Financial & Management Accounting

833 Pages·2010·5.25 MB·English

This revised and fully updated edition continues to provide students with a clear and well-structured introduction A F
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to financial and management accounting. The fifth edition retains all of the classic features that have contributed n i
to the book’s success, such as clarity of expression, the focus on the accounting equation, student activities, real-life n

commentaries running through each chapter, and the inclusion of the Safe and Sure Annual Report as a real world I a
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example of a listed company.
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Financial & Management Accounting: An Introduction offers: l
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• Fully in line with IFRS, but provides comparative analysis with UK GAAP where relevant. &
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• Experience-driven conversations between two managers appear at intervals throughout the text,
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providing a valuable insight into the type of interpretative comment which the reader may find more i M
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taxing. These discussions allow a more candid examination of issues and problems within the subject.
• Designed to aid navigation and understanding for students, including a unique colour-coding system to n a An Introduction
make technical material more accessible. n
• Activity-based costing, strategic management accounting, the balanced scorecard and benchmarking are a
included in the main management accounting chapters.
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• The approach to teaching and learning focuses on subject-specific knowledge outcomes and generic skills
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outcomes, with end-of-chapter self-evaluation.
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• Questions are graded to test student understanding of chapter content, as well as skills in straightforward
application of knowledge, and skills of problem solving and evaluation.
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• Updated terminology and presentation to reflect the requirements of the International Accounting
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Standards Board from 2009 and the UK Companies Act 2006.
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• New case studies containing examples from real-world companies reflect current issues such as cash flow
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management in Marks & Spencer, cost control at Debenhams and performance benchmarking at Argos.
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Financial & Management Accounting: An Introduction is aimed at first-level undergraduates on business studies degrees u
taking introductory financial accounting and management accounting classes; first-level specialist accounting
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undergraduate students; introductory core accounting for MBA and postgraduate specialist Masters students, focusing
on analysis through the accounting equation and a questioning approach to problem solving; and professional courses t
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where accounting is introduced for the first time. n
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Visit the Financial & Management Accounting: An Introduction Student Companion website at fifth
www.pearsoned.co.uk/weetman to access a comprehensive range of student-learning resources,
including additional questions and weblinks to further your study. edition
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Pauline Weetman BA, BSc (Econ), PhD, CA, FRSE, is Professor of Accounting at the University of Edinburgh, and has
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extensive experience of teaching at undergraduate and postgraduate level, with previous chairs held at Stirling,
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Heriot-Watt, Strathclyde and Glasgow Universities. She received the Distinguished Academic Award of the British
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Accounting Association in 2005. She has convened the examining board of the Institute of Chartered Accountants m
of Scotland and was formerly Director of Research at ICAS.
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FINANCIAL AND
MANAGEMENT ACCOUNTING
Visit the Financial Accounting: An Introduction, fifth edition
Companion Website at www.pearsoned.co.uk/weetman to
find valuable student learning material including:
l Multiple choice questions to test your learning
l Extensive links to valuable resources on the web
l An online glossary to explain key terms
We work with leading authors to develop the strongest
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Fifth Edition
FINANCIAL AND
MANAGEMENT ACCOUNTING
An Introduction
Pauline Weetman
Professor of Accounting
University of Edinburgh
To my parents,
Harry and Freda Weetman
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
First edition published under the
Financial Times Pitman Publishing imprint in 1996
Second edition1999
Third edition2003
Fourth edition 2006
Fifth edition published 2011
© Pearson Education Limited 1996, 1999, 2003, 2006, 2011
The right of Pauline Weetman to be identified as author of this work
has 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.
Pearson Education is not responsible for the content of third party Internet sites.
ISBN: 978-0-273-71841-3

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
Weetman, Pauline.
Financial and management accounting : an introduction /
Pauline Weetman. – 5th ed.
p. cm.
ISBN 978-0-273-71841-3 (pbk.)
1. Accounting. I. Title.
HF5635.W443 2010
657–dc22
2010029146
10 9 8 7 6 5 4 3 2 1
15 14 13 12 11
Typeset in 9.5/12pt Palatino by 35
Printed and bound by Rotolito Lombarda, Italy
Contents in brief
Preface to the fifth edition xx
Guided tour of the book xxvi
Publisher’s acknowledgements xxviii
FINANCIAL ACCOUNTING
Part 1 A conceptual framework: setting the scene 3
1 Who needs accounting? 4
2 A systematic approach to financial reporting:
the accounting equation 26
3 Financial statements from the accounting equation 50
4 Ensuring the quality of financial statements 73
Part 2 Reporting the transactions of a business 103
5 Accounting information for service businesses 104
6 Accounting information for trading businesses 133
Part 3 Recognition in financial statements 159
7 Published financial statements 160
8 Non-current (fixed) assets 200
9 Current assets 238
10 Current liabilities 268

11 Provisions and non-current (long-term) liabilities 287
12 Ownership interest 309
Part 4 Analysis and issues in reporting 339
13 Ratio analysis 340
14 Reporting corporate performance 367
15 Reporting cash flows 399
MANAGEMENT ACCOUNTING
Part 5 Setting the scene and defining the basic tools of
management accounting 427
16 Functions of management accounting 428
17 Classification of costs 453
18 Product costs: materials, labour and overheads 475
vi Contents in brief
Part 6 Job costs and stock valuation 511
19 Job costing 512
Part 7 Decision making 535
20 Break-even analysis and short-term decision making 536
Part 8 Planning and control 565
21 Preparing a budget 566
22 Standard costs 604
23 Performance evaluation and feedback reporting 634
Part 9 Capital investment appraisal and business strategy 657
24 Capital investment appraisal 658
25 Business strategy and management accounting 688
Financial accounting terms defined G1
Management accounting terms defined G11
Appendices
I Information extracted from annual report of Safe and
Sure Group plc, used throughout Financial Accounting A1
II Solutions to numerical and technical questions in
Financial Accounting A15
III Solutions to numerical and technical questions in
Management Accounting A41
Index I1
Contents
Preface to the fifth edition xx
Guided tour of the book xxvi
Publisher’s acknowledgements xxviii
FINANCIAL ACCOUNTING
Part 1 A conceptual framework: setting the scene
Chapter 1 Who needs accounting? 4
Real World Case 4
Learning outcomes 5
1.1 Introduction 6
1.2 The development of a conceptual framework 7
1.3 Framework for the preparation and presentation of financial
statements 8
1.4 Types of business entity 9
1.5 Users and their information needs 12
1.6 General purpose or specific purpose financial statements? 17
1.7 Stewards and agents 17
1.8 Who needs financial statements? 18
1.9 Summary 19
Further reading 20
Questions 20
A Test your understanding 20
B Application 21
C Problem solving and evaluation 21
Activities for study groups 22
Notes and references 22
Supplement: introduction to the terminology of business transactions 24
Test your understanding 25
Chapter 2 A systematic approach to financial reporting:
the accounting equation 26
Real World Case 26
Learning outcomes 27
2.1 Introduction 28
2.2 The accounting equation 28
viii Contents
2.3 Defining assets 29
2.4 Examples of assets 31
2.5 Recognition of assets 33
2.6 Defining liabilities 35
2.7 Examples of liabilities 36
2.8 Recognition of liabilities 37
2.9 Defining the ownership interest 38
2.10 Recognition 39
2.11 Changes in the ownership interest 39
2.12 Assurance for users of financial statements 41
2.13 Summary 42
Further reading 44
Questions 44
A Test your understanding 44
B Application 45
C Problem solving and evaluation 45
Activities for study groups 46
Notes and references 46
Supplement: debit and credit bookkeeping 47
Test your understanding 49
Chapter 3 Financial statements from the accounting equation 50
Real World Case 50
Learning outcomes 52
3.1 Introduction 52
3.2 Who is in charge of the accounting system? 52
3.3 The accounting period 53
3.4 The statement of financial position (balance sheet) 54
3.5 The income statement (profit and loss account) 58
3.6 The statement of cash flows 59
3.7 Usefulness of financial statements 62
3.8 Summary 63
Questions 64
A Test your understanding 64
B Application 64
Activities for study groups 65
Supplement: using the accounting equation to analyse
transactions 66
Test your understanding 72
Chapter 4 Ensuring the quality of financial statements 73
Real World Case 73
Learning outcomes 74
4.1 Introduction 75
4.2 Qualitative characteristics of financial statements 75
4.3 Measurement in financial statements 80
4.4 Views on prudence 82
Contents ix
4.5 Regulation of financial reporting 84
4.6 Reviewing published financial statements 93
4.7 Summary 98
Further reading 99
Questions 99
A Test your understanding 99
B Application 100
C Problem solving and evaluation 100
Activities for study groups 101
Notes and references 101
Part 2 Reporting the transactions of a business
Chapter 5 Accounting information for service businesses 104
Real World Case 104
Learning outcomes 105
5.1 Introduction 105
5.2 Analysing transactions using the accounting equation 106
5.3 Illustration of accounting for a service business 109
5.4 A process for summarising the transactions: a spreadsheet 113
5.5 Financial statements as a means of communication 115
5.6 Summary 118
Questions 118
A Test your understanding 118
B Application 119
Supplement: recording transactions in ledger accounts –
a service business 120
Test your understanding 132
Chapter 6 Accounting information for trading businesses 133
Real World Ca se 133
Learning outcomes 134
6.1 Introduction 135
6.2 Goods purchased for resale 135
6.3 Manufacturing goods for resale 137
6.4 Illustration of accounting for a trading business 140
6.5 A process for summarising the transactions: a spreadsheet 144
6.6 Financial statements of M. Carter, wholesaler 146
6.7 Summary 148
Questions 149
A Test your understanding 149
B Application 150
Supplement: recording transactions in ledger accounts:
a trading business 151
Test your understanding 158