2. Accounting Methods for Measuring Performance
(a) Cash basis of accounting
Revenues are recognized when cash is received and expenses are recognized when cash is paid
(b) Accrual basis of accounting
Revenues and expenses are recognized on an economic basis regardless of when cash is paid or received
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Mugan-Akman 2007

3. Accounting Methods for Measuring PerformanceX
(a) Cash basis of accounting
Revenues are recognized when cash is received and expenses are recognized when cash is paid
(b) Accrual basis of accounting
Revenues and expenses are recognized on an economic basis regardless of when cash is paid or received
Chapter 2
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4. Recognition of Revenues
Significant risks and benefits of ownership passes from the seller to the buyer
(Transfer of title of goods)
Chapter 2
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5. Recognition of Expenses
Expenses are recognized when they are incurred and helped to produce revenues
Chapter 2
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6. Generally Accepted Accounting Principles and Concepts
Entity - Every entity is a separate economic unit and should be kept distinct from the activities of its owners and other companies
Monetary Unit- only economic events that have monetary transactions will be reported in the financial statements
Cost Principle- assets are presented at their original (historical) cost
Going Concern- companies are established with the goal that they will operate for an indefinitely long period of time
Periodicity - economic activities of any firm can be divided into discrete time periods for reporting purposes
Matching Principle -all revenues must be recorded in the accounting period in which the goods are sold or services are rendered and all expenses must be recorded in the accounting period in which they are incurred to produce such revenues
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7. Accounting Cycle Post the transactions and prepare trial balance
Analyze and record the transactions
Adjust the accounts and prepare trial balance
Prepare the financial statements
Close the accounts and prepare trial balance
Chapter 2
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8. Analysis and Recording Business Transactions
Business transaction is an economic event that causes a change in the financial position
Financial Position:
What we own
How we own
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9. Fundamental Accounting Equation
ASSETS = EQUITIES
ASSETS = LIABILITIES + OWNERS' EQUITY
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10. Transaction Analysis and The Duality Concept
if an asset account increases, because of duality concept there must be a corresponding
1.      increase in a specific liability account
2.     or a decrease in a another asset account
3.     or an increase in owners' equity account.
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11. How do we record?
an ACCOUNT: accounting report of a specific asset, liability or owners’ equity item
Has 3 elements: title, debit side and credit side (also called the “T-Account”)
Title
Debit
Credit
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12. How do accounts behave? Assets = Liabilities + Shareholders’ Equity
So Assets increase on the left hand or debit side then they decrease on the credit side
Assets
debit credit
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13. Liabilities or Owners’ Equity Accounts
Behavior of Accounts
Liabilities and Owners’ Equity accounts increase on the credit side, decrease on the debit side
Liabilities or Owners’ Equity Accounts
debit credit
Chapter 2
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14. Yağmur Bulut completed the following transactions during October 2007:
1 October, invested TL to start an accounting practice, Yağmur Bulut, SMMM
2 October, Rented office space and paid TL for October and November.
4 October, paid cash for a Dell computer, TL The computer is expected to remain in service for five years
5 October, purchased furniture and fixtures for the office on account, TL These items have an estimated useful life of 5 years.
6 October, purchased supplies on account, TL 150
8 October, performed tax filing services for a client on account, TL 375
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15. 27 October, paid the liability for the purchase of office supplies
22 October, made an agreement with a client to perform bookkeeping for 6 months and received TL in advance
23 October, the electricity invoice for an amount of TL 52 was received, which will be paid in November
27 October, paid the liability for the purchase of office supplies
29 October, the client who was billed on 8 October paid TL 275
31 October, Withdrew cash to pay her son’s school fee, TL 1.600
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16. Chapter 2
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17. Chapter 2
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18. Chapter 2
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19. Chapter 2
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20. Chapter 2
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21. Chapter 2
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22. Chapter 2
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23. Chapter 2
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24. Chapter 2
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25. Chapter 2
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26. Chapter 2
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27. Accounting Cycle Adjust the accounts and prepare trial balance
Post the transactions and prepare trial balance
Analyze and record the transactions
Adjust the accounts and prepare trial balance
Prepare the financial statements
Close the accounts and prepare trial balance
Chapter 2
Mugan-Akman 2007

28. Posting to The Ledger
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29. Chapter 2
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30. Chapter 2
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31. Chapter 2
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32. NORMAL BALANCES OF ACCOUNTS
Category of the Account
Increase Recorded By
Normal Balance
Assets
Debits
Debit
Liabilities
Credits
Credit
Shareholders’ Equity
Capital
Dividends or Withdrawals
Revenues
Expenses
Chapter 2
Mugan-Akman 2007