Accounting in Business

Accounting in Business, Fifth Edition provides a concise discussion of accounting concepts and integrates accounting theories to applications. The book is comprised of 20 chapters that are organized into four parts. The text first presents the scope and environment of business accounting, and then proceeds to covering the theories and practice of financial accounting. The coverage of the book includes bookkeeping; the valuation and depreciation of fixed assets; and capital structure and financial reporting. Next, the title reviews the planning and control aspects of finance, which include budgets and budgetary control; management of working capital; and performance analysis. The last part deals with the relationship between accounting and society. The book will be of great use to undergraduate students and professionals of accounting.

I The Accounting Environment

1 The Scope and Environment of Business Accounting

The Scope of Business Accounting

The Nature and Place of Accounting Theory

Accounting in Historical Perspective

Further Reading

Questions for Discussion

II Financial Accounting Theory and Practice

2 The Balance Sheet

The Accounting Environment

The Environmental Postulates

Business Entity

The Balance Sheet

The Nature of Assets

The Valuation of Assets

The Nature of Outside Liabilities

The Balance Sheet Equation

Further Reading

Questions for Discussion

3 Income Measurement—Expense

The Nature of Profit

The Accrual Postulate

The Accounting Period

Definitions

The Relationship between Cost and Expense

The Accounting Equation

Recording Transactions in the Quadrant

The Income Statement and Balance Sheet

Further Reading

Questions for Discussion

4 Income Measurement—Revenue

The Nature of Revenue

The Realization Postulate

'Revenue' and 'Receipts'

Debtors, Bad Debts and Doubtful Debts

Gross and Net Profit

The Trading, Profit and Loss Account

Accounting and Economic Profit

The Assumptions and Conventions of Accounting

Appendix—The Effect of Revenue Recognition on Reported Profit

Further Reading

Questions for Discussion

5 Accounting Records—An Introduction to Bookkeeping

Analysis of Transactions using the Quadrant

Debit and Credit

The Account

Analysis of Transactions using Accounts

The Trial Balance

The Trading, Profit and Loss Account

The Position of Stock

Asset and Liability Accounts

The Balance Sheet

Accruals and Prepayments

Provisions

The Journal and Day Books

The Accounting Process

The Sources of Financial Data

Further Reading

Questions for Discussion

6 Income Measurement—The Valuation and Depreciation of Fixed Assets

The Nature of Depreciation

The Cost of the Asset

The Useful Life of the Asset

The Salvage (Residual) Value of the Asset

The Method of Depreciation

Accounting for Depreciation

Accounting for the Disposal of Fixed Assets

Valuation of Fixed Assets

Further Reading

Questions for Discussion

7 Income Measurement—The Valuation of Current Assets

The Valuation of Stock

The Nature of Stock

The Bases of Stock Valuation

Accounting and Stock Valuation

Historic Cost

Historic Cost—Comparison of Methods

The Valuation of Debtors

Further Reading

Questions for Discussion

8 Further Aspects of Financial Records

Incomplete Records

Control Accounts

Verification of the Bank Account

Matrix Accounting

Further Reading

Questions for Discussion

9 The Partnership

The Nature of Partnership

The Proprietary Theory

The Partnership Agreement

The Final Accounts

Capital and Current Accounts

The Admission of New Partners—the Valuation of Goodwill

The Admission of New Partners—the Treatment of Goodwill

Partnership Dissolution

Further Reading

Questions for Discussion

10 The Public Limited Company—Capital Structure and Financial Reporting

The Public Limited Company, Partnership and Sole Trader—A Comparison

Memorandum and Articles

Shares and Share Capital

Par Value and Market Value

Share Premium

Debentures

Capitalization

Capital Gearing

Reserves—Their Purpose

Types of Reserve

Dividends

Accounting Records and the Capital Structure

Valuation of Shares

The Final Accounts of Public Limited Companies

Disclosure in Company Accounts

Statutory Requirements and Published Accounts

Further Reading

Questions for Discussion

11 The Limited Company—Changes in Capital Structure and Groups of Companies

Changes in Capital Structure

Groups of Companies

Further Reading

Questions for Discussion

12 Value and Income Measurement

Concepts of Value

Value to the Business

The Nature of Income—An Economic View

Income Measurement in Accounting

Income Measurement and Inflation

The Nature of Price Changes

Partial Solutions to Changing Price Levels

Adjustments for General Price Changes

Current Cost Accounting—The Sandilands Proposals and ED 18

SSAP 16—Current Cost Accounting

SSAP 16—Practice and Criticism

Further Reading

Questions for Discussion

III Financial Planning and Control

13 Elements of Cost Accounting

The Meaning of Cost

The Elements of Cost

Financial Records and Cost Flow

Income Statements for Manufacturing Businesses

Responsibility Accounting

Accounting for Materials

Accounting for Labor

Accounting for Overhead

Absorption Costing

Marginal Costing

Cost Accounting Systems—Job Costing

Cost Accounting Systems—Process Costing

Absorption and Marginal Costing Compared

Further Reading

Questions for Discussion

14 Budgets and Budgetary Control

Planning and Control

The Management Process

The Nature of Budgets

Budgets—Objectives and Benefits

Budgets and Behavior

The Framework and Construction of Budgets

Profit Budgets—The Sales Budget

Profit Budgets—The Production Budget

Profit Budgets—Administration, Finance and Selling Budgets

Budgeted Income Statement

Flexible Budgets

Resource Budgets

Budget Review

Budgetary Models

Further Reading

Questions for Discussion

15 Standard Costs and Variance Analysis

Nature and Purpose of Standard Costs

The Setting of Standards

Variance Computation and Analysis

Material Variances

Labor Variances

Overhead Variances

Sales Variances

Summary of Variance Formula

Recording Standard Costs

Standards and Probability

Further Reading

Questions for Discussion

16 Accounting for Business Decisions—The Capital Investment Decision

Business Objectives

The Decision-Making Process

Capital Investment Decisions

Net Present Value and Yield Methods Compared

The Cost of Capital

Taxation and the Investment Proposal

Capital Investment and Risk

Further Reading

Questions for Discussion

17 Accounting for Business Decisions—Short-term Decisions

Costs and Decision-Making

'Make or Buy' Decisions

'Continue or Abandon' Decisions

'Pricing' Decisions

Limiting Factors

Break-Even Analysis

Operational Research

Further Reading

Questions for Discussion

18 The Management of Working Capital

The Working Capital Cycle

The Investment in Stock

The Investment in Debtors

Types of Debtors

The Determinants of Investment in Debtors

The Need for Cash

Further Reading

Questions for Discussion

19 Performance Analysis

Business Objectives

The Tools of Performance Analysis

Tests of Profitability

Profitability and Capital Structure

Tests of Liquidity

Investment Ratios

Cash Flow Analysis

Bases for Comparison

Problems of Analysis and Comparison

Summary

Further Reading

Questions for Discussion

IV Accounting and Society

20 Accounting and Society

The Accounting Environment

The 'Quality of Life'

The Extent of Social Responsibility in Business

Accounting and Social Responsibility

Developments in Accounting Practice

Further Reading

Questions for Discussion

Suggested Solutions to Numerical Questions

Index