The finance and accounting desktop guide Accounting literacy for the non-financial manager pot

financeand accounting desktop guide Accounting literacy for the non-financial manager Ralph Tiffin The financeand accounting desktop guide Accounting literacy for the non-financial manager Ralph Tiffin The 2nd edition 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: info@thorogoodpublishing.co.uk 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. PB ISBN: 1 85418 309 5 978-185418309-5 RB ISBN: 1 85418 304 4 978-185418304-0 Printed in the UK by Marston Digital Designed and typeset in the UK by Driftdesign Special discounts for bulk quantities of Thorogood books are available to corporations, institutions, associations and other organisations. For more information contact Thorogood by telephone on 020 7749 4748, by fax on 020 7729 6110, or email us: info@thorogoodpublishing.co.uk ‘For Robert, Gavin and Hannah’ Blank 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 CONTENTS 6 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 Contents 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 Contents 7 8 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 Contents [...]... logic of the chapters is to commence with the fundamental financial statements, showing how they are compiled and the need for accounting systems and controls There is a need for accounting rules and the fundamental financial statements – balance sheets,profit and loss accounts and cash flow statements 1 to 3 The need for underlying records and accounting systems .4 Fundamental accounting. .. concepts, the need for rules and accounting standards and detailed accounting policies .5 How to interpret financial statements 6 Cash flow forecasting and appraising capital expenditure 7 Costing in detail and for planning purposes 8 and 9 Budgeting – the process and how to budget .10 A study of the first sections in the order outlined should give the reader a clear insight into the. .. objectives and company culture 313 Budgeting systems and techniques 315 Checklist .323 9 Icons Throughout the Desktop Guide series of books you will see references and symbols in the margins.These are designed for ease of use and quick reference directing you to key features of the text .The symbols used are: definition for example 10 question and answer checklist Introduction Content and structure... structure The aim of this text is to explain the meaning and use of the principal accountancy statements,models and activities in business life The word ‘statements’ includes balance sheets, profit and loss accounts, cash flow statements and budget reports The word ‘models’is used to mean the exercises of costing, cash flow forecasting, capital expenditure appraising and other modelling which is essential for. .. due to the amount of detail or the real or perceived need for detailed analysis or disclosure For this reason the chapters are split into two sections This first section explains the basic statements, definitions and models, and the second section explains the topics in more detail and develops the subject as appropriate This approach has been taken to assist the reader to gain a general understanding... net worth of the business or capital employed in the business as visibly seen, recorded, measured and managed by the directors and employees • What finances the business ,the capital employed in the business, but from the perspective of the investor It is the owners’ and lenders’ investment in the business This side should be exactly equal in amount to the net assets employed side 14 B a l a n c e s... assets ,and the following terms are used Tangible fixed assets These are physical,real,tangible assets – land and buildings, equipment and fixtures and fittings Intangible fixed assets These are not normally physical, tangible assets but are of value to the business or are necessary for the business’s trade to function.Examples are patent, know-how, brand names and goodwill Investment fixed assets These... business accounting – by reading the first sections and studying the second sections as required A clear understanding of the principles outlined in the first sections should greatly assist the reader in not being overwhelmed by the volume of detail, variations of essentially simple models and tangential issues which are met in many accounting texts 11 I n t r o d u c t i o n Structure and content detail The. .. the revaluation and this amount is credited to the revaluation reserve.This is an unrealised profit – there is no cash inflow to back it – and is thus legally and practically a nondistributable reserve Equity The shareholders’ funds – this is the ‘risk’ capital invested as ordinary shares and retained profits .The entire amounts belong to the shareholders without restriction and are at risk should the. .. Firstly,as was stated in Section 1, the balance sheet should relate to the business In other words the reader should have some knowledge of the business, at least its areas of operation .The company was a hotel and catering group which had been built up over the years by the acquisition of hotels,hotel companies and other associated activities The balance sheet profile for a business which was as much . financeand accounting desktop guide Accounting literacy for the non-financial manager Ralph Tiffin The financeand accounting desktop guide Accounting literacy. literacy for the non-financial manager Ralph Tiffin The 2nd edition IFC The finance and accounting desktop guide Accounting literacy for the non-financial manager Ralph