MUHASEBE I

Accounting is an information system which provides financial information about the entity for decision makers. This system includes three kinds of basic activities which are identifying, recording and communicating of the financial transactions of an entity.

The first step of the accounting process consists of identifying the financial transactions related with the organization.

At the last step, the company communicates the summarized information obtained from the records to decision makers (information users) by using standardized reports which are called financial statements.

Two main groups of information users are internal users and external users.

Managers are internal information users and the others are external users.

The primary external users are investors and creditors.

Ethics are the humanly devised rules, procedures, and norms to judge one’s action as right or wrong, honest or dishonest, and fair or not fair.

Assets are economic resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Revenues are the gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income.

The first step of the accounting process consists of identifying the financial transactions related with the organization. The sale of a table by a furniture shop, the payment of wages or the provisions for services are the examples of financial transactions. Once these kinds of financial transactions are realized and identified in Turkish Liras or in another currency, these events are recorded to provide the history of financial activities of the organization. Recording is a systematic way of keeping chronological diary of events measured in monetary unit. At the last step, company communicates the summarized information obtained from the records to decision makers (information users) by using standardized reports which are called financial statements. E is the right answer

Who uses accounting numbers? To answer that question, the accountant must be clear for whom the information is being prepared and for what purpose the information will be used. There are likely to be various information users such as owners, managers, creditors, suppliers etc. You should understand the needs of users because information users focus on different financial information according to their relevant decision making issues. The best way of explaining the needs on financial information is to make a classification of potential users. Two main groups of information users are internal users and external users. We can also classify accounting as Managerial Accounting and Financial Accounting according to this classification of information users. C is the right answer.

Accounting standards are a set of principles and rules that companies follow when they prepare and publish their financial statements, providing a standardized way of describing the company’s financial performance.
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Assets are recorded at their cost when acquired by the company and this value stays same over the time according to the historical cost principle. On the other hand, the fair value principle dictates that assets and liabilities should be reported at their fair values. Simply, fair value refers the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Therefore, contrary to historical cost principle, the recorded monetary amount of the asset should be revalued at reporting date according to the fair value principle. E is the right answer.

The monetary unit assumption requires that financial transactions can only be recorded if the transaction data can be expressed in money terms. B is the right answer.

A sole proprietorship is a business owned and run by one person. They are often small type businesses (e.g. auto repair shops, used-books stores etc.). Usually a small amount of capital is needed and the owner is entitled to all profits. The owner is also personally responsible for all debts and liabilities of business. In short, there is no distinction between the business and its owner, but the accounting records of the business activities are kept separate from the personal records of its owner. D is the right answer.

In the basic accounting equation, assets must always equal the sum of liabilities and owner’s equity. The order and position of the assets, liabilities, and owner’s equity in the equation does not reflect a random situation. Assets are always showed on the left side of the equation while liabilities and owner’s equity are always showed on the right side of the equation. The logic of this positioning creates the background of using debits and credits in recording process. C is the right answer.

Assets are economic resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. In short, assets are economic resources a business owns and assets will provide future services or benefits. B is the right answer.

There are four main factors which increase or decrease the level of owner’s equity: Contributions by owner(s), distributions to owner(s), revenues and expenses. D is the right answer.

Revenue is the gross inflow of economic benefits during the period arising from the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. In other words, revenues are earnings that result from delivering goods or services to customers. In this sense, revenues are the gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income. For examples, selling goods (sales), performing services (fees), lending money (interest), leasing machine (rent) all create revenues for a given period. A is the right answer.