Business Accounting and Finance PDF
Preview Business Accounting and Finance
BUSINESS ACCOUNTING AND FINANCE ............................................................................................................................................................ For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. BUSINESS ACCOUNTING AND FINANCE .......................................................................................................................................................................................... Catherine Gowthorpe Third edition For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Business Accounting and Finance © 2011, Catherine Gowthorpe Third edition ALL RIGHTS RESERVED. No part of this work covered by Catherine Gowthorpe the copyright herein may be reproduced, transmitted, Publishing Director: Linden Harris stored or used in any form or by any means graphic, electronic, or mechanical, including but not limited to Publisher: Brendan George photocopying, recording, scanning, digitizing, taping, Development Editor: Annabel Ainscow Web distribution, information networks, or information Content Project Editor: Adam Paddon storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Production Controller: Eyvett Davis Act, or applicable copyright law of another jurisdiction, Marketing Manager: Amanda Cheung without the prior written permission of the publisher. 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ISBN: 978-1-4080-1837-8 Cengage Learning EMEA Cheriton House, North Way, Andover, Hampshire, SP10 5BE United Kingdom Cengage Learning products are represented in Canada by Nelson Education Ltd. For your lifelong learning solutions, visit www.cengage.co.uk Purchase your next print book, e-book or e-chapter at www.cengagebrain.com Printed by RR Donnelley, China 1 2 3 4 5 6 7 8 9 10 – 13 12 11 For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. BRIEF CONTENTS .......................................................................... 1 The Role of Accounting in Business 1 SECTION 1 FINANCIAL ACCOUNTING AND REPORTING 30 2 The Statement of Financial Position 31 3 The Income Statement 55 4 Applying Accounting Conventions 77 5 Depreciation and Amortisation 106 6 The Statement of Cash Flows 126 7 Financial Reporting by Limited Companies 151 8 Understanding Financial Reports: Trend Analysis 179 9 Understanding Financial Reports: Using Accounting Ratios 199 SECTION 2 MANAGEMENT ACCOUNTING 232 10 Management and Cost Accounting Information 233 11 Costing: Overview and Basic Techniques 244 12 Costing: AccountingforOverheads 262 13 Pricing 286 14 Marginal Costing and Decision Making 303 15 Capital Investment Decisions 333 16 Budgets 358 17 Accounting for Control 385 18 Performance Measurement 411 v For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. vi BriefContents SECTION 3 FINANCIAL MANAGEMENT 432 19 The Management of Working Capital 433 20 Financing the Business 456 AnswerstoSelf-TestQuestions 476 AnswerstoExercises 499 Glossary 571 Index 576 For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CONTENTS ................................................. ListofFigures xxi PrefacetotheThirdEdition xxii Walk-ThroughTour xxv AbouttheWebsite xxviii 1 The Role of Accounting in Business 1 AimoftheChapter 1 LearningOutcomes 1 Introduction 2 1.0.1 SpecialNotesfortheSuspicious 2 Accountingisboringandit’snotrelevanttowhatI’mdoinganyway 2 Accountingshouldbelefttotheaccountants 2 Accountingisallaboutmaths,andI’mnogoodatmaths 2 Iwon’tbeabletounderstandthejargon 3 1.0.2 ContentofthisChapter 2 1.1 FormsofBusinessOrganisation 3 1.1.1 SoleTraderBusinesses 3 Characteristicsofthesoletraderformofbusiness 4 1.1.2 Partnerships 4 Characteristicsofthepartnershipformofbusiness 5 1.1.3 LimitedCompanies 6 Characteristicsoflimitedcompanies 6 1.2 SoleTraders,PartnershipsandLimitedCompaniesContrasted 7 1.2.1 SoleTrader–Advantages 7 1.2.2 SoleTrader–Disadvantages 7 1.2.3 Partnership–Advantages 7 1.2.4 Partnership–Drawbacks 8 1.2.5 LimitedCompany–Advantages 8 1.2.6 LimitedCompany–Drawbacks 8 1.3 FinanceforBusiness 8 1.3.1 ExistingResources 9 1.3.2 RetainedProfits 10 1.3.3 BorrowingMoney 10 Thecostofborrowing 10 Therisk/returnrelationship 10 Security 10 Overdrafts 10 1.3.4 LeasingandHirePurchase 11 1.3.5 GrantFinance 11 1.3.6 FinancingCompanies:ShareIssues 11 1.3.7 FinancingCompanies:VentureCapital 11 For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. viii Contents 1.4 Short,MediumandLongTermFinance 12 1.5 FundamentalsofTaxation 12 1.5.1 IncomeTaxes(PersonalTaxation) 12 1.5.2 CorporationTax 13 1.5.3 CapitalGainsTax 13 1.5.4 ValueAddedTax 13 1.6 TheNeedforAccountingInformation 14 1.6.1 SoleTrader 14 Annualinformation 15 Quarterlyinformation 15 Accountinginformationwithinthebusiness 15 Recordingandsummarisinginformation 15 1.6.2 Partnership 16 Audit 16 Accountinginformationwithinthebusiness 16 1.6.3 LimitedCompany 17 Provisionoffinancialinformationoutsidethebusiness 17 Separationofownershipandmanagement 18 Accountinginformationwithinthebusiness 19 1.7 UsersofAccountingInformation 19 1.7.1 AccesstoInformation 20 1.8 CharacteristicsofUsefulFinancialInformation 20 1.9 FinancialAccountingandManagementAccounting 21 1.10 TheRoleofTheAccountantInBusinessOrganisations 21 1.10.1 TheAccountingProfession 21 1.11 OrganisationoftheRemainderofthisBook 23 ChapterSummary 23 InternetResources 24 Exercises:AnswersattheEndoftheBook 25 Exercises:AnswersAvailableontheLecturers’SectionoftheBook’sWebsite 27 SECTION 1 FINANCIAL ACCOUNTING AND REPORTING 30 2 The Statement of Financial Position 31 AimoftheChapter 31 LearningOutcomes 31 Introduction 32 2.1 BasicsofBusinessAccounting:TheThreePrincipalFinancialStatements 32 2.2 StatementofFinancialPosition:DefinitionsofElements 35 2.2.1 Assets 35 2.2.2 Liabilities 35 2.2.3 Capital 35 2.2.4 Terminology 36 2.3 TheAccountingEquation 36 2.3.1 TheStatementofFinancialPositionFormat 37 2.4 DrawingupaStatementofFinancialPosition 39 2.4.1 ChangingtheValueofCapital 42 2.5 MorePracticewithStatementsofFinancialPosition 43 For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Contents ix 2.6 CommunicatingMeaning:WhatDoestheStatementofFinancial PositionSay? 45 2.6.1 UsefulCharacteristicsofAccountingInformation 45 2.7 FinancialReportingbyLargeCompanies 46 ChapterSummary 47 InternetResources 47 Exercises:AnswersattheEndoftheBook 48 Exercises:AnswersAvailableontheLecturers’SectionoftheBook’sWebsite 51 3 The Income Statement 55 AimoftheChapter 55 LearningOutcomes 55 Introduction 56 3.1 TheIncomeStatementTerminology 56 3.2 CategoriesofCommercialActivity 56 3.3 IncomeStatementforaSoleTrader 57 3.4 MovementsinInventory 58 3.5 CalculatingCostofSales 60 3.6 CalculatingNetProfit 61 3.6.1 TypicalBusinessExpenses 61 3.7 WhatDoestheIncomeStatementMean? 63 3.7.1 GrossProfitAnalysis 63 Comparingtwoconsecutiveyears 63 Grossprofitmargin 64 3.7.2 NetProfitAnalysis 64 Comparingtwoconsecutiveyears 64 Netprofitmargin 64 3.8 AnalysingFinancialInformationinLargeCompanies 65 3.9 IncomeStatementAccountinginaServiceBusiness 66 3.10 PreparingBoththeIncomeStatementandtheStatementofFinancial Position 67 ChapterSummary 71 InternetResources 71 Exercises:AnswersattheEndoftheBook 72 Exercises:AnswersAvailableontheLecturers’SectionoftheBook’sWebsite 75 4 Applying Accounting Conventions 77 AimoftheChapter 77 LearningOutcomes 77 Introduction 78 4.1 ReturnsofGoods,DiscountsandDeliveryCharges 78 4.1.1 Returns 78 4.1.2 Discounts 79 Tradediscounts 79 Financialdiscounts 79 4.1.3 DeliveryCharges 80 4.2 AccountingConventions 84 4.2.1 Recognition 84 4.2.2 Accruals(Matching) 85 For more Cengage Learning textbooks, visit www.cengagebrain.co.uk Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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