Suggested Books

Financial Accounting, Jerry J. Weygandt, Donald E. Kieso,

Paul D. Kimmel, IFRS Edition

Horngren's Financial & Managerial Accounting Global

Edition, 7th Edition

Or any other Financial Accounting Book

 MUH3084MUHASEBE
EF212 INTRODUCTION to
ACCOUNTING
Contact : sezer.kulah@marmara.edu.tr
These lecture notes are prepared by the lecturer for Piri Reis
University students who are enrolled EF212 INTRODUCTION to
ACCOUNTING course. All copyrights belong to the lecturer of
the course. It cannot be used, reproduced or published in
other media in any way without the written permission of the
instructor.

PhD. Sezer KÜLAH

Accounting and the Business
Environment
 Definition of Accounting
• Accounting is about information.

• Accounting is the information system that;

• measures business activity,
• processes the data into reports,
• and communicates the results to decision
makers.
Definition of Accounting
• Accounting is defined by the American Institute of
Certified Public Accountants (AICPA) as "the art of
recording, classifying, and summarizing in a
significant manner and in terms of money,
transactions and events which are, in part at least,
of financial character, and interpreting the results
thereof."
1.1 Definition of Accounting
• Accounting is a system that provides information
on:
• Amounts of resources.
• How resources were financed.
• Results achieved by using resources.
1.2 Product of Accounting
• A key product of accounting is a set of documents
called the financial statements.

• Financial statements report on a business in

monetary terms.

• Basic financial statements are;

• The balance sheet (picture)
1.2 Product of Accounting
• A key product of accounting is a set of documents
called the financial statements.

• Financial statements report on a business in

monetary terms.

• Basic financial statements are;

• The balance sheet (picture)
• The income statement (movie)
• The statement of owner’s equity (movie)
 The
Accounting
Process

Accounting links
decision makers with
Economic economic activities Accounting
Activities ¾ and with the Information
results of their
decisions.

Decision Reported Results of

Actions Makers Actions (decisions)
(decisions)
Accounting Standards
Ensure high-quality financial reporting.
Primary accounting standard-setting bodies:
• International Accounting Standards Board (IASB)
o Determines International Financial Reporting Standards (IFRS)
o Used in more than 150 countries

• Financial Accounting Standards Board (FASB)

o Determines generally accepted accounting principles (GAAP)
o Used by most companies in the U.S.

LO 2
1.3 The Users of Accounting
Information
• The parties who are interested in the accounting
information are mainly,
• Management
• Workers, employees
• Shareholders, investors
• Creditors, financial institutions
• Government
• Competitors
• Suppliers
• Customers
 1.3 The Users of Accounting
Information
• Managers;
• Mangers need accounting information to plan, make
strategic decisions, allocate resources and control.
• Shareholders, investors;
• The needs of accounting information for shareholders
and investors are concerned with the risk inherent in,
and return provided by, their investments;
• Information to help them determine whether they should
buy, hold or sell
• Information to assess the ability of the enterprise to pay
dividends
1.3 The Users of Accounting
Information
• Creditors, financial institutions;
• Creditors, financial institutions need accounting information
to determine whether their loans and the interest attached to
them, will be paid when due.

• Government;
• Government and regulatory agencies are interested in
resource allocation and, therefore want to know about the
activities of enterprises. Also use accounting information in
decision to stimulate the economy, and to determine taxation
policies and assessments. And use some or all the
information in the calculation of national economic statistics.
1.4 Financial Accounting and
Management Accounting
FINANCIAL MANAGEMENT
• Provides information • Provides information
for external users: for internal users:
• Investors • Managers of the
• Bankers company
• Government
agencies
1.5 Categories of Accounting
Information
• Financial accounting.
• Management accounting.
• Tax accounting
1.5.1 Operating Information
• Needed to conduct day-to-day activities.
• Largest quantity of accounting data.
• Examples:
• Hours worked by employees for payroll purposes.
• Automobiles available for sale to customers.
• Amounts owed by customers.
• Parts and accessories on hand.

1-17
1.5.2 Financial Accounting
Information
• For external users (investors) and managers.
• Used by investors to make decisions to buy, sell or
hold shares of company.
• Primary financial statements:
• Balance sheet.
• Income statement.
• Statement of cash flows.
• Common rules used so investors can compare with
other companies’ financial statements.

1-18
1.5.3 Management Accounting
Information
• For internal users such as president, marketing
manager and production manager.
• Used for three functions of managers:
• Planning.
• Implementation.
• Control.

1-19
1.5.3 Planning

• Deciding what actions should be taken. Decision

making involves:
• Identify problem or opportunity.
• Specify and rank criteria.
• Identify alternatives.
• Use accounting and other information to analyze.
• Compare alternatives and select best.
• Budgeting = process of planning for a specified
time, often for one year.

1-20
Implementation
• Actions to provide human and other resources to
achieve planned results.
• Requires supervision of managers.
• Managers must change plans as conditions require.

1-21
1.5.3 Control

• Process to ensure employees perform properly.

• Accounting information is used to:
• Communicate. Inform employees of plans.
• Motivate. Encourage employees to act consistently with
organization’s goals.
• Direct attention. Provide feedback, that is, signal when a
problem may exist.
• Appraise. Provide information to appraise performance
of managers and other employees.

1-22
1.5.4 Tax Accounting Information
• Preparation of state, and other taxes.
• Tax accounting rules can differ from financial
accounting rules.

1-23
 1.6 Business Types and
Organizational Forms
• Business Types
• Service companies do not make or sell goods;
instead, they provide a service to customers or
clients.
• Manufacturers make products from raw inputs.
• Merchandisers sell the goods that manufacturers
produced. Merchandisers that sell exclusively to
other businesses are called wholesalers, while
those that sell to customers are called retailers.
 Business Types and Organizational
Forms
1.6.1 Organizational Forms
• A sole proprietorship is owned by one individual
who often manages the business.
• Profits and losses become a part of the proprietor’s
taxable income, and the proprietor is personally
liable for the debts of the company.
1.6.2 Business Types and
Organizational Forms
• A partnership is owned by two or more individuals
who agree on how to share profits (or losses) and
how ownership of the business can change.

• A corporation is a separate legal entity. It is taxed

separately from its owners, who cannot be held
liable for more than their investments in the
corporation.
• Ownership is divided into shares of stock that can be
easily traded between investors.
1.7 The accounting equation
• The basic tool of accounting is the accounting
equation. It measures the resources of a business
and the claims to those resources
1.7 The Accounting Equation

LIABILITIES
ASSETS
= OWNERS’
EQUITY