Accounting for Non-Accounting Students

538 Pages·2017·27.391 MB·English

by  John R. Dyson, Ellie Franklin

ACCOUNTING
for non-accounting students
Ninth Edition
John R. Dyson & Ellie Franklin
Accounting

for Non-Accounting
Students
Ninth edition
John r. dyson
ellie franklin
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
Pearson Education Limited
Edinburgh Gate
Harlow CM20 2JE
United Kingdom
Tel: [phone]
Web: www.pearson.com/uk
First edition published in Great Britain under the Pitman Publishing imprint in 1987 (print and electronic)
Second edition published 1991 (print)
Third edition published 1994 (print)
Fourth edition published under the Financial Times Pitman Publishing imprint in 1997 (print)
Fifth edition published 2001 (print)
Sixth edition published 2004 (print and electronic)
Seventh edition published 2007 (print and electronic)
Eighth edition published 2010 (print and electronic)
Ninth edition published 2017 (print and electronic)
© Pearson Education Limited 1987, 1991, 1994, 1997, 2001 (print)
© Pearson Education Limited 2004, 2007, 2010, 2017 (print and electronic)
The rights of John Dyson and Ellie Franklin to be identified as authors of this work have been asserted by them
in accordance with the Copyright, Designs and Patents Act 1988.
The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval system,
distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission
should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United
Kingdom should be obtained from the Copyright Licensing Agency Ltd, Barnard’s Inn, 86 Fetter Lane, London
EC4A 1EN.
The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased,
licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as
allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable
copyright law. Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and
the publisher’s rights and those responsible may be liable in law accordingly.
All trademarks used herein are the property of their respective owners. The use of any trademark in this text does
not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such
trademarks imply any affiliation with or endorsement of this book by such owners.
Pearson Education is not responsible for the content of third-party internet sites.
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: 978-1-292-12897-9 (print)
978-1-292-12904-4 (PDF)
978-1-292-12898-6 (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
Names: Dyson, J. R. (John R.), author. | Franklin, Ellie, author
Title: Accounting for non-accounting students / John R. Dyson, Ellie Franklin.
Description: Ninth Edition. | New York : Pearson, 2017 | Revised edition of
Accounting for non-accounting students, 2010.
Identifiers: LCCN 2016057004| ISBN 9781292128979 (Print) | ISBN 9781292129044
(PDF) | ISBN 9781292128986 (ePub)
Subjects: LCSH: Accounting.
Classification: LCC HF5636 .D97 2017 | DDC 657—dc23
LC record available at https://lccn.loc.gov/2016057004
10 9 8 7 6 5 4 3 2 1
21 20 19 18 17
Print edition typeset in 10/12pt Sabon LT Pro by SPi Global
Printed and bound by L.E.G.O. S.p.A., Italy
NOTE THAT ANY PAGE CROSS-REFERENCES REFER TO THE PRINT EDITION.
Brief contents
Preface xiii
Guided tour xvii
Acknowledgements xix
Abbreviations xxi
P art 1 INTRODUCTION TO ACCOUNTING 1
1 Accounting and the business world 2
2 Accounting rules and regulations 24
P art 2 FINANCIAL ACCOUNTING 47
3 Recording data 48
4 Sole trader accounts 77
5 Company accounts 109
6 Other entity accounts 133
7 Statement of cash flows 151
Case studies 179
Part 3 FINANCIAL REPORTING 187
8 The annual report 188
9 The annual accounts 207
10 Interpretation of accounts 226
11 Contemporary issues 259
Case studies 272
Part 4 MANAGEMENT ACCOUNTING 277
12 Foundations 278
13 Direct costs 291
14 Indirect costs 306
15 Budgeting 330
16 Standard costing 352
17 Contribution analysis 376
18 Decision making 400
19 Capital investment 421
20 Emerging issues 446
Case studies 470
Appendices 477
Index 512
Contents
Preface xiii Part 2
Guided tour xvii FINANCIAl ACCOUNTINg 47
Acknowledgements xix
Abbreviations xxi 3 Recording data 48
About this chapter 49
Learning objectives 49
Part 1
Why this chapter is important 49
INTRODUCTION TO ACCOUNTINg 1
The accounting equation 49
Double-entry bookkeeping 52
1 Accounting and the business world 2
Working with accounts 53
About this chapter 3 A ledger account example 58
Learning objectives 3 Balancing the accounts 59
Why accounting is important 3 The trial balance 61
Nature and purpose 4 Trial balance errors 64
Historical development 5 Computerisation 65
Branches of accounting 8 Questions you should ask 65
The accountancy profession 13 Conclusion 66
Public and private entities 15 Key points 67
Questions you should ask 19 Check your learning 67
Conclusion 19 News story quiz 68
Key points 20 Tutorial questions 68
Check your learning 21
News story quiz 22 4 Sole trader accounts 77
Tutorial questions 22
About this chapter 77
Learning objectives 78
2 Accounting rules and regulations 24
Why this chapter is important 78
About this chapter 24 Preparing basic financial statements 78
Learning objectives 25 Year-end adjustments 82
Why this chapter is important 25 Inventory 83
The rules of the game – why have them? 25 Depreciation 84
Conventional accounting rules 27 Accruals and prepayments 87
Sources of authority 32 Bad and doubtful debts 88
The Companies Act 2006 33 A comprehensive example 91
UK Accounting Standards 35 Accounting defects 94
International Accounting Standards 36 Questions you should ask 96
An accounting framework 37 Conclusion 96
Questions you should ask 40 Key points 97
Conclusion 40 Check your learning 97
Key points 41 News story quiz 98
Check your learning 42 Tutorial questions 99
News story quiz 42
Tutorial questions 43
viii CONTENTS
5 Company accounts 109 Accounting policies 181
Statement of cash flows 184
About this chapter 110
Learning objectives 110
Why this chapter is important 110
Part 3
Limited liability 110
FINANCIAl REPORTINg 187
Structure and operation 111
The statement of profit or loss 117
The statement of changes in equity 117 8 The annual report 188
The statement of retained earnings 117 About this chapter 188
The statement of financial position 119 Learning objectives 189
A comprehensive example 121 Why this chapter is important 189
Questions you should ask 124 Overview 190
Conclusion 124 Introductory material 191
Key points 125 Corporate reporting 196
Check your learning 125 Shareholder information 203
News story quiz 126 Questions you should ask 204
Tutorial questions 126 Conclusion 204
Key points 205
6 Other entity accounts 133 Check your learning 205
News story quiz 206
About this chapter 134
Tutorial questions 206
Learning objectives 134
Why this chapter is important 134
Manufacturing accounts 135 9 The annual accounts 207
Service entity accounts 139 About this chapter 208
Not-for-profit entity accounts 142 Learning objectives 208
Government accounts 145 Why this chapter is important 208
Questions you should ask 146 Setting the scene 209
Conclusion 146 Consolidated statement of profit or loss and other
Key points 147 comprehensive income 211
Check your learning 148 Statement of changes in equity 212
News story quiz 148 Consolidated statement of financial position 214
Tutorial questions 149 Consolidated statement of cash flows 216
Notes to the financial statements 218
7 Statement of cash flows 151 Independent auditor’s report 218
Periodic summary 219
About this chapter 152
Questions you should ask 222
Learning objectives 152
Conclusion 223
Why this chapter is important 152
Key points 223
What is cash? 153
Check your learning 224
Nature and purpose of the statement
News story quiz 224
of cash flows (SCF) 153
Tutorial questions 225
Preparation 155
FRS 102 (Section 7) presentation 161
IAS 7 format 165 10 Interpretation of accounts 226
Questions you should ask 168 About this chapter 227
Conclusion 168 Learning objectives 227
Key points 169 Why this chapter is important 227
Check your learning 169 Nature and purpose 228
News story quiz 170 Procedure 230
Tutorial questions 170 Ratio analysis 234
Illustrative examples 236
CASE STUDIES
Questions you should ask 246
Preparation of financial statements 179 Conclusion 246
CONTENTS ix
Key points 247 Other direct costs 301
Check your learning 248 Questions you should ask 301
News story quiz 248 Conclusion 301
Tutorial questions 249 Key points 302
Check your learning 303
11 Contemporary issues 259 News story quiz 303
Tutorial questions 303
About this chapter 259
Learning objectives 260
Why this chapter is important 260 14 Indirect costs 306
Overview 260 About this chapter 306
Fraud 261 Learning objectives 307
Audit rotation 263 Why this chapter is important 307
Changing standards 265 Production overhead 307
IASB projects 266 A comprehensive example 314
FRC projects 267 Non-production overhead 317
Questions you should ask 269 Predetermined absorption rates 318
Conclusion 269 Activity-based costing 319
Key points 269 Questions you should ask 322
Check your learning 270 Conclusion 323
News story quiz 270 Key points 323
Tutorial questions 270 Check your learning 324
News story quiz 325
CASE STUDIES
Tutorial questions 325
The communication of financial information 272
Interpretation of accounts 275
15 Budgeting 330
About this chapter 330
Part 4 Learning objectives 331
MANAgEMENT ACCOUNTINg 277 Why this chapter is important 331
Budgeting and budgetary control 331
Procedure 333
12 Foundations 278
A comprehensive example 337
About this chapter 278
Fixed and flexible budgets 341
Learning objectives 279
Behavioural consequences 343
Why this chapter is important 279
Questions you should ask 345
Nature and purpose 279
Conclusion 345
Historical review 281
Key points 346
Main functions 282
Check your learning 346
Behavioural considerations 285
News story quiz 347
Questions you should ask 287
Tutorial questions 347
Conclusion 287
Key points 288 16 Standard costing 352
Check your learning 289
About this chapter 352
News story quiz 289
Learning objectives 353
Tutorial questions 289
Why this chapter is important 353
Operation 353
13 Direct costs 291
Performance measures 357
About this chapter 291
Cost variances 359
Learning objectives 292
A comprehensive example 362
Why this chapter is important 292
Sales variances 366
Responsibility accounting 293
Operating statements 368
Classification of costs 293
Questions you should ask 369
Direct materials 295
Conclusion 370
Direct labour 300
x CONTENTS
Key points 370 19 Capital investment 421
Check your learning 370
About this chapter 421
News story quiz 371
Learning objectives 422
Tutorial questions 371
Why this chapter is important 422
Background 422
17 Contribution analysis 376
Main methods 423
About this chapter 376 Net cash flow 434
Learning objectives 377 Sources of finance 436
Why this chapter is important 377 Questions you should ask 438
Marginal costing 377 Conclusion 439
Contribution 379 Key points 439
Assumptions 380 Check your learning 440
Format 380 News story quiz 440
Application 381 Tutorial questions 441
Charts and graphs 383
Reservations 388 20 Emerging issues 446
Formulae 389
About this chapter 446
Limiting factors 392
Learning objectives 447
Questions you should ask 394
Why this chapter is important 447
Conclusion 395
The business environment 447
Key points 395
Management accounting changes 449
Check your learning 395
Selected techniques 450
News story quiz 396
Questions you should ask 466
Tutorial questions 396
Conclusion 466
Key points 467
18 Decision making 400
Check your learning 468
About this chapter 400 News story quiz 468
Learning objectives 401 Tutorial questions 469
Why this chapter is important 401
CASE STUDIES
Nature and purpose 401
Cost classification 403 Fixed and flexible budgets 470
Types of decision 405 Standard cost operating statements 472
Questions you should ask 414 Pricing 474
Conclusion 415
Key points 415 Appendices
Check your learning 416 Further reading 477
News story quiz 416 Discount table 479
Tutorial questions 417 Answers to activities 480
Answers to tutorial questions 483
Index 512
CONTENTS xi
Supporting resources
Visit www.pearsoned.co.uk/dyson to find valuable online resources:
Companion website for students
● Multiple choice questions to help test your learning
● Extra question material
● Links to relevant sites on the web
● Glossary explaining key terms mentioned in the book
For instructors
● Complete, downloadable Lecturer’s Guide
● PowerPoint slides that can be downloaded and used for presentations
● Answers to extra question material in the Companion Website
● Extra case studies and guidelines on using them with students
Also: The Companion website provides the following features:
● Search tool to help locate specific items of content
● E-mail results and profile tools to send results of quizzes to instructors
● Online help and support to assist with website usage and troubleshooting
For more information please contact your local Pearson Education sales
representative or visit www.pearsoned.co.uk/dyson