FINANCIAL ACCOUNTING An Integrated Approach 7e

360 Pages·2016·78.32 MB·English

by  Ken Trotman

EDITION
7TH
F I N A N C I A L
ACCOUNTING
An I n t e g r a t e d A p p r o a c h
Ken Trotman Eli zabeth Carson Kate Morgan
Copyrighl2019 Cengage Learnin(J. AJI RiVU Reserved. May not be copied, scanned. cw duplicated. in wno• 01' in part. WCN 02·20().202
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
EDITION
7TH
An Integrated Approach
Ken Trotman Elizabeth Carson Kate Morgan
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Financial Accounting: An integrated approach © 2019 Cengage Learning Australia Pty Limited
7th Edition
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1 Introduction to financial accounting ............................................ 1
2 Measuring and evaluating financial position and financial
perform a n c e ................................................................................ 3 7
APPENDIX TO CHAPTER 2: Background: sole traders,
partnerships, companies and fi na nci ng ...................................... 7 5
3 The double-entry system ............................................................ 80
APPENDIX TO CHAPTER 3: A brief history of early
accounting ................................................................................. 127
4
Record-keeping ......................................................................... 133
5
Accrual accounting adjustments .............................................. 175
6
Financial reporting principles, accounting standards
and auditing ............................................................................. 226
7
Internal control and cash .......................................................... 273
8
Accounts receivable and further record-keeping .................... 309
9
Inventory .................................................................................... 353
10 Noncurrent assets ..................................................................... 380
11 Liabilities ................................................................................... 417
APPENDIX TO CHAPTER 11: Future cash flows: present
value analysis ............................................................................. 452
12 Investments and shareholders' equity ..................................... 456
13 Revenue and expense recognition: additional concepts ........ 483
14 The statement of cash flows .................................................... 511
15 Financial statement analysis ..................................................... 561
1 6 A c co u n t i n g poI icy choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1 5
17 Sustainability reporting ............................................................. 637
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Preface xii
Guide to the text xiv
Guide to the online resources xvi
About the authors xviii
Acknowledgements xix
CHAPTER 1 Introduction to financial accounting 1
Chapter overview
1
1.1 Use and preparation of accounting 2
1.2 Financial accounting 2
1.3 Who uses financial accounting information? 3
1.4 The people involved in financial accounting 5
1.5 Accrual accounting 9
1.6 The key financial statements 12
1.7 Demands on the quality o f financial accounting informatio n 18
1.8 Financial statement assumptions 22
1.9 Is accounting really important? 23
CHAPTER 2 Measuring and evaluating financial position
37
and financial performance
Chapter overview 37
2.1 Introduction to the balance sheet 40
2.2 Explanatio ns of the three balance sheet categories: assets, liabilities and equity 42
2.3 Some pre liminary analysis of the Sound and Light balance sheet 45
2.4 A closer look at the balance sheet 48
2.5 Maintaining the accounting equation 51
2.6 Managers and the balance sheet 53
2.7 The income statement 53
2.8 Connecting balance sheets and income statements 57
2.9 A closer look at the income statement 60
2.1 0 Capital markets, managers and performance evaluation 61
APPENDIX TO CHAPTER 2: Background: sole traders, partnerships, companies
and financing 75
A2.1 Four kinds of business organisation 75
A2.2 Business f1nancing 78
R~wed. 02·~202
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Contents
80
CHAPTER 3 The double-entry system
Chapter overview 80
3.1
Transaction analysis 81
3.2
Transaction analysis extended 83
3.3
Recording transactions: double-entry bookkeeping 89
3.4
More about accounts 92
3.5
More examples of how debits and credits work 93
3.6
Debits and credits extended 96
3.7
A rranging accounts on the balance sheet 102
3.8
More jou rnal entries 103
3. 9
Cash versus accrual accounting revisited 105
APPENDIX TO CHAPTER 3:
A brief history of early accounting 127
A3.1
Mesopotamia to Rome: 4500 BC to AD 400 128
A3.2
The Middle Ages to the Renaissance: AD 400-1500 128
A3.3
Britain: 1500 to the early 1800s 129
A3.4
Financial accounting's recent history 131
CHAPTER 4 Record-keeping 133
Chapter overview 133
4.1 The importance of good records 134
4.2 Financial accounting's transactional filter 134
4.3 Accounting's 'books' and records 137
4.4 An illustrative example 150
4.5 Electronic commerce 158
4.6 Managers, bookkeeping and control 159
CHAPTER 5 Accrual accounting adjustments 175
Chapter overview 175
5.1 Conceptual foundation of accrua l accounting 177
5.2 Accrual accou nting adjustments 184
5.3 Multi-co lumn worksheets 191
5.4
The financial period 195
5.5
Contra accounts 195
5.6 Illustrative example 198
5.7
Managers and accrual accounting assumptions 204
CHAPTER 6 Financial reporting principles, accounting
standards and auditing 226
Chapter overview 226
6.1
Accounting regu lation in Australia 228
6.2
International financia l reporting sta ndards 230
..
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Contents
6.3
The importance of accounting standards and principles 231
6.4
Accounting p rinciples and the use of accounting information 231
6.5
Framework for the preparation and p resentation of financial statements 233
6.6
Assets and liabilities: valuation and measurement 238
6.7
The annual report and financial statements 242
6.8
The externa l auditor's report 245
6. 9
The nature of a p rofession and p rofessional ethics 248
6.10
Capita l markets 250
6.11
Contracts and financial accounting informat ion 256
6.12
Managers and financial accounti ng standa rds 258
CHAPTER 7 Internal control and cash 273
Chapter overview 273
7.1
Internal contro l 274
7.2
Internal contro l of cash 277
7.3
Bank reconciliations 279
7.4
Performing a bank reconciliation from information in cash journals 284
7.5
Petty cash 287
7.6
Discl osure of internal control in annual reports 288
7.7
Managers and internal control 290
CHAPTER 8 Accounts receivable and further record-keeping 309
Chapter overview 309
8.1
Receivables 310
8.2
Control accounts and contra accounts 311
8.3
Accounts receivable and contra accounts 311
8.4
Illustrative example 317
8.5
Trade discount and cash d iscount 321
8.6
Detailed recording using special jou rnals, subsidiary ledgers and control accounts 322
8.7
Prime entry records: special jou rnals 324
8.8
Subsidiary ledgers and control accounts 324
8. 9
Operation of special journals and subsidiary ledgers 325
8.10
Role of general journal and general ledger 332
CHAPTER 9 Inventory 353
Chapter overview 353
9.1
Inventory control 354
9.2
Accounting entries for perpetua l and periodic inventory 356
9.3
Inventory va luation and cost of goods sold 359
9.4
More about inventory cost flow assumptions 361
...
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Contents
9.5 An example: Meeix Ltd 363
9.6 Lower of cost and net rea lisable val ue rule 366
9.7 Retail inventory and standard costs 367
9.8 Disclosure of inventory accounting policies 368
9.9 Managers and t he va luation of inventory 369
CHAPTER 10 Noncurrent assets 380
380
Chapter overview
1 0.1 The cost of an asset: basic components 381
1 0.2 Depreciation of assets and depreciation expense 382
1 0.3 Depreciation bases and methods 385
1 0.4 Depreciation example 391
10.5 Gains and losses on noncurrent asset disposals 392
1 0.6 Asset reva luations 393
10.7 Asset impairment 396
1 0.8 Intangible assets 397
10.9 Goodwill 400
10.10 Finance leases 401
1 0.11 Managers and noncurrent assets 402
CHAPTER 11 Liabilities 417
417
Chapter overview
11.1 What is a liability? 418
11.2 General measurement p rinciples 419
11.3 Financial statement presentation of liabilities 420
11.4 Payables 421
11.5 Interest-bearing liabilities: short term 423
11.6 Interest-bearing liabilities: long term 424
11.7 Taxliabilities 427
11.8 Provisions 427
11.9 Contingent liabilities 430
11.10 /Off balance sheef financing 432
11.11 Goods and services tax 433
APPENDIX TO CHAPTER 11: Future cash flows: present value analysis 452
A 11.1 Future cash flows 452
A 11.2 Interest and present va lue 453
CHAPTER 12 Investments and shareholders' equity 456
456
Chapter overview
12.1 Intercorporate investments and corporate groups 458
12.2 Consolidations 461
.
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