Accounting and Finance for Non-Specialists

Cover......Page 1
Brief contents......Page 6
Contents......Page 8
Preface......Page 16
Ackowledgements......Page 18
 Introduction......Page 22
 Who are the users of accounting information?......Page 23
 Providing a service......Page 26
 Weighing up the costs and benefits......Page 28
 Accounting as an information system......Page 30
 Management accounting and financial accounting......Page 32
 Scope of this book......Page 34
 The changing face of accounting......Page 35
 Why do I need to know anything about accounting and finance?......Page 36
 The quest for wealth creation......Page 37
 Meeting the needs of other stakeholders......Page 38
 Balancing risk and return......Page 41
 Not-for-profit organisations......Page 42
 Summary......Page 44
 Key terms......Page 45
 Review questions......Page 46
Part One FINANCIAL ACCOUNTING......Page 48
  Introduction......Page 49
  The major financial statements – an overview......Page 50
  The statement of financial position......Page 55
  The effect of trading transactions......Page 62
  Classifying assets......Page 64
  Classifying claims......Page 67
  Statement layouts......Page 68
  Capturing a moment in time......Page 70
  The role of accounting conventions......Page 71
  Money measurement......Page 75
  Valuing assets......Page 78
  Meeting user needs......Page 84
  Summary......Page 86
  Further reading......Page 88
  Exercises......Page 89
  Introduction......Page 92
  The income statement......Page 93
  Different roles......Page 94
  Income statement layout......Page 95
  Further issues......Page 98
  Recognising revenue......Page 101
  Recognising expenses......Page 105
  Depreciation......Page 110
  Costing inventories......Page 120
  Trade receivables problems......Page 125
  Uses and usefulness of the income statement......Page 127
  Summary......Page 129
  Review questions......Page 131
  Exercises......Page 132
  Introduction......Page 136
  The main features of limited companies......Page 137
  Managing a company......Page 143
  The UK Corporate Governance Code......Page 146
  Financing limited companies......Page 148
  Borrowings......Page 156
  Withdrawing equity......Page 157
  The main financial statements......Page 160
  Dividends......Page 163
  Additional financial statements......Page 165
  The need for accounting rules......Page 168
  Sources of accounting rules......Page 169
  The auditors’ role......Page 170
  Management commentary......Page 171
  Creative accounting......Page 173
  Summary......Page 177
  Key terms......Page 179
  Review questions......Page 180
  Exercises......Page 181
  Introduction......Page 185
  The statement of cash flows......Page 186
  Why is cash so important?......Page 187
  A definition of cash and cash equivalents......Page 189
  The layout of the statement of cash flows......Page 191
  The normal direction of cash flows......Page 194
  Preparing the statement of cash flows......Page 196
  What does the statement of cash flows tell us?......Page 206
  Summary......Page 209
  Review questions......Page 210
  Exercises......Page 211
  Introduction......Page 216
  Financial ratios......Page 217
  Financial ratio classifications......Page 218
  The need for comparison......Page 219
  Calculating the ratios......Page 221
  A brief overview......Page 222
  Profitability......Page 224
  Efficiency......Page 231
  Relationship between profitability and efficiency......Page 237
  Liquidity......Page 239
  Financial gearing......Page 241
  Investment ratios......Page 246
  Trend analysis......Page 255
  Limitations of ratio analysis......Page 256
  Summary......Page 260
  Key terms......Page 261
  Review questions......Page 262
  Exercises......Page 263
Part Two MANAGEMENT ACCOUNTING......Page 268
  Introduction......Page 269
  What is meant by ‘cost’?......Page 270
  Relevant costs: opportunity and outlay costs......Page 271
  Fixed cost......Page 275
  Variable cost......Page 277
  Finding the break-even point......Page 279
  Margin of safety......Page 286
  Operating gearing......Page 290
  Weaknesses of break-even analysis......Page 292
  Using contribution to make decisions: marginal analysis......Page 295
  Summary......Page 303
  Further reading......Page 305
  Exercises......Page 306
  Introduction......Page 310
  Why do managers want to know the full cost?......Page 311
  Single-product businesses......Page 313
  Multi-product businesses......Page 314
  Overheads as service renderers......Page 319
  Activity-based costing......Page 331
  Using full (absorption) cost information......Page 340
  Summary......Page 343
  Review questions......Page 345
  Exercises......Page 346
  Introduction......Page 350
  How budgets link with strategic plans and objectives......Page 351
  Time horizon of plans and budgets......Page 353
  How budgets help managers......Page 354
  Budgets and forecasts......Page 356
  How budgets link to one another......Page 357
  Using budgets in practice......Page 360
  Preparing budgets......Page 361
  Budgeting for control......Page 368
  Measuring variances from budget......Page 369
  Making budgetary control effective......Page 376
  Behavioural issues......Page 377
  The use of variance analysis......Page 378
  Summary......Page 380
  Review questions......Page 382
  Exercises......Page 383
Part Three FINANCE......Page 388
  Introduction......Page 389
  The nature of investment decisions......Page 390
  Investment appraisal methods......Page 391
  Accounting rate of return (ARR)......Page 393
  Payback period (PP)......Page 398
  Net present value (NPV)......Page 402
  Why NPV is better......Page 409
  Internal rate of return (IRR)......Page 410
  Some practical points......Page 416
  Investment appraisal in practice......Page 420
  Investment appraisal and strategic planning......Page 422
  Summary......Page 423
  Key terms......Page 425
  Exercises......Page 426
  Introduction......Page 432
  Internal sources of finance......Page 433
  Internal sources of long-term finance......Page 434
  Internal sources of short-term finance......Page 435
  External sources of long-term finance......Page 438
  Forms of borrowing......Page 442
  External sources of short-term finance......Page 453
  Long-term versus short-term borrowing......Page 456
  Gearing and the financing decision......Page 457
  Raising long-term finance......Page 459
  The role of the Stock Exchange......Page 464
  The Alternative Investment Market......Page 467
  Providing long-term finance for the small business......Page 468
  Islamic finance......Page 470
  Summary......Page 472
  References......Page 475
  Exercises......Page 476
  Introduction......Page 481
  What is working capital?......Page 482
  The scale of working capital......Page 484
  Managing inventories......Page 487
  Managing trade receivables......Page 498
  Managing cash......Page 508
  Managing trade payables......Page 517
  Summary......Page 522
  Review questions......Page 525
  Exercises......Page 526
Appendix A: Glossary of key terms......Page 530
Appendix B: Solutions to self-assessment questions......Page 544
Appendix C: Solutions to review questions......Page 559
Appendix D: Solutions to selected exercises......Page 571
Appendix E: Present value table......Page 599
Index......Page 601