The galaxy luminosity function and galaxy stellar mass function are fundamental statistics in the testing of galaxy formation models. Theoretical predictions based on cosmological simulations can deviate from observations, especially at the bright and faint ends. In this case, the mismatch may come from missing physics, oversimplified or inaccurate model recipes, or inappropriate methods of extracting basic astrophysical quantities from simulations. The latter is a crucial aspect to consider to avoid misleading conclusions when comparing simulations with observations. In this paper, we apply a new method to produce 'observed' galaxies identified in mock imaging of hydrodynamical simulations. We generate low-redshift mock galaxies from the TNG100-1 simulation of IllustrisTNG and analyse them using standard 'observational' techniques to extract their main structural parameters. We show that our technique can produce realistic surface-brightness distributions of the simulated galaxies, including classical morphological substructures, such as spiral arms and bars. In particular, we find a very good agreement of the total luminosity and stellar mass versus halo mass relationships, and the galaxy stellar mass versus size relationship between mock observations and real galaxies. We also compare the luminosity function and the mass function of the mock galaxy sample with literature data and find a good agreement at all luminosity and mass scales. In particular, we find no significant tension at the bright end of the galaxy luminosity function, as reported in many analyses using simplified recipes to identify galaxy haloes, which in fact miscount the contribution of the extended galaxy haloes around large galaxies. This demonstrates the critical importance of using observation-driven approaches to simulation analyses to produce realistic predictions to compare with observations.