İntroduction to Business 2 BUS 102 Erlan Bakiev, Ph. D. Zirve University BUS 102

Basic Accounting Concepts

What Is Accounting? FinancialAccountingFinancialAccountingManagementAccountingManagementAccountingCommunicationMeasuring Interpreting Decision Making

What Accountants Do TaxAccountingTaxAccounting BookkeepingBookkeeping FinancialAnalysisFinancialAnalysis CostAccountingCostAccounting

Ten Most Important Accounting Skills AnalyticalAnalytical Problem solvingProblem solving InterpersonalInterpersonal ListeningListening CommunicationCommunication LeadershipLeadership Decision makingDecision making Time managementTime management TeamworkTeamwork ComputerComputer

Types of Accountants PrivatePublic Internal Audit Internal Audit CPA CMA CPA CMA External Audit External Audit CPA

Typical Finance Department Vice President Manufacturing Vice President Manufacturing Vice President Finance Vice President Finance Vice President Sales Vice President Sales President Board of Directors Board of Directors Controller Treasurer Director of Capital Budgeting Director of Capital Budgeting Credit Manager Credit Manager Inventory Manager Inventory Manager Cost Accounting Cost Accounting Tax Department Tax Department Financial Accounting Financial Accounting

Accounting Rules Generally Accepted Accounting Principles (GAAP) International Accounting Standards (IAS) Financial Accounting Standards Board (FASB) Securities and Exchange Commission (SEC)

Sarbanes-Oxley Act Disadvantages Investor Protection Authority of Auditors Conflict of Interest Corporate Accountability Enforcement Issues Implementation Cost of Compliance Reporting Requirements Advantages

Fundamental Accounting Concepts Accounting Equation Double-Entry Bookkeeping Matching Principle

Critical Thinking 1.What effect does unreliable or uncertain accounting have on Turkish economy? 2.Do Turkish companies need to worry about accounting rules and regulations in other countries? Why or why not? 3.Will requiring CEOs to personally attest to the accuracy of financial statements eliminate errors and misrepresentations? Why or why not?

Accounting Equation Owner ’ s Equity: Accounting Equation: Assets = Liabilities + Owner’s Equity Assets – Liabilities = Owner’s Equity

Maintaining Balance MatchingPrincipleMatchingPrincipleCashBasisCashBasisAccrualBasisAccrualBasisDouble-EntryBookkeepingDouble-EntryBookkeepingExpensesExpensesRevenuesRevenues LiabilitiesLiabilitiesAssetsAssets

Critical Thinking 1.Would the current amount of the owner’s equity be a reasonable price to pay for a company? Why or why not? 2.How does a double-entry bookkeeping help to eliminate errors? 3.Why is accrual-based accounting considered more fraud-proof than cash-based accounting?

How Are Financial Statements Used?

Understanding Financial Statements Income Statement Balance Sheet Cash-Flow Statement

The Balance Sheet Statement of Financial Position AssetsLiabilitiesOwners’ Equity Calendar Year Fiscal Year

The Income Statement Revenues Cost of Goods Sold Operating Expenses Net Operating Income Net Income After Taxes

Cash-Flow Statement Investments Operations Financing

Critical Thinking 1.Why is the balance sheet sometimes compared to a photograph? 2. How could two companies with similar gross profit end up with dramatically different net operating income?

Analyzing Financial Statements Trend Analysis Ratio Analysis Uncover Business Shifts Consider Extraordinary Circumstances Consider Extraordinary Circumstances Consider More Than One Ratio Consider More Than One Ratio Check Specific Data

Types of Financial Ratios ProfitabilityProfitability ActivityActivity LiquidityLiquidity LeverageLeverage

Profitability Ratios Return on Sales = Net Income Net Sales Return on Equity = Net Income Total Owner ’ s Equity Earnings per Share = Net Income Average Shares Outstanding

Liquidity Ratios Working Capital = Current Assets – Current Liabilities Current Ratio = Current Assets Current Liabilities Quick Ratio = Current Assets – Liabilities Current Liabilities

Activity Ratios Inventory Turnover = Cost of Goods Sold Average Inventory Receivables Turnover = Sales Average Accounts Receivable

Leverage Ratios Debt to Equity = Total Liabilities Total Equity Debt to Total Assets = Total Liabilities Total Assets