a smart approach SECOND EDITION Mary Carey Cathy Knowles Jane Towers-Clark OXJORD UNIVERSITY PRESS

Transcription

1 a smart approach SECOND EDITION Mary Carey Cathy Knowles Jane Towers-Clark OXJORD UNIVERSITY PRESS

2 Acknowledgements Howto usethis book How to use the Online Resource Centre xvii xviii xx Part One: Financial Accounting 1 1 The Cash Budget 3 Sam has a Smart idea Why should managers understand accounting? 4 The cash budget 5 Accounting concepts 5 Tinnings of receipts and payments 9 Calculation ofthe gross profit and gross profit margin 12 Trueorfalse? 15 Practice questions 15 2 Introduction to the Statement of Profit or Loss 18 The business starts trading When aresales and purchases made? 20 Measuring profit 21 Double-entry bookkeeping 21 Typesofaccount 23 Thetrial balance 24 Capital versus revenue expenditure 26 Capital versus revenue income 27 The Statement of profit or loss 27 Calculating the cost of sales 28 Preparing the Statement of profit or loss 29 Trueorfalse? 32 Practice questions 33 3 Balancing the Basics 37 Gettinga 'snapshot' of Smart Sports Assets and liabilities 38 The Statement of financial position 39 Accrualsand prepayments 44 Trueorfalse? 52 Practice questions 52

3 4 Accounting for Depreciation and Bad Debts 55 Smart Sports is called to account What is depreciation? 56 The straight-line method 57 The reducing-balance method 60 Disposals of non-current assets 62 Bad and doubtful debts 63 Uses and limitations ofthe Statement of financial position 68 Trueorfalse? 70 Practice questions 71 5 Company Finance 75 Growing the business The natureof limited companies 76 Share capital 78 The stock exchange 80 Venture capital 81 Loan capital and debentures 82 Retained profits 82 Reporting requirements 83 Trueorfalse? 85 Practice questions 85 6 Company Accounts 87 Smart Sports turns corporate The Statement of profit or loss 88 The Statement of changes in equity 89 The Statement of financial position 94 Intangible assets 98 Revaluing assets 98 The Statement of comprehensive income 99 Corporate governance 101 Trueorfalse? 103 Practice questions The Statement of Cash Flows 108 Where has all the cash gone? The Statement of cash flows 109 Sourcesof cash flow 112 Non-current assets and the Statement of cash flows 113

4 Movements in working capital 114 Tax, interest, and dividends 118 Whatto lookfor in a Statement of cash flows 121 Managing cash 122 Trueorfalse? 123 Practice questions Interpreting Financial Statements 130 Exploring India Ratio analysis 131 The pyramid of ratios 132 Profitabi lity ratios 133 Liquidity ratios 136 Control of working capital 138 The working capital cycle 140 Trueorfalse? 145 Practice questions Capital Structure and Investment Ratios 148 Sam gears up Capital structure 149 Investment ratios 154 Limitations of ratio analysis 158 Trueorfalse? 159 Practice questions 160 Case Study: Financial Accounting 162 Prezzo plc Part Two: Management Accounting Costs and Break even Analysis 171 Smart Sports goes into production Management accounting 172 Fixed and variable costs 173 Contribution 177 Break even analysis 177 The margin ofsafety 182 Interpreting break even analysis 182

5 Assumptions underlying breakeven analysis 184 True or false? 185 Practice questions Absorption and Activity-based Costing 188 Sam is cost conundrum Direct and indirect costs 189 Absorption costing 190 Calculating a blanket rate 190 Over and under recovery 191 Calculating a departmental rate to fully cost the product 193 Activity-based costing 200 True or false? 205 Practice questions Budgeting 208 Sam makes a Smart plan The advantages of budgets 209 The process of budgeting 211 Preparation ofa budget 213 Problems of budgeting 219 Budgets to monitor Performance and flexible budgeting 220 Variance analysis 222 Questioning assumptions 224 Trueorfalse? 225 Practice questions Pricing and Costs 228 Cart Smart Sports compete? Using cost Information to price your product 229 Discounts and distribution margins 232 Choosing the appropriate costing method 233 Pricing and product strategy 237 Optimum pricing 237 Target costing 238 Life-cycle costing 239 Transfer pricing 241 True or false? 243 Practice questions 244

6 14 Short-term Decision Making 246 Decision time What are relevant revenue and costs? 247 Makeorbuydecisions 251 Limitingfactors 253 Upgrading equipment 256 Closureof sites ordiscontinuing products 257 Trueorfalse? 260 Practice questions Investment Appraisal Techniques 263 Smart4sport. com Investment appraisal techniques 264 Accounting rate of return 264 Payback period 268 Netpresentvalue 271 Discounting to present value 272 Internal rate of return 274 Trueorfalse? 279 Practice questions Performance Measurement 284 Smart success Performance measurement: strategy and objectives 285 Financial and non-financial Performance measurement 286 Key Performance measures 287 Benchmarking 289 The balanced scorecard 290 Customerprofitability analysis 294 Corporate governance 297 Ethics 297 Trueorfalse? 300 Practice questions 301 m Case Study: Management Accounting 303 Company Coco Wider reading 306 Answers to Demonstration Exercises and Practice Questions 309 Glossary 396 Index 405

7 17 Introduction to Double-entry Bookkeeping I (online chapter) Recording Sam's business transactions The accounting equation Double-entry bookkeeping Debits and credits Balancing off accounts Preparation ofthetrial balance Preparing the financial statements The Statement of profit or loss as a T-account True or false? Practice questions 18 Double-entry Bookkeeping II (online chapter) Sam makes his adjustments Accounting concepts Double-entry bookkeeping for adjusting entries Accounting for inventory Adjusting thetrial balance Preparing the financial statements True or false? Practice questions