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TG ENTH EE DITIOSN Peter Atrill & Eddie McLaney T ENTH E DITION Peter Atrill CT “The best accounting textbook for executives. Comprehensive and GES N S condense. Great pedagogical design. Suitable both for beginners as well Eddie McLaney I NL as advanced learners.” T I A Katerina Hellström, Stockholm School of Economics C TAI S C The 10th edition of this market-leading text offers an accessible, effective N N E introduction to key accounting and finance topics. With a focus on decision N I P making, Accounting and Finance for Non-Specialists teaches you how to apply N L U S your learning to real-world business scenarios. I- FA A FN O O I O Key features RC CDN • Accessible step-by-step approach helps you master the subject one step NC TAI at a time C CN • Real-world examples provide opportunities to apply and develop OO R techniques N N E AAO • Progress checks, activities and exercises reinforce learning -U N • Focus on decision making prepares you for careers in business S F PN P New to this edition E • Increased number of activities CT U S • New and updated real-world cases to help students understand the I theory in practice AIN I- L • Up-to-date coverage, including the latest IFRSs IS FN TG O S Peter Atrill is a freelance academic and author who has worked with leading institutions in the UK, Europe and SE Asia. He was previously Head of Accounting A O and Law and Head of Business and Management at the Plymouth University D Business School. N C N Eddie McLaney is Visiting Fellow in Accounting and Finance at Plymouth University. D N MyAccountingLab • Limitless opportunities to practice F C • An eText for quick reference I R Join over 10 million students benefiting • Case studies to help you apply what you’ve learned N from Pearson MyLabs Use the power of MyAccountingLab to accelerate your learning. O You need both an access card and a course ID to access A AA This title can be supported by MyAccountingLab, an online MyAccountingLab: homework and tutorial system designed to test and build your N understanding. MyAccountingLab provides a personalised 1. Is your lecturer using MyAccountingLab? Ask your lecturer for F approach, with instant feedback and numerous additional your course ID resources to support your learning. 2. Has an access card been included with the book? Check the C • A personalised study plan inside back cover of the book. E • Usable either following chapter-by-chapter structure or by 3. 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To learn more, please visit us at www.pearson.com/uk A01_ATRI5601_10_SE_FM.indd 2 11/11/2016 19:12 T enTh ediTion geS t c S n i n l A i t Ai c n e n p u S i - F o n o d c n n c r o AA F Peter Atrill eddie McLaney Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney Dubai • Singapore • Hong Kong • Tokyo • Seoul • Taipei • New Delhi Cape Town • São Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan A01_ATRI5601_10_SE_FM.indd 3 11/11/2016 19:12 PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First published 1995 by Prentice Hall Europe (print) Second edition published 1997 (print) Third edition published 2001 by Pearson Education Ltd (print) Fourth edition published 2004 (print) Fifth edition published 2006 (print) Sixth edition published 2008 (print) Seventh edition published 2011 (print) Eighth edition published 2013 (print and electronic) Ninth edition published 2015 (print and electronic) Tenth edition published 2017 (print and electronic) © Prentice Hall Europe 1995 (print) © Pearson Education Limited 2001 (print) © Pearson Education Limited 2013, 2017 (print and electronic) The rights of Peter Atrill and Eddie McLaney to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. 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ISBN: 978-1-292-13560-1 (print) 978-1-292-13561-8 (PDF) 978-1-292-13565-6 (ePub) British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for the print edition is available from the Library of Congress 10 9 8 7 6 5 4 3 2 1 20 19 18 17 16 Front cover image © Getty Images Print edition typeset in 9/12.5 Helvetica Neue LT W1G by Spi Global Printed in Slovakia by Neografia NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION A01_ATRI5601_10_SE_FM.indd 4 11/11/2016 19:12 Brief contents Preface xv Acknowledgements xvii 1 Introduction to accounting and finance 1 part one FinAnciAl Accounting 27 2 Measuring and reporting financial position 28 3 Measuring and reporting financial performance 71 4 Accounting for limited companies 115 5 Measuring and reporting cash flows 164 6 Analysing and interpreting financial statements 195 part two MAnAgeMent Accounting 247 7 The relevance and behaviour of costs 248 8 Full costing 289 9 Budgeting 329 part three FinAnce 367 10 Making capital investment decisions 368 11 Financing a business 411 12 Managing working capital 460 Appendix A: Glossary of key terms 509 Appendix B: Solutions to self-assessment questions 523 Appendix C: Solutions to review questions 538 Appendix D: Solutions to selected exercises 550 Appendix E: Present value table 578 Index 580 Brief conTenTs v A01_ATRI5601_10_SE_FM.indd 5 11/11/2016 19:12 A01_ATRI5601_10_SE_FM.indd 6 11/11/2016 19:12 contents Preface xv Acknowledgements xvii 1 introduction to accounting and finance 1 Introduction 1 What are accounting and finance? 2 Who are the users of accounting information? 2 Providing a service 5 Weighing up the costs and benefits 7 Accounting as an information system 9 Management accounting and financial accounting 11 Scope of this book 13 The changing face of accounting 14 Why do I need to know anything about accounting and finance? 15 The quest for wealth creation 16 Meeting the needs of other stakeholders 17 Balancing risk and return 20 Not-for-profit organisations 21 Summary 23 Key terms 24 Further reading 25 Review questions 25 part one FinAnciAl Accounting 27 2 Measuring and reporting financial position 28 Introduction 28 The major financial statements – an overview 29 The statement of financial position 34 The effect of trading transactions 41 Classifying assets 43 Classifying claims 46 conTenTs v ii A01_ATRI5601_10_SE_FM.indd 7 11/11/2016 19:12 Statement layouts 47 Capturing a moment in time 49 The role of accounting conventions 50 Money measurement 54 Valuing assets 57 Meeting user needs 63 Summary 65 Key terms 67 Further reading 67 Review questions 68 Exercises 68 3 Measuring and reporting financial performance 71 Introduction 71 The income statement 72 Different roles 73 Income statement layout 74 Further issues 77 Recognising revenue 80 Recognising expenses 84 Depreciation 89 Costing inventories 99 Trade receivables problems 104 Uses and usefulness of the income statement 106 Summary 108 Key terms 110 Further reading 110 Review questions 110 Exercises 111 4 Accounting for limited companies 115 Introduction 115 The main features of limited companies 116 The role of the Stock Exchange 122 Managing a company 122 The UK Corporate Governance Code 125 Financing limited companies 127 Borrowings 135 Withdrawing equity 136 The main financial statements 139 Dividends 142 Additional financial statements 144 viii conTenTs A01_ATRI5601_10_SE_FM.indd 8 11/11/2016 19:12 The directors’ duty to account 147 The need for accounting rules 147 Sources of accounting rules 148 The auditors’ role 149 Management commentary 150 Creative accounting 152 Summary 156 Key terms 158 Further reading 159 Review questions 159 Exercises 160 5 Measuring and reporting cash flows 164 Introduction 164 The statement of cash flows 165 Why is cash so important? 166 The main features of the statement of cash flows 168 A definition of cash and cash equivalents 168 The relationship between the main financial statements 170 The layout of the statement of cash flows 170 The normal direction of cash flows 173 Preparing the statement of cash flows 175 What does the statement of cash flows tell us? 185 Summary 188 Key terms 189 Further reading 189 Review questions 189 Exercises 190 6 Analysing and interpreting financial statements 195 Introduction 195 Financial ratios 196 Financial ratio classifications 197 The need for comparison 198 Calculating the ratios 200 A brief overview 201 Profitability 203 Efficiency 210 Relationship between profitability and efficiency 216 Liquidity 218 Financial gearing 220 Investment ratios 225 conTenTs ix A01_ATRI5601_10_SE_FM.indd 9 11/11/2016 19:12