Accounting and Finance: An Introduction, 10th Edition
- Length: 892 pages
- Edition: 10
- Language: English
- Publisher: Pearson
- Publication Date: 2020
- ISBN-10: 1292312262
- ISBN-13: 9781292312262
- Sales Rank: #3349777 (See Top 100 Books)
For undergraduate and MBA courses in Accounting and Finance.
Gain a complete grounding in Accounting and Finance and develop skills to work with financial information
Accounting and Finance: An Introduction 10th Edition by Eddie McLaney and Peter Atrill contains all the information on Accounting and Finance you need to start your career in business. With an emphasis on introducing topics in a step-by-step and accessible way, you will be taught how to understand and use financial information and reports, and will gain an appreciation of the key roles that both accounting and finance have to play in business decision-making. This bestselling text continues to be popular in universities and business schools, and makes the experience of learning about accounting and finance relevant and practical through its use of real numerical accounting techniques, the inclusion of important international financial standards, an increased number of activities to encourage learning in an active way, and through a range of relevant, real-world examples, many of which are new to this edition. Covering financial accounting, management accounting and financial management in a single text, this book is focused on providing you with the tools you need to make informed, successful business decisions.
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Front Cover Half Title Page Title Page Copyright Page Brief contents Contents Preface How to use this book Publisher's acknowledgements 1 Introduction to accounting and finance Introduction Learning outcomes What are accounting and finance? Who are the users of accounting information? The conflicting interests of users How useful is accounting information? Evidence on the usefulness of accounting Providing a service Further qualities Weighing up the costs and benefits Accounting as an information system Management accounting and financial accounting Scope of this book The changing face of accounting Why do I need to know anything about accounting and finance? Accounting for business What is the purpose of a business? What kinds of business ownership exist? Sole proprietorship Partnership Limited company How are businesses organised? How are businesses managed? The quest for wealth creation Meeting the needs of other stakeholders Balancing risk and return Reasons to be ethical Not-for-profit organisations Summary Key terms References Further reading Critical review questions Part 1 Financial accounting 2 Measuring and reporting financial position Introduction Learning outcomes The major financial statements – an overview The statement of financial position Assets Claims The effect of trading transactions Classifying assets Current assets Non-current assets Classifying claims Current liabilities Non-current liabilities Statement layouts Capturing a moment in time The role of accounting conventions Business entity convention Historic cost convention Prudence convention Going concern convention Dual aspect convention Money measurement Goodwill and brands Human resources Monetary stability Valuing assets Non-current assets Non-current assets with finite lives Non-current assets with indefinite useful lives Fair values The impairment of non-current assets Inventories Meeting user needs Self-assessment question 2.1 Summary Key terms Reference Further reading Critical review questions Exercises 3 Measuring and reporting financial performance Introduction Learning outcomes The income statement Different roles Income statement layout Gross profit Operating profit Profit for the period Further issues Cost of sales Classifying expenses Recognising revenue Revenue recognition and cash receipts Recognising revenue over time Recognising expenses When the expense for the period is more than the cash paid during the period When the amount paid during the period is more than the full expense for the period Profit, cash and accruals accounting Depreciation Calculating the depreciation expense Depreciation method Impairment and depreciation Depreciation and asset replacement Depreciation and judgement Costing inventories Inventories – some further issues Trade receivables problems Doubtful debts Uses and usefulness of the income statement Self-assessment question 3.1 Summary Key terms Further reading Critical review questions Exercises 4 Accounting for limited companies (1) Introduction Learning outcomes The main features of limited companies Legal nature Perpetual life Limited liability Legal safeguards Public and private companies Taxation The role of the Stock Exchange Managing a company Financing limited companies Equity (the owners’ claim) The basic division Share capital Reserves Bonus shares Share capital jargon Borrowings Raising share capital Withdrawing equity The main financial statements The income statement The statement of financial position Dividends Accounting for groups of companies Self-assessment question 4.1 Summary Key terms Further reading Critical review questions Exercises 5 Accounting for limited companies (2) Introduction Learning outcomes The directors’ duty to account The need for accounting rules Sources of accounting rules The growing authority of the IASB Adopting IFRSs The need for a conceptual framework The IASB framework Criticisms of the framework The auditors’ role The framework of annual financial reports Presenting the financial statements Fair representation Statement of financial position Statement of comprehensive income Statement of changes in equity Statement of cash flows Notes General points Segmental financial reports Segmental reporting rules Segmental disclosure Segmental reporting problems Management commentary Directors’ report Criticisms of the directors’ report Strategic report Corporate governance Strengthening the framework of rules Creative accounting Creative accounting methods Checking for creative accounting Creative accounting and economic growth Self-assessment question 5.1 Summary Key terms References Further reading Critical review questions Exercises 6 Measuring and reporting cash flows Introduction Learning outcomes Why is cash so important? The statement of cash flows and its relation to the other major financial statements The main features of the statement of cash flows A definition of cash and cash equivalents The layout of the statement of cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase or decrease in cash and cash equivalents The normal direction of cash flows Preparing the statement of cash flows Deducing net cash flows from operating activities Assessing performance using cash flows from operating activities Deducing the other areas of the statement of cash flows Reconciliation of liabilities from financing activities What does the statement of cash flows tell us? Problems with IAS 7 Self-assessment question 6.1 Summary Key terms Reference Further reading Critical review questions Exercises 7 Analysing and interpreting financial statements Introduction Learning outcomes Financial ratios Financial ratio classifications The need for comparison Past periods Similar businesses Planned performance Calculating the ratios A brief overview Profitability Return on ordinary shareholders’ funds Return on capital employed Operating profit margin Gross profit margin Efficiency Average inventories turnover period Average settlement period for trade receivables Average settlement period for trade payables Sales revenue to capital employed Sales revenue per employee Relationship between profitability and efficiency Liquidity Current ratio Acid test ratio Cash generated from operations to maturing obligations ratio Financial gearing Gearing ratio Interest cover ratio Investment ratios Dividend payout ratio Dividend yield ratio Earnings per share Cash generated from operations per share Price/earnings ratio Financial ratios and the problem of overtrading Trend analysis Using ratios to predict financial failure Using single ratios Using combinations of ratios Z-score models Limitations of ratio analysis Quality of financial statements Inflation The restricted view given by ratios The basis for comparison Statement of financial position ratios Self-assessment question 7.1 Summary Key terms References Further reading Critical review questions Exercises Part 2 Management accounting 8 Making management decisions Introduction Learning outcomes Cost–benefit analysis What is meant by ‘cost’? Relevant costs: opportunity and outlay costs Irrelevant costs: sunk costs and committed costs Sunk cost fallacy Determining the relevant cost of labour and materials Labour Materials Non-measurable costs and benefits Risk Sensitivity analysis Self-assessment question 8.1 Summary Key terms Further reading Critical review questions Exercises 9 Cost–volume–profit analysis Introduction Learning outcomes Cost behaviour Fixed cost Variable cost Semi-fixed (semi-variable) cost Analysing semi-fixed (semi-variable) costs Finding the break-even point Contribution Contribution margin ratio Margin of safety Achieving a target profit Operating gearing and its effect on profit Profit–volume charts The economist’s view of the break-even chart The problem of breaking even Weaknesses of break-even analysis Using contribution to make decisions: marginal analysis Pricing/assessing opportunities to enter contracts The most efficient use of scarce resources Make-or-buy decisions Closing or continuation decisions Self-assessment question 9.1 Summary Key terms Further reading Critical review questions Exercises 10 Full costing Introduction Learning outcomes What is full costing? Why do managers want to know the full cost? Single-product businesses Process-costing problems Multi-product businesses Direct and indirect cost Job costing Full costing and cost behaviour The problem of indirect cost Overheads as service renderers Job costing: a worked example Selecting a basis for charging overheads Segmenting the overheads Dealing with overheads on a cost centre basis Batch costing Non-manufacturing overheads Full (absorption) costing and estimation errors Full cost (cost-plus) pricing Price makers and price takers Use of cost-plus information by price takers Full (absorption) costing and relevant costs Full (absorption) costing versus variable costing Which method is better? Self-assessment question 10.1 Summary Key terms Reference Further reading Critical review questions Exercises 11 Costing and performance evaluation in a competitive environment Introduction Learning outcomes Cost determination in the changed business environment Costing and pricing: the traditional way Costing and pricing: the new environment Cost management systems The problem of overheads Taking a closer look Activity-based costing Assigning overheads Benefits of ABC ABC and the traditional approach compared ABC and service industries Benefits and costs of ABC ABC in practice Managing costs over the product life cycle Total life-cycle costing Target costing Kaizen costing Other approaches to managing costs in a modern environment Value chain analysis Benchmarking Total quality management Managing quality costs An alternative view Non-financial measures of performance The balanced scorecard Scorecard problems Measuring shareholder value The quest for shareholder value How can shareholder value be created? The need for new measures Economic value added (EVA®) Self-assessment question 11.1 Summary Key terms References Further reading Critical review questions Exercises 12 Budgeting Introduction Learning outcomes How budgets link with strategic plans and objectives Exercising control Time horizon of plans and budgets Budgets and forecasts Periodic and continual budgets Limiting factors How budgets link to one another How budgets help managers The budget-setting process Using budgets in practice Incremental and zero-base budgeting Preparing budgets The cash budget Preparing other budgets Activity-based budgeting Non-financial measures in budgeting Budgets and management behaviour Who needs budgets? Beyond conventional budgeting Long live budgets! Self-assessment question 12.1 Summary Key terms References Further reading Critical review questions Exercises 13 Accounting for control Introduction Learning outcomes Budgeting for control Types of control Variances from budget Flexing the budget Sales volume variance Sales price variance Materials variances Labour variances Fixed overhead variance Reconciling the budgeted profit with the actual profit Reasons for adverse variances Variance analysis in service industries Non-operating-profit variances Investigating variances Variance analysis in practice Compensating variances Standard quantities and costs Setting standards Who sets the standards? How is information gathered? What kind of standards should be used? The learning-curve effect Other uses for standard costing Some problems The new business environment Making budgetary control effective Behavioural issues The impact of management style Failing to meet the budget Budgets and innovation Self-assessment question 13.1 Summary Key terms Reference Further reading Critical review questions Exercises Part 3 Financial management 14 Making capital investment decisions Introduction Learning outcomes The nature of investment decisions Investment appraisal methods Accounting rate of return (ARR) ARR and ROCE Problems with ARR Payback period (PP) Problems with PP Net present value (NPV) Why does time matter? Interest lost Risk Inflation What should managers do? Dealing with the time value of money Calculating the net present value Using present value tables The discount rate and the cost of capital Why NPV is better NPV and economic value Internal rate of return (IRR) Problems with IRR Some practical points Investment appraisal in practice Survey evidence Investment appraisal and strategic planning Risk and investment Managing investment projects Stage 1: Determine investment funds available Stage 2: Identify profitable project opportunities Stage 3: Evaluate the proposed project Stage 4: Approve the project Stage 5: Monitor and control the project Self-assessment question 14.1 Summary Key terms References Further reading Critical review questions Exercises 15 Financing a business Introduction Learning outcomes The main objective of financing policy Sources of finance Internal sources of finance Internal sources of long-term finance Retained earnings Dividend policy Internal sources of short-term finance Tighter credit control Reducing inventories levels Delaying payment to trade payables Some further points External sources of finance External sources of long-term finance Ordinary shares Preference shares Borrowing Forms of borrowing Finance leases Sale-and-leaseback arrangements Hire purchase Securitisation External sources of short-term finance Bank overdrafts Debt factoring Invoice discounting Long-term versus short-term borrowing Gearing and the financing decision Financial gearing: the traditional approach A challenge to the traditional approach Raising long-term finance Share issues Rights issues Offers for sale and public issues Setting a share price Private placings Bonus issues The role of the Stock Exchange Advantages of a listing Disadvantages of a listing Going private The Alternative Investment Market Providing long-term finance for the small business Is finance a particular problem for small businesses? Equity finance Venture capital Business angels Crowdfunding Non-equity finance Evidence on small business financing Islamic finance Self-assessment question 15.1 Summary Key terms References Further reading Critical review questions Exercises 16 Managing working capital Introduction Learning outcomes What is working capital? Managing working capital The scale of working capital Managing inventories Budgeting future demand Financial ratios Recording and reordering systems Levels of control Inventories management models Managing trade receivables Which customers should receive credit and how much should they be offered? Length of credit period Cash discounts Debt factoring and invoice discounting Credit insurance Collection policies Managing cash Why hold cash? How much cash should be held? Controlling the cash balance Cash budgets and managing cash Operating cash cycle Cash transmission Bank overdrafts Managing trade payables Taking advantage of cash discounts Controlling trade payables Managing working capital Self-assessment question 16.1 Summary Key terms Further reading Critical review questions Exercises Part 4 Supplementary information Appendix A Recording financial transactions Introduction Learning outcomes The basics of double-entry bookkeeping Recording trading transactions Balancing accounts and the trial balance Preparing the financial statements (final accounts) The ledger and its division Summary Key terms Further reading Exercises Appendix B Glossary of key terms Appendix C Solutions to self-assessment questions Appendix D Solutions to critical review questions Appendix E Solutions to selected exercises Appendix F Present value table Index Back Cover
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