Accounting in a Nutshell

Designed primarily for middle and junior management who deal with financial information without really understanding the content; students who are studying accounting as a non-specialist subject, for example on a business studies or engineering course. The book serves as a basic reference to be used throughout the course.

It will also be particularly helpful in providing the basic grounding that is required before moving on to the more technical and in-depth study of the subject that may be required on some courses. Students who are embarking on a course of study to become a professional accountant will also find this book of major benefit.

In addition to revisions through out, a new new chapter 'Making long-term investment decisions' covering capital investment decisions, extends and rounds out the final part of the book: using Financial Information to Manage a Business. The chapter deals with the investment appraisal process and covers the main investment appraisal techniques from the point of view of a non-specialist: payback periods, accounting rate of return and discounted cash flow methods are just some of the new topics covered.

The focus will be on the level of understanding that a non-specialist requires in the work place as such, in keeping with the rest of the book, the chapter includes practical examples and exercises to enhance the reader's understanding.

• Jargon free and easy to understand - no prior knowledge of the subject necessary
• Focuses on the principles and use of accounting information
• Review questions to assess progress at each stage and many fully worked exercises and examples

1;Front Cover;1 2;Accounting in a Nutshell: Accounting for the Non-specialist;4 3;Copyright Page;5 4;Contents;6 5;Part 1 Introduction;8 5.1;About this text;10 5.2;Who should use this text?;10 5.3;The content of the text;10 5.4;How to use this text;11 6;Part 2 Accounting Statements;14 6.1;Chapter 1 Who Needs Accounting Statements?;16 6.1.1;1.1 Introduction;18 6.1.2;1.2 Who uses financial statements and what sort of information might they need?;18 6.1.3;1.3 Published accounts and financial statements for internal use;22 6.1.4;1.4 Three basic questions;24 6.1.5;1.5 Summary;27 6.1.6;Self-test question;27 6.1.7;Answer to self-test question;27 6.2;Chapter 2 The Income Statement (Profit and Loss Account);30 6.2.1;2.1 Introduction;32 6.2.2;2.2 The title of the statement;32 6.2.3;2.3 Calculating the gross profit;34 6.2.4;2.4 Calculating the profit for the period;37 6.2.5;2.5 Dividends and retained profits;41 6.2.6;2.6 Summary;43 6.2.7;Self-test questions;44 6.2.8;Answers to self-test questions;46 6.3;Chapter 3 The Balance Sheet;48 6.3.1;3.1 Introduction;50 6.3.2;3.2 What is a balance sheet?;50 6.3.3;3.3 Capital expenditure and revenue expenditure;52 6.3.4;3.4 Non-current (fixed) assets;53 6.3.5;3.5 Working capital;59 6.3.6;3.6 Goodwill;73 6.3.7;3.7 Capitalisation of costs;75 6.3.8;3.8 Capital and reserves;77 6.3.9;3.9 Longer-term liabilities;81 6.3.10;3.10 Alternative balance sheet layouts;83 6.3.11;3.11 Consolidated balance sheet;88 6.3.12;3.12 Statement of recognised income and expense;89 6.3.13;3.13 Summary;90 6.3.14;Self-test questions;92 6.3.15;Answers to self-test questions;94 6.4;Chapter 4 Cash Flow Reporting;102 6.4.1;4.1 Introduction;104 6.4.2;4.2 The importance of cash flow;104 6.4.3;4.3 Comparing profits and cash flows;105 6.4.4;4.4 The presentation of cash flows;106 6.4.5;4.5 Preparing a simple cash flow statement;108 6.4.6;4.6 Determining the cash flows from operating activities;110 6.4.7;4.7 Preparing a cash flow statement from the income statement and balance
sheets;111 6.4.8;4.8 Cash forecasts;116 6.4.9;4.9 Income statement, cash flow and balance sheet: An example;119 6.4.10;4.10 Summary;127 6.4.11;Self-test questions;128 6.4.12;Answers to self-test questions;132 6.5;Chapter 5 The Accounts of Not-for-Profit Organisations;138 6.5.1;5.1 Introduction;140 6.5.2;5.2 The differences in the accounts of not-for-profit organisations;140 6.5.3;5.3 Summary;148 6.5.4;Self-test questions;149 6.5.5;Answers to self-test questions;150 6.6;Chapter 6 Interpreting Financial Statements: Part 1;154 6.6.1;6.1 Introduction;156 6.6.2;6.2 Using ratios to analyse accounting statements;156 6.6.3;6.3 LMN plcs financial statements;158 6.6.4;6.4 Begin with an overview;160 6.6.5;6.5 Assessing profitability;163 6.6.6;6.6 Assessing efficiency;170 6.6.7;6.7 Assessing liquidity;177 6.6.8;6.8 Segment reporting;181 6.6.9;6.9 Summary;186 6.6.10;Self-test questions;187 6.6.11;Answers to self-test questions;189 6.7;Chapter 7 Interpreting Financial Statements: Part 2;196 6.7.1;7.1 Introduction;198 6.7.2;7.2 Financial structure;198 6.7.3;7.3 Investment ratios;204 6.7.4;7.4 Limitations of ratio analysis;212 6.7.5;7.5 Interpreting cash flow statements;213 6.7.6;7.6 EBITDA;217 6.7.7;7.7 Summary;218 6.7.8;Self-test questions;219 6.7.9;Answers to self-test questions;222 7;Part 3 Using Financial Information to Manage a Business;226 7.1;Chapter 8 Management Accounting as an Aid to Management;228 7.1.1;8.1 Introduction;230 7.1.2;8.2 The need for detailed management accounting information;230 7.1.3;8.3 The core activities of management accounting;231 7.1.4;8.4 Management accounting compared with financial accounting;231 7.1.5;8.5 Summary;233 7.2;Chapter 9 The Analysis of Cost;234 7.2.1;9.1 Introduction;236 7.2.2;9.2 The elements of cost;236 7.2.3;9.3 Overhead absorption;242 7.2.4;9.4 Recent developments in absorption costing methods;251 7.2.5;9.5 Summary;258 7.2.6;Self-test questions;259 7.2.7;Answer to self-test questions;260 7.3;Chapter 10 Using Costs for Decision-mak
ing;262 7.3.1;10.1 Introduction;264 7.3.2;10.2 Cost behaviour patterns;264 7.3.3;10.3 Cost-volume-profit analysis;270 7.3.4;10.4 Marginal analysis;280 7.3.5;10.5 Relevant costs;288 7.3.6;10.6 Summary;292 7.3.7;Self-test questions;293 7.3.8;Answers to self-test questions;295 7.4;Chapter 11 Budgetary Planning and Control;300 7.4.1;11.1 Introduction;302 7.4.2;11.2 The purposes of budgeting;302 7.4.3;11.3 The preparation of budgets;307 7.4.4;11.4 Incremental and zero-based budgeting;310 7.4.5;11.5 Using budgets for control;312 7.4.6;11.6 Behavioural aspects of budgetary planning and control;320 7.4.7;11.7 Summary;322 7.4.8;Self-test questions;323 7.4.9;Answers to self-test questions;324 7.5;Chapter 12 Making Long-term Investment Decisions;326 7.5.1;12.1 Introduction;328 7.5.2;12.2 The investment appraisal process;328 7.5.3;12.3 The importance of cash flow;329 7.5.4;12.4 The payback period;331 7.5.5;12.5 Discounted cash flow;333 7.5.6;12.6 Net present value;335 7.5.7;12.7 The internal rate of return;339 7.5.8;12.8 The accounting rate of return;341 7.5.9;12.9 Summary;343 7.5.10;Self-test questions;344 7.5.11;Answers to self-test questions;346 8;Glossary;350 8.1;Introduction;352 8.2;A;352 8.3;B;352 8.4;C;353 8.5;D;355 8.6;E;356 8.7;F;356 8.8;G;357 8.9;I;357 8.10;L;358 8.11;M;358 8.12;N;359 8.13;O;360 8.14;P;360 8.15;R;361 8.16;S;361 8.17;V;362 8.18;W;362 8.19;Z;362 9;Index;364 9.1;A;366 9.2;B;366 9.3;C;366 9.4;D;367 9.5;E;367 9.6;F;367 9.7;G;367 9.8;H;367 9.9;I;367 9.10;L;368 9.11;M;368 9.12;N;368 9.13;O;368 9.14;P;368 9.15;Q;368 9.16;R;368 9.17;S;369 9.18;T;369 9.19;U;369 9.20;V;369 9.21;W;369 9.22;Z;369