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 to interested users.

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.

Communicating includes preparing financial reports.

Bookkeeping is an activity or occupation of keeping records of the financial transactions.

Bookkeeping is an accounting action that usually refers only keeping of the chronological diary of financial transactions while the concept of recording includes classifying and measuring as well.

You should understand the needs of users because information users focus on different financial information according to their relevant decision making issues.

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.

Managers of a company who plan, organize, and run the business are the most important group of internal users.

The primary external users are investors and creditors.

Financial accounting is the main tool to answer the questions asked by external users. In other words, financial accounting provides information about the business entity to external information users.

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.

Accounting standards are a set of principles companies follow when they prepare and publish their financial statements, providing a standardized way of describing the company’s financial performance.

Measurement refers to the valuation of assets and liabilities in accounting process.

Relevance refers the impact capacity of financial information on the decisions of information users.

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

The economic entity assumption requires that the financial transactions of the entity should be recorded separately from the economic activities of its owner and all other economic entities.

The basic accounting equation provides the underlying framework for recording and summarizing the financial transactions of a business entity. It shows the relationship among assets, liabilities, and owner’s equity. Assets are on the left side of the equality while liabilities and owner’s equity are on the right side of the equality.

Assets are economic resources that are expected to benefit the business in the future.

Liabilities are debts that are owed to creditors.
Liabilities are claims of creditors against to assets of the company

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.

Identification of transaction includes analyzing of each transaction in terms of its effect on the items of the accounting equation, identifying the specific items affected and determining the amount of the change in each item.

Each transaction has two aspects and both of them will affect the statement of financial position. So, each transaction has a dual effect on the accounting equation. Dual effect means that at least two items must be affected by a transaction and accounting equation has to remain in balance after making the changes in accounting equation.

Financial statements are the business documents that are used to communicate financial information needed in decision making process.

Statement of cash flows is a financial statement that shows the change in cash position of the company over an accounting period.