Money Management in the
Organizations
1- Accounting activities: Recording and analyzing
monetary information
2- Financial activities: Fund (money) raising and
investing decisions
Accounting Activities
1- Financial accounting: Provide financial information to
external parties
2-Managerial accounting: Provide financial information
to people (managers) inside the organization to plan,
administer and control
Comparison of Financial and
Managerial Accounting
 Financial accounting
Provides financial information to external parties
The objective is to enable outsiders to evaluate
organization’s performance
Must use Uniform Chart of Accounts
Emphasis is on summarized data such as Balance sheet,
Income statement and Financial ratios
Mandatory for external reports
Comparison of Financial and
Managerial Accounting-2
 Managerial accounting
Provides financial information to people inside the
organization
The objective is to enable managers to plan, direct and
control the organizational activites in an effecient way
Need not use Uniform Chart of Accounts
Emphasis is on detailed departmental reports relevant
with every other activity within the organization
It is not mandatory
Accounting Process
1- Relevant documents: collect receipts, invoices,
statements as proof of organizations’ business
activities
2- Transactions: Record every business activity by two
sets of entries (debit and credit) based on relevant
documents
3-The journal account: Enter every transaction into its
relevant account in the journal in a chronological
order
Accounting Process-2
4-The ledger Account: Transfer every journal entry to
relevant single account page in ledger
5- Financial statements: Prepare the summarized charts
based on ledger accounts which shows the
organization’s performance result at the end of the
period (balance sheet, cash flow, income statement)
6-Financial ratios: Make analysis of the organizational
performance based on financial statements (liqudity
ratio, leverage ratio, activity ratio, profitability ratio)
Accounting
Accounting is the process of identifying,
recording, summarizing, evaluating and
reporting the monetary information about
business activities to the interested parties.
People in Accounting
 Accountants
They are the responsible and technically equipped
people who are involved in accounting activities.
Chartered (certified) accountants provide services
related to accounting activities such as auditing, tax
work and management consulting to the general
public on a fee basis.
Certified(chartered ) financial consultants has
assumed significant accounting and audit
responsibilities of the large companies relating to tax
laws and regulations.
People in Accounting-2
 Independent accounting and financial consultants
 Independent accountants
They are not obligated to swear but have assumed the
accounting and audit responsibilities.
SOME TERMS IN ACCOUNTING
 TRANSACTIONS
DEALS HANDLED WHEN DOING BUSINESS
 ACCOUNT
THE SUMMARY FORM OF A RECORD OF A PARTICULAR ASSET,
LIABILITY OR OWNER’S EQUITY
 THE JOURNAL (yd)
A BOOK IN WHICH ACCOUNTANTS RECORD TRANSACTIONS IN
CHRONOLOGICAL ORDER
 THE LEDGER (d-k)
ANOTHER BOOK IN WHICH ALL SEPARATE ACCOUNTS TRANSFERRED
FROM THE JOURNAL ARE RECORDED AND KEPT
FINANCIAL STATEMENTS
BALANCE
SHEET
INCOME
STATEMENT
CASH-FLOW
STATEMENT
(PROFIT AND LOSS
STATEMENT)
SHOWS
FINANCIAL
STATUS OF THE
ORGANIZATION AT
A PARTICULAR
INSTANT DATE
SHOWS
REVENUES,
EXPENSES AND
NET INCOME(OR
LOSS) OF THE
ORGANIZATION
OVER A PERIOD
OF TIME
SHOWS CASH
RECEIPTS AND
CASH PAYMENTS
OF THE
ORGANIZATION
DURING A PERIOD
OF TIME
FINANCIAL RATIOS – I
SHOW THE FINANCIAL-BASED CONNECTIONS BETWEEN THE ACCOUNTS
THAT EXIST IN FINANCIAL STATEMENTS
 LIQUIDITY RATIOS
SHOW THE ORGANIZATION’S CASH CAPABILITY TO MEET ITS
SHORT-TERM LIABILITIES
CURRENT RATIO=CURRENT ASSETS / CURRENT LIABILITIES
QUICK RATIO = CURRENT ASSETS(LESS INVENTORY) / CURRENT LIABILITIES
 LEVERAGE RATIOS
SHOW THE RELATIONSHIP BETWEEN ASSETS AND SOURCES OF
FUNDS SUPPLIED BY THE CREDITORS AND OWNERS
DEBT-TO EQUITY=TOTAL LIABILITIES /OWNER’S EQUITY
DEBT-TO-TOTAL ASSETS=TOTAL LIABILITIES /TOTAL ASSETS
FINANCIAL RATIOS – II
SHOW THE FINANCIAL-BASED CONNECTIONS BETWEEN THE ACCOUNTS THAT
EXIST IN FINANCIAL STATEMENTS
 PROFITABILITY RATIOS
SHOW THE ORGANIZATION’S OVERALL FINANCIAL
PERFORMANCE INTERMS OF PROFIT GENERATION ABILITY
RETURN ON EQUITY(ROE)=PROFITS(AFTER TAX) / OWNER’S EQUITY
RETURN ON INVESTMENT(ROTA)=PROFITS (AFTER TAX) / TOTAL ASSETS
RETURN ON SALES(ROS)=PROFITS (AFTER TAX) / TOTAL SALES
 ACTIVITY RATIOS
SHOW THE RELATIONSHIP BETWEEN KEY ASSETS AND SALES
INVENTORY TURNOVER RAT.=COSTS OF GOODS SOLD /AVERAGE INVENTORY
AVERAGE INVENTORY=(BEGINNING INVENTORY+ENDING INVENTORY) / 2
TYPES OF COSTS-I
(ACCORDING TO THEIR INVOLVEMENT IN MANUFACTURING OR NON-MANUFACTURING
OPERATIONS)
MANUFACTURING COSTS
 DIRECT MATERIAL
COSTS
 DIRECT LABOR COSTS
 MANUFACTURING
OVERHEAD COSTS
NON-MANUFACTURING
COSTS
 MARKETTING AND
SELLING COSTS
 ADMINISTRATIVE COSTS
TYPES OF COSTS-II
(ACCORDING TO THEIR RESPONDING TO CHANGES IN THE LEVEL OF BUSINESS ACTIVITY)
VARIABLE COSTS
FIXED COSTS
(COSTS THAT VARIES IN DIRECT
PROPORTION TO CHANGE IN
THE LEVEL OF ACTIVITY)
(COSTS THAT REMAIN CONSTANT
REGARDLESS OF CHANGES IN
THE LEVEL OF ACTIVITY)
TYPES OF COSTS-III
(ACCORDING TO THEIR BEING ASSIGNED INTO SPECIFIC COST OBJECT)
DIRECT COSTS
INDIRECT COSTS
(COSTS DIRECTLY RELATED WITH
SPECIFIC COST OBJECT AND
THEREFORE BEING DIRECTLY
ASSIGNED INTO THOSE)
(COSTS THAT ARE NOT DIRECTLY
RELATED WITH SPECIFIC COST
OBJECT AND THEREFORE
CANNOT BE ASSIGNED INTO
THOSE SPECIFIC COST OBJECT)
COSTING METHODS
 PROCESS COSTING SYSTEM
(USED WHEN ORGANIZATIONS PRODUCE NUMEROUS UNITS OF SINGLE
PRODUCTS FOR LONG PERIODS AT A TIME)
UNIT COST=TOTAL MANUFACTURING COSTS /TOTAL UNITS PRODUCED
 JOB-ORDERING COSTING SYSTEM
(USED IN COMPANIES WHERE VARIETY OF DIFFERENT PRODUCTS ARE PRODUCED
EACH PERIOD)
Planning and Control
 Cost-Volume-Profit (CVP) Analysis
A tool in managerial accounting to understand the
interrelationship between cost,volume and profit in
the organizations.
Managers primarily focus on interactions among these
elements:
-Price of products
-Volume of activity
-Variable costs per unit
-Total fixed costs
-Mix of products sold
This is vital for planning and decision-making.
Planning and Control-2
 Break-even Analysis is one of the important elements in
cost-volume-profit analysis.
 It is designed to respond to questions concerning the
minimum point of total cost that organizations may suffer
without losing money. This point is the break-even point
and indicates where organization revenues meet and
compensate the costs. This point can easily be calculated
by dividing the fixed expenses by the unit contribution
margin
 Contribution margin: A porpotion of unit price that goes
into fixed expenses and is calculated by deducting the
variable expense per unit from the revenue per unit.
Inflation Accounting
 A system of accounting that tries to allow for the
effects of enflation. Syf 226dan devamına bak