Accounting an introduction

865 Pages·18.593 MB·English

by  McLaney, Edward J;Atrill, Peter

SIXTH EDITION Eddie McLaney SIXTH SIXTH EDITION Eddie McLaney
EDITION
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Peter Atrill Peter Atrill
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N Hoping for a career in business? C N

Want to read and understand fi nancial IC
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Accounting: An Introduction, sixth edition, has the information you need to start
U your business career. With practical techniques and real-world examples, this DN U
N best-selling text teaches you the basics of understanding and using fi nancial N
information. Covering fi nancial accounting, management accounting and U
D fi nancial management in a single text, this comprehensive guide provides CT D
background and tools to make informed, successful business decisions.
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Key features
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• Up-to-date coverage including the latest IFRSs and corporate
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governance coverage
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• Accessible step-by-step approach helps you master the subject one
step at a time
T • New real-world examples provide opportunities to apply and develop A M T
techniques
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N • Progress checks, activities and exercises reinforce learning r c N
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• Focus on decision-making prepares you for careers in business ll a
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Do you wish your tutor was available 24/7 to answer your questions?
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MyAccountingLab (www.myaccountinglab.com) is available whenever you
A are, taking you from ‘I don’t understand’ to the moment you know. Fully A
mapped to this text, this optional resource offers:
• A personalised study plan, designed just for you
• Worked solutions showing you how to solve diffi cult problems
• Limitless opportunities to practise
• An eText for quick reference
• Case studies to help you apply what you’ve learned
Eddie McLaney is Visiting Fellow in Accounting and Finance at Plymouth University.
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CVR_MCLA1838_06_SE_CVR.indd 1 23/04/2012 14:29
Accounting
An Introduction
A wide range of supporting resources are available online at:

Register to create your own personal account using the access code supplied
with your copy of the book,* and access the following student learning resources:
l A dynamic eText of the book that you can search, bookmark, annotate and
highlight as you please
l Self-assessment questions that identify your strengths before
recommending a personalised study plan that points you to the resources
which can help you achieve a better grade
l Flashcards to test your understanding of key terms
l Links to relevant sites on the web
*If you don’t have an access code, you can still access the resources. Visit
www.myaccountinglab.com for details.
A01_MCLA1838_06_SE_FM.indd 1 3/23/12 11:28 AM
A01_MCLA1838_06_SE_FM.indd 2 3/23/12 11:28 AM
Sixth
edition
Accounting
An Introduction
Eddie McLaney
and
Peter Atrill
A01_MCLA1838_06_SE_FM.indd 3 3/23/12 11:28 AM
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearson.com/uk
First published 1999 by Prentice Hall Europe
Second edition published 2002
Third edition published 2005
Fourth edition 2008
Fifth edition 2010
Sixth edition 2012
© Prentice Hall Europe 1999
© Pearson Education Limited 2002, 2005, 2008, 2010, 2012
The rights of Eddie McLaney and Peter Atrill to be identified as authors of this Work have
been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without either the prior written permission of the publisher or a
licence permitting restricted copying in the United Kingdom issued by the Copyright
Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS.
Contains public sector information licensed under the Open Government Licence (OGL) v1.0.
http://www.nationalarchives.gov.uk/doc/open-government-licence/open-governmentlicence.htm.
Pearson Education is not responsible for the content of third-party internet sites.
The screenshots in this book are reprinted by permission of Microsoft Corporation.
The Financial Times. With a worldwide network of highly respected journalists, The Financial Times
provides global business news, insightful opinion and expert analysis of business, finance and politics.
With over 500 journalists reporting from 50 countries worldwide, our in-depth coverage of international
news is objectively reported and analysed from an independent, global perspective. To find out more,
visit www.ft.com/pearsonoffer.
ISBN 978-0-273-77183-8
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloguing-in-Publication Data
McLaney, E. J.
Accounting : an introduction / Eddie McLaney and Peter Atrill. – 6th ed.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-273-77183-8
1. Accounting. I. Atrill, Peter. II. Title.
HF5636.M44 2012
657—dc23
2012003953
10 9 8 7 6 5 4 3 2 1
17 16 15 14 13 12
Typeset in 9.5/12.5pt ITC Stone Serif by 35
Printed and bound by Rotolito Lombarda, Italy
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Brief contents
Preface xxi
How to use this book xxii
Guided tour of the book xxiv
Guided tour of MyAccountingLab xxvi
Acknowledgements xxviii
1 Introduction to accounting and finance 1
Part 1 Financial accounting
37
2 Measuring and reporting financial position 39
3 Measuring and reporting financial performance 79
4 Accounting for limited companies (1) 125
5 Accounting for limited companies (2) 170
6 Measuring and reporting cash flows 210
7 Analysing and interpreting financial statements 240
Part 2 Management accounting
299
8 Relevant costs for decision making 301
9 Cost–volume–profit analysis 319
10 Full costing 359
11 Costing and performance evaluation in a competitive
environment 405
12 Budgeting 453
13 Accounting for control 496
Part 3 Financial management
539
14 Making capital investment decisions 541
15 Financing a business 592
16 Managing a working capital 643 ➔
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vi BRIEF CONTENTS
Part 4 Supplementary information
691
Appendix A Recording financial transactions 693
Appendix B Glossary of key terms 712
Appendix C Solutions to self-assessment questions 728
Appendix D Solutions to review equestions 745
Appendix E Solutions to selected exercises 760
Appendix F Present value table 809
Index 811
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Detailed contents
Preface xxi
How to use this book xxii
Guided tour of the book xxiv
Guided tour of MyAccountingLab xxvi
Acknowledgements xxviii
1 Introduction to accounting and finance 1
Introduction 1
Learning outcomes 1
What are accounting and finance? 2
Who are the users of accounting information? 3
The conflicting interests of users 5
How useful is accounting information? 5
Evidence on the usefulness of accounting 6
Providing a service 7
Further qualities 8
Weighing up the costs and benefits 9
Accounting as an information system 12
Financial accounting and management accounting 13
Scope of this book 16
Has accounting become too interesting? 16
The changing face of accounting 17
Why do I need to know anything about accounting and finance? 18
Accounting for business 19
What is the purpose of a business? 19
What kinds of business ownership exist? 21
Sole proprietorship 21
Partnership 21
Limited company 22
How are businesses organised? 23
How are businesses managed? 27
What is the financial objective of a business? 27
Balancing risk and return 30
Not-for-profit organisations 31
Summary 32
Key terms 34
References 35
Further reading 35
Review questions 36
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viii DETAILED CONTENTS
Part 1 Financial accounting
2 Measuring and reporting financial position 39
Introduction 39
Learning outcomes 39
Making financial decisions 40
The major financial statements – an overview 40
The statement of financial position 45
Assets 45
Claims 48
The effect of trading transactions 52
Classifying assets 54
Current assets 54
Non-current assets 55
Classifying claims 56
Current liabilities 56
Non-current liabilities 57
Statement layouts 57
Capturing a moment in time 60
The role of accounting conventions 60
Business entity convention 60
Historic cost convention 61
Prudence convention 62
Going concern convention 63
Dual aspect convention 63
Money measurement 64
Goodwill and brands 65
Human resources 66
Monetary stability 66
Valuing assets 67
Non-current assets 67
Non-current assets with finite lives 67
Non-current assets with indefinite lives 68
Fair values 68
The impairment of non-current assets 70
Inventories 71
Meeting user needs 72
Summary 73
Key terms 75
Further reading 75
Review questions 76
Exercises 76
3 Measuring and reporting financial performance 79
Introduction 79
Learning outcomes 79
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DETAILED CONTENTS ix
What does it mean? 80
The income statement 80
Different roles 82
Income statement layout 83
Gross profit 83
Operating profit 84
Profit for the period 84
Further issues 84
Cost of sales 84
Classifying expenses 86
The reporting period 87
Recognising revenue 87
Long-term contracts 90
Services 91
Recognising expenses 92
When the expense for the period is more than the cash
paid during the period 93
When the amount paid during the period is more than
the full expense for the period 95
Profit, cash and accruals accounting 96
Depreciation 97
Calculating the depreciation expense 97
Impairment and depreciation 104
Depreciation and asset replacement 104
Depreciation and judgement 105
Costing inventories 107
Inventories – some further issues 111
Trade receivables problems 112
Uses and usefulness of the income statement 117
Summary 118
Key terms 120
Further reading 120
Review questions 121
Exercises 121
4 Accounting for limited companies (1) 125
Introduction 125
Learning outcomes 125
Why limited companies? 126
The main features of limited companies 126
Legal nature 126
Perpetual life 127
Limited liability 128
Legal safeguards 129
Public and private companies 129
Taxation 132
Transferring share ownership: the role of the Stock Exchange 132
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