Financial accounting for decision makers

Cover......Page 1
Title page......Page 4
Copyright page......Page 5
Brief contents......Page 6
Contents......Page 8
Preface......Page 15
How to use this book......Page 17
Acknowledgements......Page 19
 Learning outcomes......Page 22
 Who are the users of accounting information?......Page 23
 How useful is accounting information?......Page 25
 Providing a service......Page 27
 Weighing up the costs and benefits......Page 29
 Accounting as an information system......Page 31
 Management accounting and financial accounting......Page 33
 Scope of this book......Page 35
 The changing face of accounting......Page 36
 Accounting for business......Page 37
 What is the purpose of a business?......Page 38
 What kinds of business ownership exist?......Page 39
 How are businesses organised?......Page 41
 Meeting the needs of other stakeholders......Page 42
 Balancing risk and return......Page 44
 Reasons to be ethical......Page 46
 Not-for-profit organisations......Page 47
 Summary......Page 49
 Review questions......Page 51
 Learning outcomes......Page 52
 The major financial statements – an overview......Page 53
 The statement of financial position......Page 57
 The effect of trading transactions......Page 63
 Classifying assets......Page 65
 Classifying claims......Page 68
 Statement layouts......Page 69
 The role of accounting conventions......Page 71
 Money measurement......Page 75
 Valuing assets......Page 77
 Meeting user needs......Page 82
 Summary......Page 84
 Key terms......Page 86
 Exercises......Page 87
 Learning outcomes......Page 90
 The income statement......Page 91
 Different roles......Page 92
 Income statement layout......Page 93
 Further issues......Page 95
 Recognising revenue......Page 98
 Recognising expenses......Page 101
 Profit, cash and accruals accounting......Page 105
 Depreciation......Page 106
 Costing inventories......Page 115
 Trade receivables problems......Page 121
 Self-assessment question......Page 125
 Summary......Page 126
 Key terms......Page 127
 Exercises......Page 128
 Learning outcomes......Page 133
 The main features of limited companies......Page 134
 Public and private companies......Page 137
 Taxation......Page 139
 The role of the Stock Exchange......Page 140
 Capital market efficiency......Page 141
 Managing a company......Page 142
 Financing limited companies......Page 143
 Share capital......Page 144
 Reserves......Page 147
 Bonus shares......Page 149
 Borrowings......Page 151
 Raising share capital......Page 153
 Withdrawing equity......Page 159
 The main financial statements......Page 162
 Dividends......Page 165
 Self-assessment question......Page 167
 Summary......Page 168
 Key terms......Page 169
 Review questions......Page 170
 Exercises......Page 171
 Learning outcomes......Page 177
 The need for accounting rules......Page 178
 Sources of accounting rules......Page 181
 Problems with standards......Page 184
 Accounting rules or accounting choice?......Page 186
 The IASB framework......Page 187
 The auditors’ role......Page 189
 Presenting the financial statements......Page 190
 Directors’report......Page 197
 Strategic report......Page 198
 Accounting standards and accounting policies......Page 200
 Creative accounting......Page 203
 Self-assessment question......Page 211
 Summary......Page 212
 Exercises......Page 214
 Learning outcomes......Page 217
 The statement of cash flows......Page 218
 Why is cash so important?......Page 219
 A definition of cash and cash equivalents......Page 221
 The layout of the statement of cash flows......Page 222
 The normal direction of cash flows......Page 225
 Preparing the statement of cash flows......Page 227
 What does the statement of cash flows tell us?......Page 235
 Problems with IAS 7......Page 238
 Self-assessment question......Page 239
 Summary......Page 240
 Further reading......Page 241
 Exercises......Page 242
 Learning outcomes......Page 251
 Provisions......Page 252
 Contingent liabilities......Page 255
 Contingent assets......Page 258
 Internally-generated intangible assets......Page 259
 Leases......Page 263
 Borrowing costs......Page 270
 Self-assessment question......Page 272
 Summary......Page 273
 Review questions......Page 275
 Exercises......Page 276
 Appendix: Time value of money......Page 279
 Learning outcomes......Page 283
 Financial ratios......Page 284
 Financial ratio classifications......Page 285
 The need for comparison......Page 286
 Calculating the ratios......Page 287
 A brief overview......Page 290
 Profitability......Page 291
 Efficiency......Page 297
 Relationship between profitability and efficiency......Page 303
 Liquidity......Page 305
 Operating cash cycle......Page 307
 Financial gearing......Page 311
 Self-assessment question......Page 316
 Summary......Page 317
 Further reading......Page 318
 Exercises......Page 319
 Learning outcomes......Page 327
 Investment ratios......Page 328
 Financial ratios and the problem of overtrading......Page 337
 Key performance indicators......Page 338
 Common-size financial statements......Page 339
 Trend analysis......Page 343
 Using ratios to predict financial failure......Page 344
 Limitations of ratio analysis......Page 349
 Self-assessment question......Page 352
 Summary......Page 353
 Review questions......Page 354
 Exercises......Page 355
 Learning outcomes......Page 363
 What is a group of companies?......Page 364
 How do groups arise?......Page 365
 Types of group relationship......Page 372
 Preparing a group statement of financial position......Page 374
 Goodwill arising on consolidation and asset carrying amounts......Page 395
 Inter-company assets and claims......Page 402
 Preparing a group income statement......Page 403
 Group statement of cash flows......Page 405
 Accounting for less than a controlling interest – associate companies......Page 406
 Self-assessment question......Page 409
 Summary......Page 411
 Key terms......Page 412
 Exercises......Page 413
 Introduction......Page 421
 The development of financial reporting......Page 422
 From stewardship to decision making......Page 423
 Segmental financial reports......Page 424
 Summary financial statements......Page 428
 Interim financial statements......Page 430
 The value added statement......Page 433
 Inflation accounting and reporting......Page 442
 Self-assessment question......Page 451
 Summary......Page 452
 Key terms......Page 453
 Exercises......Page 454
 Introduction......Page 457
 Corporate governance......Page 458
 The board of directors......Page 459
 The UK Corporate Governance Code......Page 460
 Tasks of the board......Page 463
 Chairing the board......Page 464
 The role of non-executive directors......Page 467
 The audit process......Page 470
 Remunerating directors......Page 479
 Performance measures......Page 485
 Asessing board performance......Page 489
 The rise of shareholder activism......Page 491
 Self-assessment question......Page 498
 Summary......Page 499
 References......Page 501
 Exercises......Page 502
 The basics of double-entry bookkeeping......Page 504
 Recording trading transactions......Page 507
 Balancing accounts and the trial balance......Page 511
 Preparing the financial statements (final accounts)......Page 514
 The ledger and its division......Page 518
 Key terms......Page 519
 Exercises......Page 520
Appendix B Glossary of key terms......Page 523
Appendix C Solutions to self-assessment questions......Page 534
Appendix D Solutions to review questions......Page 545
Appendix E Solutions to selected exercises......Page 554
Index......Page 592