The Finance and Accounting Desktop Guide: Accounting Literacy for the Non-Financial Manager PDF
Preview The Finance and Accounting Desktop Guide: Accounting Literacy for the Non-Financial Manager
2nd edition ffiinnaannccee TThhee aanndd aaccccoouunnttiinngg ddeesskkttoopp gguuiiddee AAccccoouunnttiinngg lliitteerraaccyy ffoorr tthhee nnoonn--ffiinnaanncciiaall mmaannaaggeerr RRaallpphh TTiiffffiinn IFC The finance and accounting desktop guide Accounting literacy for the non-financial manager Ralph Tiffin Thorogood Publishing Ltd 10-12 Rivington Street London EC2A 3DU Telephone: 020 7749 4748 Fax: 020 7729 6110 Email: [email protected] Web: www.thorogoodpublishing.co.uk © Ralph Tiffin 2007 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, photocopying,recording or otherwise,without the prior permission of the publisher. This book is sold subject to the condition that it shall not,by way of trade or otherwise,be lent,re-sold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than in which it is published and without a similar condition including this condition being imposed upon the subsequent purchaser. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher. A CIP catalogue record for this book is available from the British Library. Special discounts for bulk PB ISBN: 1 85418 309 5 quantities of Thorogood books are available to corporations, 978-185418309-5 institutions, associations and RB ISBN: 1 85418 304 4 other organisations. For more information contact Thorogood 978-185418304-0 by telephone on 020 7749 4748, by Printed in the UK by Marston Digital fax on 020 7729 6110, or email us: [email protected] Designed and typeset in the UK by Driftdesign ‘For Robert, Gavin and Hannah’ Blank CONTENTS Icons...............................................................................10 Introduction...................................................................11 Section 1: Balance sheets.........................................................13 What is a balance sheet?.................................................14 What do balance sheets reveal?......................................19 Interpreting balance sheet profiles................................21 Checklist.........................................................................23 Section 2: Balance sheets.........................................................25 Balance sheets:structure and contents – UK.................26 Interpreting the balance sheet.......................................28 Balance sheets:structure and contents – US..................35 Checklist.........................................................................48 Section 1: Profit and loss accounts........................................49 What is a profit and loss account?..................................50 What do profit and loss accounts reveal about a business?.................................................55 Checklist.........................................................................61 Section 2: Profit and loss accounts........................................63 Profit and loss accounts in published or statutory accounts.....................................64 US revenue or income statement (P & L account) structure and contents.........................71 Checklist.........................................................................80 5 C o n t e n t s Section 1: Cash flow statements.............................................81 If there are profits there must be cash...........................82 Cash flow statements.....................................................82 What can cash flow statements tell us?..........................87 Checklist.........................................................................88 Section 2: Cash flow statements.............................................89 Published cash flow statements.....................................90 Definitions......................................................................94 Compiling and interpreting a cash flow statement........95 Checklist.......................................................................105 Section 1: Accounting records and systems.....................107 Why have accounting records?....................................108 Distinction between accounting systems and accounting records..................................109 Checklist.......................................................................119 Section 2: Accounting records and systems.....................121 Accounting systems and procedures............................122 Classic ledger structure................................................124 Sales system..................................................................130 Purchase system...........................................................131 Wages system...............................................................132 Audit function..............................................................135 Checklist.......................................................................142 6 C o n t e n t s Section 1: Accounting concepts, policies and standards.........................................143 Why do we need concepts and rules?..........................144 Fundamental accounting concepts..............................145 Fundamental concepts in operation............................146 Accounting policies......................................................149 Checklist.......................................................................152 Section 2: Accounting concepts, policies and standards.........................................153 Accounting standards...................................................154 Detailed accounting policies........................................156 Developing accounting policies...................................168 A contractor.................................................................169 A travel agency.............................................................170 Creative accounting.....................................................172 Creative accounting illustration...................................174 Checklist.......................................................................177 Section 1: Interpretation..........................................................179 Ratio analysis................................................................180 Checklist.......................................................................189 Section 2: Interpretation..........................................................191 Detailed ratio analysis...................................................192 Profitability ratios.........................................................196 Asset turnover analysis.................................................197 Stock market measures.................................................207 Detailed performance measurement – bench marking...211 What is bench marking?...............................................211 Checklist.......................................................................215 7 C o n t e n t s Section 1: Cash budgeting.......................................................217 Cash flow forecasts......................................................218 Outline of a simple cash flow forecast.........................222 Checklist.......................................................................225 Section 2: Cash budgeting.......................................................227 What is capital expenditure?........................................228 Cash flow forecasts......................................................232 Non-discounted measures............................................234 Discounted cash flow techniques and measures.........235 Sensitivity analysis........................................................236 Checklist.......................................................................243 Section 1: Costing for planning..............................................245 What is costing?...........................................................246 Costing for planning.....................................................249 Checklist.......................................................................253 Section 2: Costing for planning..............................................255 Detailed planning and break-even analysis...................256 Checklist.......................................................................266 8
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