Accounting in a Nutshell (eBook)

Front Cover 1
Accounting in a Nutshell: Accounting for the Non-specialist 4
Copyright Page 5
Contents 6
Part 1 Introduction 8
About this text 10
Who should use this text? 10
The content of the text 10
How to use this text 11
Part 2 Accounting Statements 14
Chapter 1 Who Needs Accounting Statements? 16
1.1 Introduction 18
1.2 Who uses financial statements and what sort of information might they need? 18
1.3 Published accounts and financial statements for internal use 22
1.4 Three basic questions 24
1.5 Summary 27
Self-test question 27
Answer to self-test question 27
Chapter 2 The Income Statement (Profit and Loss Account) 30
2.1 Introduction 32
2.2 The title of the statement 32
2.3 Calculating the gross profit 34
2.4 Calculating the profit for the period 37
2.5 Dividends and retained profits 41
2.6 Summary 43
Self-test questions 44
Answers to self-test questions 46
Chapter 3 The Balance Sheet 48
3.1 Introduction 50
3.2 What is a balance sheet? 50
3.3 Capital expenditure and revenue expenditure 52
3.4 Non-current (fixed) assets 53
3.5 Working capital 59
3.6 Goodwill 73
3.7 Capitalisation of costs 75
3.8 Capital and reserves 77
3.9 Longer-term liabilities 81
3.10 Alternative balance sheet layouts 83
3.11 Consolidated balance sheet 88
3.12 Statement of recognised income and expense 89
3.13 Summary 90
Self-test questions 92
Answers to self-test questions 94
Chapter 4 Cash Flow Reporting 102
4.1 Introduction 104
4.2 The importance of cash flow 104
4.3 Comparing profits and cash flows 105
4.4 The presentation of cash flows 106
4.5 Preparing a simple cash flow statement 108
4.6 Determining the cash flows from operating activities 110
4.7 Preparing a cash flow statement from the income statement and balance sheets 111
4.8 Cash forecasts 116
4.9 Income statement, cash flow and balance sheet: An example 119
4.10 Summary 127
Self-test questions 128
Answers to self-test questions 132
Chapter 5 The Accounts of Not-for-Profit Organisations 138
5.1 Introduction 140
5.2 The differences in the accounts of not-for-profit organisations 140
5.3 Summary 148
Self-test questions 149
Answers to self-test questions 150
Chapter 6 Interpreting Financial Statements: Part 1 154
6.1 Introduction 156
6.2 Using ratios to analyse accounting statements 156
6.3 LMN plc’s financial statements 158
6.4 Begin with an overview 160
6.5 Assessing profitability 163
6.6 Assessing efficiency 170
6.7 Assessing liquidity 177
6.8 Segment reporting 181
6.9 Summary 186
Self-test questions 187
Answers to self-test questions 189
Chapter 7 Interpreting Financial Statements: Part 2 196
7.1 Introduction 198
7.2 Financial structure 198
7.3 Investment ratios 204
7.4 Limitations of ratio analysis 212
7.5 Interpreting cash flow statements 213
7.6 EBITDA 217
7.7 Summary 218
Self-test questions 219
Answers to self-test questions 222
Part 3 Using Financial Information to Manage a Business 226
Chapter 8 Management Accounting as an Aid to Management 228
8.1 Introduction 230
8.2 The need for detailed management accounting information 230
8.3 The core activities of management accounting 231
8.4 Management accounting compared with financial accounting 231
8.5 Summary 233
Chapter 9 The Analysis of Cost 234
9.1 Introduction 236
9.2 The elements of cost 236
9.3 Overhead absorption 242
9.4 Recent developments in absorption costing methods 251
9.5 Summary 258
Self-test questions 259
Answer to self-test questions 260
Chapter 10 Using Costs for Decision-making 262
10.1 Introduction 264
10.2 Cost behaviour patterns 264
10.3 Cost-volume-profit analysis 270
10.4 Marginal analysis 280
10.5 Relevant costs 288
10.6 Summary 292
Self-test questions 293
Answers to self-test questions 295
Chapter 11 Budgetary Planning and Control 300
11.1 Introduction 302
11.2 The purposes of budgeting 302
11.3 The preparation of budgets 307
11.4 Incremental and zero-based budgeting 310
11.5 Using budgets for control 312
11.6 Behavioural aspects of budgetary planning and control 320
11.7 Summary 322
Self-test questions 323
Answers to self-test questions 324
Chapter 12 Making Long-term Investment Decisions 326
12.1 Introduction 328
12.2 The investment appraisal process 328
12.3 The importance of cash flow 329
12.4 The payback period 331
12.5 Discounted cash flow 333
12.6 Net present value 335
12.7 The internal rate of return 339
12.8 The accounting rate of return 341
12.9 Summary 343
Self-test questions 344
Answers to self-test questions 346
Glossary 350
Introduction 352
A 352
B 352
C 353
D 355
E 356
F 356
G 357
I 357
L 358
M 358
N 359
O 360
P 360
R 361
S 361
V 362
W 362
Z 362
Index 364
A 366
B 366
C 366
D 367
E 367
F 367
G 367
H 367
I 367
L 368
M 368
N 368
O 368
P 368
Q 368
R 368
S 369
T 369
U 369
V 369
W 369
Z 369