Principles of Financial Accounting

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Chapter 1Business Activities and the Role of
Accounting
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Learning Objectives
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1.Determine the aim of the accounting
information 2.Identify the users of accounting
information 3.Understand the effects of
technological developments on the accounting
profession 4.Determine the main business
activities of a business entity
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Learning Objectives
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5.Identify the principal financial
statements 6.Understand the independent auditors
role in the accounting information 7.Identify
the organizations regulating the accounting
profession 8.Determine the career opportunities
in accounting
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Aim of the Accounting Information
Accounting is an information system that
measures, processes and communicates financial
information of an economic entity to the decision
makers
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Within the business system the accounting
information system can take the central position
because it gathers data from other subsystems and
also provides information and data to the other
subsystems
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• The accountants role in the business
  organization can be grouped as follows
• To measure the financial performance and
  position periodically and to prepare the
  financial statements accordingly (financial
  accounting)
• To prepare reports to support management in the
  decisions of costing and budgeting (managerial
  accounting)

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Users of Accounting Information

• Internal Users
• 1.Top management
• 2. Department managers

• External Users
• . Users with direct financial interest
• (creditors, investors)
• . Users with indirect financial interest
• (tax authorities regulatory agencies like CMB,
  Central Bank Council of Banks Audit
  Regulation)

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Business Goals and Strategies
Business Goal is the target of a business entity
towards which all efforts are directed -
profitability (maximizing the profit earned from
operations) - liquidity (having adequate funds
to pay the obligations when they are due)
Business Strategies are the means to achieve the
set goals
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Business Activities
Investing Activities
Operating Activities
Liquidity
Profitability
Financing Activities
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Operating Activities
Involve the daily activities of the
entities Sales and marketing of goods sold and
services provided Production Purchasing
merchandise Managing human resources
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Financing Activities
Are the activities that deal with obtaining funds
internally or externally Cash management Repaymen
t of debts Distribution of dividends
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Investing Activities
Spending the funds obtained effectively and
efficiently Purchase and sale of
buildings Purchase and sale of investment
instruments
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Principal Financial Statements
Income Statement Balance Sheet Cash Flow
Statement Statement of Changes in Equity
The preparation of these four statements is
required by the International Financial Reporting
Standards (IFRS)
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Income Statement
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Trends

• Currently the global trend is convergence of
  accounting standards
• The ultimate goal is to create a single set of
  high quality standards International Financial
  Reporting Standards (IFRS)
• Several nations have already taken steps to
  converge their regulatory framework with the
  requirements of the IFRS

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Case of Turkey

• The immediate effect of such developments on the
  Turkish accounting systems preparation of a new
  set of CMB rules that are essentially the same as
  the International Financial Reporting Standards.
• Inflation accounting and accounting for long-term
  investments standards that are in line with IFRS
  went into effect in year 2003.
• The new set of other standards is also in line
  with IFRS and will be effective in year 2005.
• Hence, comparison of Turkish financial statements
  with their international counterparts is
  facilitated

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Accounting Profession in Turkey
Acc. to law No 3968 enacted in 1989 regulating
the accounting profession in Turkey, the three
categories of accountants and their
responsibilities are

• Independent Accountant (IA)
• Practicing accountant who can keep the
  accounting records of companies and develop
  accounting systems within companies.
• Independent Accountant and Financial Advisor
  (IAFA)
• Apart from the responsibilities of IAs, IAFAs
  can conduct audit and perform consulting
  services.
• Sworn Financial Advisor (SFA)
• Sworn financial advisors cannot keep accounting
  records of their clients. The have the
  responsibility of certifying the financial
  statements as defined by the law.

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Career Opportunities in Accounting
Controller Internal Auditor Independent
Auditor Management Consultant Careers in Public
Sector