Financial accounting for decision makers

569 Pages·2011·3.87 MB·English

by  Peter Atrill

Sixth Edition F
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Financial Accounting for Decision Makers n
a Sixth Edition
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Peter Atrill ‘The book is written in a very friendly way, c
Eddie McLaney from which students will benefit.’ ia Financial Accounting
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Paulo Alves, University of Lancaster
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c for Decision Makers
A comprehensive and accessible introduction to the subject, Financial Accounting for Decision Makers focuses on
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the ways in which financial statements and information can be used to improve the quality of decision making.
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By introducing topics gradually and explaining technical terminology in a clear, friendly style, the authors cater
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both for accounting students, and for those studying entry-level accounting within another field. A practical
emphasis throughout the book ensures that the material is always n
relevant and suitable to the decision makers of the future. t
i Peter Atrill
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Eddie McLaney
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Financial Accounting for Decision Makers offers:

• Interactive ‘open-learning’ style, ideal for self-study, encourages you to check your progress D
continually. e
• NEW chapter examining supplementary financial reports prepared by businesses. c
• Interactive ‘open-learning’ style, ideal for self-study, encourages you to check your progress i
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continually.
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• Fully integrated coverage of International Financial Reporting Standards (IFRS). o
• NEW sections dealing with key standards and standard-setting issues. n
• Numerous activities and exercises enable you to constantly test your understanding and reinforce
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learning.
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• Updated and expanded chapter on corporate governance outlines the issues and potential problems
inherent to the separation of ownership of a company from day-to-day control. k
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• Colourful and relevant examples from the real world, including company reports and survey data,
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demonstrate the practical application and value of concepts and techniques learnt.
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• Key terms, glossary and bulleted summaries providing excellent revision aids.
Sixth

Edition
Visit the student companion website at www.pearsoned.co.uk/atrillmclaney to access a host of student study
resources including multiple choice questions and links to useful websites.
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Audience
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Suitable for all those studying an introductory course in financial accounting, who are seeking an understanding i
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of basic principles and underlying concepts without detailed technical knowledge. l

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Authors
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Peter Atrill is a freelance academic and author working with leading institutions in the UK, Europe and SE Asia.
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He was previously Head of Business and Management and Head of Accounting and Law at the University of L
Plymouth Business School. a
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Eddie McLaney is Visiting Fellow in Accounting and Finance at the University of Plymouth.
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www.pearson-books.com
Front cover image: © Getty Images
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A01_ATRI0391_06_SE_FM.QXD 6/17/10 15:27 Page i
Financial Accounting
for Decision Makers
Visit the Financial Accounting for Decision Makers, sixth edition
Companion Website at www.pearsoned.co.uk/atrillmclaney
to find valuable student learning material including:
● Self assessment questions to test your learning
● A study guide to aid self-learning
● Revision questions and exercises to help you check your
understanding
● Extensive links to valuable resources on the web
● Comments on case studies to aid interpretative and
analytical skills
A01_ATRI0391_06_SE_FM.QXD 6/17/10 15:27 Page ii
We work with leading authors to develop the strongest
educational materials in accounting, bringing cutting-edge
thinking and best learning practice to a global market.
Under a range of well-known imprints, including
Financial Times Prentice Hall, we craft high-quality print
and electronic publications which help readers to understand
and apply their content, whether studying or at work.
To find out more about the complete range of our
publishing, please visit us on the World Wide Web at:
www.pearsoned.co.uk
A01_ATRI0391_06_SE_FM.QXD 6/17/10 15:27 Page iii
6th
Edition
Financial Accounting
for Decision Makers
Peter Atrill
and
Eddie McLaney
A01_ATRI0391_06_SE_FM.QXD 6/17/10 15:27 Page iv
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.pearsoned.co.uk
Second edition published 1999 by Prentice Hall Europe
Third edition published 2002 by Pearson Education Limited
Fourth edition 2005
Fifth edition 2008
Sixth edition 2011
© Prentice Hall Europe 1996, 1999
© Pearson Education Limited 2002, 2011
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.
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.
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.
ISBN: 978-0-273-74039-1
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Atrill, Peter.
Financial accounting for decision makers / Peter Atrill and Eddie
McLaney. — 6th ed.
p. cm.
ISBN 978-0-273-74039-1 (pbk.)
1. Accounting. 2. Decision making. I. McLaney, E. J. II. Title.
HF5636.A884 2010
658.15—dc22
2010018255
10 9 8 7 6 5 4 3 2 1
14 13 12 11 10
Typeset in 9.5/12.5pt Stone Serif by 35
Printed and bound by Rotolito Lombarda, Italy
A01_ATRI0391_06_SE_FM.QXD 6/17/10 15:27 Page v
Brief contents
Guided tour of the book xiv
Guided tour of the Companion Website xvi
Preface xviii
How to use this book xx
Acknowledgements xxii
1 Introduction to accounting 1
2 Measuring and reporting financial position 30
3 Measuring and reporting financial performance 69
4 Accounting for limited companies (1) 114
5 Accounting for limited companies (2) 149
6 Measuring and reporting cash flows 186
7 Analysing and interpreting financial statements (1) 217
8 Analysing and interpreting financial statements (2) 261
9 Reporting the financial results of groups of companies 295
10 Increasing the scope of financial reporting 352
11 Governing a company 390

Appendix A Recording financial transactions 442
Appendix B Glossary of key terms 461
Appendix C Solutions to self-assessment questions 472
Appendix D Solutions to review questions 481
Appendix E Solutions to selected exercises 491
Index 528
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Contents
Guided tour of the book xiv
Guided tour of the Companion Website xvi
Preface xviii
How to use this book xx
Acknowledgements xxii
1 Introduction to accounting 1
Introduction 1
Learning outcomes 1
What is accounting? 2
Who are the users of accounting information? 2
The conflicting interests of users 4
How useful is accounting information? 4
Providing a service 6
But...is it material? 7
Weighing up the costs and benefits 8
Accounting as an information system 10
Management accounting and financial accounting 12
Scope of this book 13
Has accounting become too interesting? 14
The changing face of accounting 16
What kinds of business ownership exist? 17
How are businesses organised? 19
What is the financial objective of a business? 20
Balancing risk and return 23
Not-for-profit organisations 24
Summary 25
Key terms 27
Reference 27
Further reading 28
Review questions 29
2 Measuring and reporting financial position 30
Introduction 30
Learning outcomes 30
Making financial decisions 31
The major financial statements – an overview 31
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viii CONTENTS
The statement of financial position 36
The effect of trading transactions 42
Classifying assets 45
Classifying claims 47
Statement layouts 48
Capturing a moment in time 50
The role of accounting conventions 51
Money measurement 54
Valuing assets 58
Meeting user needs 62
Summary 63
Key terms 65
Further reading 65
Review questions 66
Exercises 66
3 Measuring and reporting financial performance 69
Introduction 69
Learning outcomes 69
What does it mean? 70
The income statement 70
Different roles 72
Income statement layout 73
Further issues 74
Recognising revenue 77
Recognising expenses 81
Depreciation 86
Costing inventories 96
Trade receivables problems 101
Uses and usefulness of the income statement 105
Summary 106

Key terms 108
Further reading 108
Review questions 109
Exercises 109
4 Accounting for limited companies (1) 114
Introduction 114
Learning outcomes 114
Why limited companies? 115
The main features of limited companies 115
Legal safeguards 119
Public and private companies 119
Taxation 121
Transferring share ownership: the role of the Stock Exchange 122
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CONTENTS ix
Managing a company 123
Financing limited companies 123
Share capital 124
Reserves 126
Bonus shares 128
Share capital jargon 130
Raising share capital 131
Borrowings 131
Withdrawing equity 133
The main financial statements 136
Dividends 139
Summary 140
Key terms 142
Further reading 142
Review questions 143
Exercises 143
5 Accounting for limited companies (2) 149
Introduction 149
Learning outcomes 149
The directors’ duty to account 150
The need for accounting rules 150
Sources of accounting rules 153
Presenting the financial statements 156
Selected financial reporting standards 162
The framework of principles 166
Problems with standards 168
Accounting rules or accounting choice? 170
The auditors’ role 171
Directors’ report 172
Summary financial statements 173
Creative accounting 173
Summary 180
Key terms 182
Further reading 182
Review questions 183
Exercises 183
6 Measuring and reporting cash flows 186
Introduction 186
Learning outcomes 186
The statement of cash flows 187
Why is cash so important? 188
The main features of the statement of cash flows 189
A definition of cash and cash equivalents 189