journal
Section 5 (Insight - Reintroducing GST)
By JALBIR SINGH RIAR
TAXATION
Wednesday, 15 Jun 2022

Prime Minister Datuk Seri Ismail Sabri Yaakob

indicated that the government was keen to bring
back the goods and services tax (GST) as a means
to expand the nation’s revenue base and
replenish the federal coffers.

Source: https://www.thestar.com.my/business/business-news/2022/06/15/reintroducing-gst
Section 6 (Lecture 1): Finance Smart - Penny Wise and Pound
Foolish
 The accounting department is the most sensitive operating function of any company. There
are five fundamental roles within the department, namely, accounts receivable, accounts
payable, taxation, financial controls and financial reporting.

 The head of the accounting department knows much strategic or essential information
regarding the company such as product or service cost, gross margin, suppliers, customers
and many more.

 He/she will report a company’s revenue, cost of sales, gross or net profit, operating
expenses, taxes and net profit or loss at the end of the month and year.

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 6 (Lecture 2): Finance Smart - Penny Wise and Pound
Foolish (Continued)
 Many Small and Medium Enterprises (SMEs) and startups do not employ Chartered Accountant or
member of the Malaysian Institute of Accountants (MIA). The accounting department is usually
managed by the largest shareholder or the company owner and/or a reliable employee that may or
may not have the professional qualification and experience to do the job.

 If someone manages the accounting department without the right professional qualification and
experience, it is very likely many mistakes, and even frauds will happen. SMEs and startups should
contract the services of a professionally qualified accountant on a monthly retainer basis if they could
not afford to employ him/her as an employee.

 As the SME or startup grows, the head of the accounting department should be a Chartered
Accountant or member of MIA with adequate management experience because financial
management and accountability become more complex, sophisticated and demanding nowadays.

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 7 (Section 1) - How to Recognise the Red
Financial Flags of a Company
 It is essential to know and understand the red flags indicating the deterioration of the financial health of a
company. If the financial deterioration is not mitigated or stopped, the company may become insolvent.

 Some SMEs evade tax with two books of accounts even though it is illegal. One that is for internal use and another
one is used for statutory audit and declared to the IRB.

 The internal book of accounts is likely fraught with mistakes which may be done intentionally or carelessly due to
human intervention of updating the accounting entries.

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 7 (Lecture 2) - How to Recognise the Red
Financial Flags of a Company
 It is crucial to understand whether the performance of the company is in tandem with the business cycle of its
industry and also the country economic indicators and business environment. It would be strange that despite high
revenue with low operating expenses, the company continues to report a loss.

 The external auditor plays a vital role as an independent party to ascertain and verify the accounting entries made
by the company. The external auditor usually makes reclassification of some accounting entries based on the
actual documents. The external auditor will detect wrong accounting entries if thorough due diligence work has
been performed.

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 8 (Lecture 1) – Red Flags of Failing Businesses

 Many big companies with continued losses are treated well by creditors. However, smaller companies are
often pressured by creditors when they have reported losses for one or two years.

 A high gearing company allocates a significant portion of gross profit to pay off finance cost. The company
is vulnerable to the fluctuations in sales volume and the continued credit terms given by creditors.

 Financial ratios are useful to analyse a company. Some of these ratios are important to monitor
continuously such as the gearing ratio, the current ratio, the quick ratio, the stock turnover ratio, the debtor
collection period, the gross profit ratio and net profit ratio. However, financial ratios also have limitations.
Different industries have different industry norms. Financial ratios are distorted if inaccurate financial
data/information are used.

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 8 (Lecture 2) – Red Flags of Failing Businesses

 Under-capitalised companies often face problems in financing their business activities. Shareholders are
less motivated to keep the company afloat and less likely to inject additional fund to protect their initial
investment and prevent capital erosion.

 Cashflow budget is of utmost importance to a company. A company will head for trouble if cashflow budget
is not prepared. It shows that management fails to identify future cash requirements and
surplus/deficiencies. A company needs planning especially during the economic crisis. Planning allows a
company to deploy resources to exploit an opportunity as it arises and also to avoid business failure.

 Companies should increase their capital in tandem with expansion. This is to reduce the cost of borrowings
that would affect cash flow after the expansion is completed. Cost per sale will rise substantially due to
overtrading.

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 8 (Lecture 3) – Red Flags of Failing Businesses

 A company is sustainable over the long term if its profit margin, internal reserves and market share are not
eroded consistently. Investors should also be careful when a company only relies on one big project, using all its
resources and does not try to mitigate or avoid its risk factors.

 Companies should not use short-term borrowings to finance long-term assets with long payback periods. It will
strain the cashflow and cause severe disruption to cash flow if the borrowing environment in such case changes
abruptly.

 A decline in service standard and product quality will happen when a company is in financial distress. Companies
in distress will tend to reduce expenditures, product quality and service standard. As a result, sales will be lost and
harder to generate or attain new sales.

 The ability to raise a large amount of money can be a double-edged sword. Many companies raise a lot of money
for corporate ego and invest the easy money poorly or without enough study/analysis.

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 9 (Lecture 1) - Statements of Profit or Loss

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 9 (Lecture 2) - Statement of Financial Position

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 9 (Lecture 2) - Statement of Financial Position
(Continued)

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
 Section 10 (Lecture 1) – Financial Statement Analysis

Current Ratio = Current Assets / Current Liabilities

This ratio measures the ability of a company to meet its
current debts as they fall due.

2020
RM 4,287.7 million / RM 2,132.5 million = 2.01 times

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Quick Asset Ratio = (Current assets – stocks – pre-payments) / (Current liabilities –

overdraft)

This ratio excludes the stocks and pre-payments from the current assets
and bank overdraft from the current liabilities; this is a better measure
for liquidity. Stock and pre-payment are not easily converted into cash.
Banks do not demand overdraft re-payment quickly.

2020
(RM 4,287.7 million – RM 530.7 million – RM 74.9 million) / (RM 2,132.5
million – RM 314.2 million) = 2.03 times

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Total Asset Turnover Ratio = Sales / Total assets

This ratio measures the efficient use of total assets to generate sales per ringgit.

2020
RM 7,237.4 million / RM 8,706.0 million = 0.83 times

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Debtors Collection Period = (Trade Debtors x 365 days) / Net Credit Sales

This ratio shows how quickly cash is collected from book

debts or debtors.

2020
(RM 771.1 million x 365 days) / RM 7,237.4 million = 39 days

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Stock Turnover Ratio = Cost of Goods Sold / Average Stock

This ratio shows the effectiveness with which a business is employing its inventory.

2020
RM 4,387.0 million / [ (RM 629.9 million + RM 530.7 million) / 2 ] = 7.56 times

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Capital Gearing Ratio = Long-term Loans / Shareholders’ Funds

It measures long-term loans to shareholders’ funds.

2020
RM 226.3 million / RM 4,870.8 million = 0.05 times

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Interest Cover Ratio = Profit Before Interest and Taxes / Interest Expenses

It measures the ability of a company to meet its interest payments. Interest

payments only require sufficient cash, not merely sufficient profit to pay its debts.

2020
(RM 2,165.6 million + RM 34.4 million) / RM 34.4 million = 63.95 times

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Return on Assets = (Profit Before Interest and Taxes / Total Assets) x 100%

It measures how much profit the business earned relative to the assets it had
to work with. It is a measure of both profitability and efficiency.

2020
[ (RM 2,165.6 million + RM 34.4 million) / RM 8,706.0 million) ] x 100% =
25.3%

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Return on Equity = (Net Profit After Tax / Shareholders’ Funds) x 100%

This ratio shows the relationship between net profit after tax and shareholder’s investment in the
company. Return on equity is affected by how efficiently a firm has used its assets and how those
assets are financed.

2020
(RM 1,788.8 million / RM 4,870.8 million) x 100% = 36.7%

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Earnings Per Share = Net Profit After Tax / Number of Ordinary Shares

Earnings per share (EPS) is the amount of net profit per ordinary share. Fund managers and other
professional investors often check the year-on-year trend in EPS for a single company.

2020
RM 1,752.6 million / 2,592.5 million = 67.60 sen

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Price-Earnings Ratio = Market Price Per Share / EPS

This ratio shows how many times the amount of current EPS, investors are willing to pay to buy one
share of a company.

2020
RM 8.76 / 67.60 sen = 12.96 times

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Gross Profit Margin = (Gross Profit / Net Sales) x 100%

This ratio shows how much is generated after deducting the cost of goods sold from net sales.

2020
(RM 2,850.4 million / RM 7,237.4 million) x 100% = 39.4%

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Section 10 (Lecture 1) – Financial Statement Analysis

Net Profit Ratio = (Net profit before tax / net sales) x 100%

This ratio indicates the net profit margin earned on every sales ringgit.

2020
(RM 2,165.6 million / RM 7,237.4 million) x 100% = 29.9%

Source: Money Guide for Individuals & Companies (2021). Publisher: DOCR Business Advisory Services. Eva Wong & Victor Yong.
Conclusion

 Tax
 Audit
 Performance Management
 Budgeting
 Fundraising
 Loan
 Exit/disposal
Thank You & God Bless!