Download ACCOUNTING

Overview of Accounting
Environment and Financial
Statements
WHAT DO ACCOUNTANTS
DO?
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WHY DO THEY DO WHAT
THEY DO?
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WHAT ARE THE OUPUTS?
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WHO USE THE OUTPUTS?
HOW?
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Aim of the Accounting Information
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accounting is an information system that
measures, processes and communicates
financial information of an economic entity to
the decision makers
measurable
systematic
financial statements and other financial reports
economic entity is an economic organization that
acts independently
business entity is an economic entity that sells
goods or provides services
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Environment of a Business Organization
General Environment
of Businesses
Task Environment of Businesses
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Business Language
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Users of Accounting Information
Internal Users
1. Top management
2. Department managers
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executive officers
External Users
1. Users with direct financial interest
2. Users with indirect financial interest
1.
2.
creditors ; investors
government ; regulatory
agencies ; labor unions;
financial advisors; brokerage
firms; auditors; lawyers;
consumer groups; and
academicians
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Objective of Financial Statements
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the objective of financial statements is to provide
information to users to help them in their economic
decisions
the financial statements are expected to provide
information about the future cash flows of an entity,
its financial structure, profitability and liquidity, and
its financial position and changes in financial
position
financial statements provide information about
assets, liabilities, revenues, expenses and cash
flows
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Business Activities
Investing Activities
Operating Activities
Financing Activities
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Financing Activities
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initially - funds to setup a business
in later periods – funds to run operations and to
grow
obtaining such funds either from external or internal
sources
Funds obtained:
from creditors
Funds provided to: payment of
interest
repayment
of debts
Cash management
shareholders
payment of
dividends
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Investing Activities
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Spending the funds obtained effectively and
efficiently
involve purchase and sale of
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buildings, machinery or other investment instruments such
as government bonds, treasury bills
extending loans to other companies
are expected to contribute directly or indirectly to the
profit maximization and solvency goals of the
business
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Operating Activities
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involve the daily activities of the entities to run the
business
include
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sales and marketing of the goods sold and services
provided
production
purchasing merchandise and inventory items
managing human resources
effective and efficient management of operating
activities needed to achieve profitability and liquidity
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Financial Statements
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All financial statements are interrelated because
each statement provides information about a
different aspect of the same entity
financial statements :
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balance sheet
income statement
the cash flow statement
statement of changes in equity
Notes to the financial statements: accounting
policies and explanatory notes about various items
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Financial Statements
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balance sheet provides information about the financial position
or the resources available and the claims on these resources
income statement provides information about how well these
resources are used to generate income in a given period
cash flow statement provides information about the movement
in the cash and cash equivalents in a given period
both the income statement and the balance sheet are prepared
on accrual basis
the cash flow statement is prepared on cash basis of
accounting
in order to meet the objective of financial statements, certain
assumptions and qualitative characteristics are defined in the
framework by IASB
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Balance Sheet
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The main objective -to fairly disclose the financial
position of a company at a certain date
a balance sheet is made up of assets, liabilities and
owners' equity sections
IAS No.1 requires that the balance sheets should
give the name of the company, the date it is
prepared for, and the monetary unit and the level of
precision adopted e.g. stated in thousands of TL.
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Balance Sheet or Statement of Financial
Position
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As of a specific date
The amount of resources owned by a
company in order to run business and
How these resources were funded
Assets
Liabilities
Owners’ or Shareholders’ Equity – depending
on the formation of business
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Sections of Balance Sheet
Assets
Current Assets:Expected to be converted into cash within
the normal operating cycle or held for resale purposes
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Assets that are kept on hand for a short period and are expected
to be converted into cash within the twelve months following the
balance sheet date
Assets that are held primarily for the purpose of being traded, and
Unrestricted cash and cash equivalents
Long-term assets: Assets that the entity expects to
use longer than one year or the operating cycle; purpose
of providing resources for the operations of an entity in
the future
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Assets
Current Assets
Cash
Notes Receivable
Accounts Receivables
Trading Securities
Inventories
Prepaid Expenses
Long-Term Assets
Investments
Property, Plant And Equipment
Less: Accumulated
Depreciation
Intangible Assets, net
Natural Resources, net
Total Assets
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Liabilities
Any liability for which the amount can reasonably be estimated and
with known payment date should be disclosed in the liabilities
section of the balance sheet
Any liability with uncertain payment dates and amounts should be
disclosed in the notes to the financial statements
Liabilities to various entities or groups such as the creditors,
employees and customers should be clearly labeled and
disclosed
Classified as short and long-termCurrent liabilities include amounts with determinable amounts and payment
dates that are within the next year
Long-term liabilities are usually debts incurred by the entity for the purpose of
financing the operations and investments
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Shareholders’ Equity
includes the amounts invested in the business
by the founding owners or investors,
the earnings (losses) that are retained in the
business from previous years’ income
(losses)
current year income or loss *either separately
or within retained earnings
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Liabilities and Shareholders’ Equity
LIABILITIES
Current Liabilities
Short-term Bank Loans
Current Portion of Long-term Loans
Accounts Payable
Notes Payable
Customer Advances
Taxes Payable
Salaries and Wages Payable
Rent Payable
Long-Term Liabilities
Consumer Loans
Bonds Payable
Long-term Loans or Bank Loans
Lease Obligations
Total Liabilities
SHAREHOLDERS’ EQUITY
Common Stock (Share capital)
Preferred Stock
Additional Paid-In Capital
Treasury Stock
Retained Earnings
Reserves
Total Shareholders' Equity
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Balance Sheet
[Date]
(all numbers in NTL000)
ASSETS
LIABILITIES
Current Assets
Current Liabilities
Cash
Accounts payable
Accounts receivable
Short-term notes
(less doubtful accounts)
Current portion of long-term notes
Inventory
Interest payable
Temporary investment
Taxes payable
Prepaid expenses
Accrued payroll
Total Current Assets
Total Current Liabilities
Fixed Assets
Long-term Liabilities
Long-term investments
Mortgage
Land
Other long-term liabilities
Buildings
Total Long-Term Liabilities
(less accumulated depreciation)
Plant and equipment
(less accumulated depreciation)
Furniture and fixtures
(less accumulated depreciation)
Total Net Fixed Assets
Shareholders' Equity
Capital stock
Retained earnings
Total Shareholders' Equity
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Income Statement
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summarizes the revenues and expenses of
an entity for a certain period in time
reveals the results of operations during a
period
shows whether an entity is successful in
achieving the goal of profitability
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Income Statement
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flow statement reflecting the performance of a
company in terms of utilizing the resources in a
given period
provides information about the revenues and the
related expenses in a given period, as well as the
losses incurred in the same period
The bottom line figure of the income statement is
the profit or income of the period
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Sections of Income Statement
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Revenues from ordinary activities of an entity and the related
expenses are reported in accordance with the matching principle
 classified according to the function, such as cost of goods sold; or
according to the nature of the expense
 reported in a separate section that reports the results of the
ordinary activities.
The presentation and disclosure of discontinued operationsthe post-tax income or loss of the segment until disposition and
the post-tax gain or loss of disposing the segment is presented in
the income statement as separate line items
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Income Statement
[Name]
[Time Period]
in NTL 000
Revenue
Gross Sales
Less: Sales Returns and Allowances
Net Sales
0
Cost of Goods Sold
Beginning Inventory
Add:
Purchases
Freight-in
Direct Labor
Indirect Expenses
Inventory Available
Less: Ending Inventory
Cost of Goods Sold
Gross Profit (Loss)
0
0
0
Expenses
Advertising
Amortization
Bad Debts
Bank Charges
Charitable Contributions
Commissions
Contract Labor
Depreciation
Dues and Subscriptions
Employee Benefit Programs
Insurance
Interest
Legal and Professional Fees
Licenses and Fees
Miscellaneous
Office Expense
Payroll Taxes
Postage
Rent
Repairs and Maintenance
Supplies
Telephone
Travel
Utilities
Vehicle Expenses
Wages
Total Expenses
Net Operating Income
0
0
Other Income
Gain (Loss) on Sale of Assets
Interest Income
Total Other Income
Net Income (Loss)
0
0
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Cash Flow Statement
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deals with cash in-flows and out-flows
company resulting from operating, financing
and investing activities for a specific period
presents information regarding the goal of
liquidity
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Cash Flow Statement
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shows the amount of cash generated through
the three main activities of any entity
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Financing
Investing
Operating
a cash flow statement has also three sections
that parallel the main activities.
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Statement of Cash Flows
[Name][Time Period]
in NTL 000
Cash flows from operating activities
Cash received from customers
Cash paid for merchandise
Cash paid for wages and other operating expenses
Cash paid for interest
Cash paid for taxes
Other
Net cash provided (used) by operating activities
Cash flows from investing activities
Cash received from sale of capital assets (plant and equipment, etc.)
Cash received from disposition of business segments
Cash received from collection of notes receivable
Cash paid for purchase of capital assets
Cash paid to acquire businesses
Other
Net cash provided (used) by investing activities
Cash flows from financing activities
Cash received from issuing stock
Cash received from long-term borrowings
Cash paid to repurchase stock
Cash paid to retire long-term debt
Cash paid for dividends
Other
Net cash provided (used) in financing activities
Increase (decrease) in cash during the period
Cash balance at the beginning of the period
Cash balance at the end of the period
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Statement of Changes in Equity
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shows the amounts invested by the owners in a
given period, as well as the movements in the
shareholders’ equity accounts
main purpose of the statement is to present all the
changes that affected the shareholders’ equity in a
period
movements in the reserve accounts are based on
the profit appropriation of the prior period
retained earnings column in the statement reflects
the net of prior period income and losses
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Statement of Change in Equity
Preferred
Stock
Common Stock
[Name][Time period] in NTL 000
Additional
Retained Earnings
Paid-in Capital (Accumulated Deficit)
Total
Beginning balance
Issuance of stock
Net income (net loss)
Dividends
Other
Other
Other
Other
Ending balance
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Assets
Current Assets:
Cash
Long-term Assets
TOTAL ASSETS
Statement of Cash Flows
for the year 2005
Cash flow from operations
(+)Cash flow from investments
(+)Cash flow from financing
(=) Net Change in Cash
(+) Beginning Cash Balance
(=) Ending Cash Balance
Balance Sheet as of a date for a company
2004
2005
Liabities and Shareholders' Equity
Current Liabities
Long-term Liabilities
SHE
Sharecapital (common stock)
Retained Earnings
Total SHE
TOTAL LIABILITIES AND SHE
Statements of a single company
2004
2005 Income Statement
For the year 2005
Revenues
(-) Expenses
Net Income
Statement of Changes in Equity
for the year 2005
Beginning balance of SHE
(+) increase in capital
(-) dividends declared
(+/-) other changes
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(=) ending balance of SHE
Auditing and Auditors’ Opinion
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Independent audit of financial statements:
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purpose of an independent audit is to express an
opinion on the financial statements
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the examination of the financial statements, accounting
system and internal controls, and the accounting records of
a company
whether they are prepared in accordance with the generally
accepted accounting principles
whether they fairly present the financial position of the
company
auditors’ report implies that the financial statements
are free of material misstatements
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Board of Directors
XYZ Corporation
We have audited the accompanying balance sheets of XYZ Corporation as of 31
December 2005 and 2004, and the related statements of income, shareholders’ equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by the management, as
well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of XYZ Corporation at 31 December 2005 and 2004,
and the results of its operations and its cash flows for the years then ended, in
accordance with International Financial Reporting Standards as published by the
International Accounting Standards Board.
Signature of the Independent Auditor
Date and Place
of the Report
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Ethics in Accounting
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moral principles that an individual bases his/her behavior on
should the project manager give away bribes if the competitors
are also bribing?
if an accountant knows that a product is environmentally
hazardous although it is not illegal, should she or he report it to
the authorities even if s/he knows that she might lose her job?
the ethics committee is working on the professional rules of
conduct
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Regulatory Bodies
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National
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Capital Markets Board (CMB)
Ministry of Finance
Turkish Accounting Standards Board (TASB)
TURMOB (Union of Chambers of Certified Public
Accountants of Turkey)
International
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International Federation of Accountants
International Accounting Standards Board- International
Financial Reporting Standards (IFRS)
Financial Accounting Standards Board (FASB)
Federation of European Accountants (FEA)
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ACCOUNTING IN TURKEY
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Commercial Code of 1850 was a translation of the
French Commercial Code
formed the first accounting regulation in Turkey
second Commercial Code was enacted in 1926
code was based on the German commerce and
company laws that also regulated the accounting
practices
accounting system has been heavily influenced by
the American system or Anglo-Saxon system since
the beginning of the 1960's
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Accounting in Turkey
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The law of Istanbul Stock Exchange (ISE) in 1984,
but full operations started in 1986
Foundation of the Capital Markets Board (CMB)
and the Istanbul stock exchange, and the increase
in foreign investments advanced the development of
the accounting and auditing standards
Increase in joint ventures and foreign trade led to
establishment of offices of the then-"Big Eight"
accounting firms in Turkey
As a result of these developments, large private
enterprises started to report their financial
statements in accordance with the International
Accounting Standards in addition to national
reporting requirements
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Accounting in Turkey
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The first set of financial accounting standards
for the publicly owned and/or traded
companies was developed in January 1989
by the CMB to be in effect for the fiscal years
that start on or after January 1, 1989
However, accounting standards used by the
family-owned or small to medium sized
companies was, and to some extent still is,
treated as identical with tax accounting
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Uniform Chart of Accounts
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In 1992, Ministry of Finance organized a committee to instigate
the accounting principles and a uniform chart of accounts that
would be used by all companies
The Ministry published the committee's report in a communiqué
on December 26, 1992 establishing the principles and the
uniform chart of accounts to be in effect starting January 1,1994
All companies except banks, brokerage firms, and insurance
companies are required to conform
Banks are subject to accounting rules set by the Central Bank of
Turkey and Banking Regulation and Supervision Agency, and
brokerage and insurance firms comply with the CMB rules.
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Turkish Accounting Standards Board
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In February 1994, Turkish Accounting and
Auditing Standards Board (TAASB) was
formed
mission to develop accounting and auditing
standards
As of January 1, 2002, TAASB prepared 19
accounting standards under the name of
Turkish Accounting Standards (TAS) that were
published by TURMOB (Union of Chambers
of Certified Public Accountants of Turkey)
standards were not widely applied by the
Turkish companies and the Board was
dissolved and re-formed as the Turkish
Accounting Standards Board (TASB) under
the Prime Ministry in April 2002
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Regulatory Environment
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the Ministry of Finance's regulation of 1992, the
CMB rules, the Commercial Code and the
Procedural Tax Law, Banking Regulation and
Supervision Agency and the Central Bank
regulations
All profit oriented companies -The Commercial Code
and the Procedural Tax Law ; and Uniform Chart of
Accounts
Listed companies and financial intermediaries:
Uniform Chart of Accounts, Commercial Code and
Procedural Tax Law and CMB rules
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Current Status
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New CMB accounting standards in effect
starting 1 Jan 2005
Almost same as the IAS/IFRS
Traded companies are required to comply
TASB- officially translated the accounting
standards
Turkish Commercial Code – Expected to be
in effect mid 2006
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What is helpful for the decision maker is right for the company.
Or vice versa?
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