Copyright © 2017 P.Ed Australia All rights reserved www.freebookslides.com Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e AT R I L L’ S ACCOUNTING FOR BUSINESS STUDENTS Copyright â 2017 P.Ed Australia All rights reserved ATRILL ã McLANEY • HARVEY Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e Copyright © 2017 P.Ed Australia All rights reserved This page is intentionally left blank Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 A TTRR II LLLL’ S’ S A ACCOUNTING ACCOUNTING FORBUSINESS BUSINESS FOR STUDENTS STUDENTS ATRILL • McLANEY • HARVEY Copyright © 2017 P.Ed Australia All rights reserved ATRILL • McLANEY • HARVEY Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 Pearson Australia 707 Collins Street Melbourne VIC 3008 www.pearson.com.au Authorised adaptation from the original UK editions, entitled Accounting and Finance for Non-Specialists 10/e (ISBN: 9781292135601) by Peter Atrill & Eddie McLaney © 2017 and Accounting and Finance: An Introduction 8/e (ISBN: 9781292088297) by Peter Atrill & Eddie McLaney © 2016, both published by Pearson Education Limited Licensed for sale in Australia and New Zealand only First adaptation edition published by Pearson Australia Group Pty Ltd, Copyright © 2018 by arrangement with Pearson Education Ltd, United Kingdom The Copyright Act 1968 of Australia allows a maximum of one chapter or 10% of this book, whichever is the greater, to be copied by any educational institution for its educational purposes provided that that educational institution (or the body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act For details of the CAL licence for educational institutions contact: Copyright Agency Limited, telephone: (02) 9394 7600, email: info@copyright.com.au All rights reserved Except under the conditions described in the Copyright Act 1968 of Australia and subsequent amendments, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner Senior Portfolio Manager: Joanne Hobson Development Editor: Anna Carter Project Manager: Anubhuti Harsh Production Manager: Abhishek Agarwal, iEnergizer Aptara®, Ltd Product Manager: Sachin Dua Content Developer: Victoria Kerr Rights and Permissions Editor: Kim Morgan Copy Editor: Kathryn Lamberton Lead Editor: Dina Cloete Proofreader: iEnergizer Aptara®, Ltd Indexer: iEnergizer Aptara®, Ltd Cover and internal design by Squirt Creative Cover illustrations: coffee cup: © goner13/Envato Market; coffee beans: © Vasya Kobelev/Shutterstock.com; wave pattern: © Markovka/Shutterstock.com Typeset by iEnergizer Aptara®, Ltd Printed in Malaysia 22 21 20 19 18 Copyright © 2017 P.Ed Australia All rights reserved National Library of Australia Cataloguing-in-Publication Data Creator: Title: ISBN: ISBN: Notes: Subjects: Other Creators/ Contributors: Atrill, Peter, author Accounting for business students / Peter Atrill; Eddie McLaney; David Harvey 9781488616570 (paperback) 9781488616594 (eBook) Includes index Accounting Textbooks Financial statements Accounting Problems, exercises, etc McLaney, E J., author Harvey, David Every effort has been made to trace and acknowledge copyright However, should any infringement have occurred, the publishers tender their apologies and invite copyright owners to contact them Pearson Australia Group Pty Ltd ABN 40 004 245 943 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e BRIEF CONTENTS About the Australian author Preface xiii About the contributor xvii Acknowledgements Copyright © 2017 P.Ed Australia All rights reserved xii xviii For students: How I use this book? xx Resources for students and educators xxii Introduction to accounting Measuring and reporting financial position 46 Measuring and reporting financial performance 92 Recording transactions—the journal and ledger accounts 162 Accounting systems and internal control 227 Introduction to limited companies 280 Regulatory framework for companies 326 Measuring and reporting cash flows 376 Corporate social responsibility and sustainability accounting 430 10 Analysis and interpretation of financial statements 472 11 Cost–volume–profit analysis and relevant costing 534 12 Full costing 582 13 Planning and budgeting 634 14 Capital investment decisions 705 Glossary 759 Index 767 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e CONTENTS About the Australian author Preface About the contributor Acknowledgements For students: How I use this book? Resources for students and educators xii xiii xvii xviii xx xxii Copyright © 2017 P.Ed Australia All rights reserved CHAPTER Introduction to accounting Nature and role of accounting Accounting as a service function Costs and benefits of accounting information Accounting as an information system Users of accounting information Financial and management accounting What is the financial objective of a business? Stakeholder theory Balancing risk and return The main financial reports—an overview Financial accounting Management accounting Business and accounting What kinds of business ownership exist? How are businesses managed? Not-for-profit organisations The changing face of business and accounting Ethics and ethical behaviour in business How useful is accounting information? Why I need to know anything about accounting and finance? The ALTC’s Academic Standards for Accounting Characteristics of successful business people Summary Reference Discussion questions Case study Solutions to activities vi 11 13 14 15 15 18 20 20 25 26 28 30 33 34 35 37 38 39 39 41 42 CHAPTER Measuring and reporting financial position Nature and purpose of the statement of financial position Assets Claims against the assets The accounting equation The effect of trading operations on the statement of financial position The classification of assets and claims The classification of assets The classification of liabilities The classification of owners’ equity Formats for statements of financial position Financial position at a point in time Factors influencing the form and content of the financial reports Conventional accounting practice Valuing assets Usefulness of the statement of financial position Statement of financial position deficiencies Summary Discussion questions Application exercises Case study Solutions to activities 46 47 47 48 50 52 55 55 56 57 58 61 62 63 67 72 74 77 78 79 87 88 CHAPTER Measuring and reporting financial performance 92 The statement of financial performance— its nature and purpose, and its relationship with the statement of financial position The stock approach to calculating profit The format of the income statement Key terms Classifying expenses The reporting period 93 95 97 97 99 101 ACCOUNTING FOR BUSINESS STUDENTS Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e Copyright © 2017 P.Ed Australia All rights reserved Profit measurement and the recognition of revenues and expenses Recognition of revenues Recognition of expenses Profit, cash and accruals accounting—a review Profit measurement and the calculation of depreciation Calculating depreciation Selecting a depreciation method Impairment and depreciation Depreciation and the replacement of fixed assets Depreciation and judgement Profit measurement and the valuation of inventory What is inventory? What is the cost of inventory? What is the basis for transferring the inventory cost to cost of sales? The net realisable value of inventory Profit measurement and the problem of bad and doubtful debts The traditional approach The impairment of assets approach A first-principles approach Uses and usefulness of the income statement Summary Discussion questions Application exercises Case study Solutions to activities 102 102 106 110 111 112 118 119 119 119 120 120 120 121 125 127 127 129 131 137 143 144 145 156 157 CHAPTER Recording transactions— the journal and ledger accounts The recording process—an overview Double-entry bookkeeping Ledger—detailed method of recording The trial balance Closing off the accounts Period-end adjustments 162 163 167 168 177 179 183 Prepayments and accruals Revenues due and prepaid Depreciation Bad and doubtful debts Inventory Manufacturing and trading accounts Adjusted trial balance and worksheet The chart of accounts 183 184 185 187 189 191 195 199 Summary Discussion questions Application exercises Case study Solutions to activities 204 204 205 214 215 CHAPTER Accounting systems and internal control 227 What is internal control? Internal control in practice Internal control and e-commerce Why doesn’t internal control always work? Illustration of a functional area of a business and its internal control The ledger and subsidiary records Divisions of the ledger Subsidiary records—a traditional manual system The sales and purchases journals The cash book and cash journals The journal Control accounts and reconciliations Control accounts Reconciliation statements Computerised accounting systems Cloud computing 228 230 232 233 Summary Discussion questions Application exercises Case study Solutions to activities 265 265 266 275 275 CONTENTS Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e 234 238 239 239 240 243 247 249 249 250 255 256 vii Copyright © 2017 P.Ed Australia All rights reserved CHAPTER Introduction to limited companies 280 The main features of companies Legal nature Unlimited (perpetual) life Limited liability Legal safeguards Public and proprietary (private) companies Transferring share ownership—the role of the stock exchange Separation of ownership and management Extensive regulation Advantages and disadvantages of the company entity structure Equity and borrowings in a company context Equity/capital (owners’ claim) of limited companies Reserves Bonus shares Raising share capital Borrowings Restrictions on the rights of shareholders to make drawings or reductions of capital The main financial statements The income statement The statement of financial position Dividends Accounting for groups of companies 281 281 281 282 282 283 Summary Discussion questions Application exercises Case study Solutions to activities 312 312 313 321 323 284 284 285 288 289 289 292 293 294 298 299 303 304 305 305 307 CHAPTER Regulatory framework for companies The directors’ duty to account—the role of company law (Corporations Act) Auditors viii 326 327 328 The need for accounting rules The role of accounting standards in company accounting International accounting standards The conceptual framework The role of the Australian Securities Exchange (ASX) in company accounting Corporate governance Presentation of published financial statements 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 Creative accounting Creative accounting methods Checking for creative accounting Creative accounting and economic growth 331 Summary Discussion questions Application exercises Case study Solutions to activities 363 363 365 370 372 331 332 334 337 338 344 344 345 350 352 352 352 353 354 354 356 358 358 361 361 CHAPTER Measuring and reporting cash flows 376 The importance of cash and cash flow Differences between the four external financial reports The statement of cash flows Preparation of the statement of cash flows—a simple example Deducing cash flows from operating activities Deducing cash flows from investing activities Deducing cash flows from financing activities ACCOUNTING FOR BUSINESS STUDENTS Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e 378 381 382 386 388 390 391 Reconciling profit for the year with cash from operating activities Some complexities in statement preparation The investing section The financing section What does the statement of cash flows tell us? 396 400 401 402 404 Summary Discussion questions Application exercises Case study Solutions to activities 408 408 409 424 425 CHAPTER Copyright © 2017 P.Ed Australia All rights reserved Corporate social responsibility and sustainability accounting 430 Social issues in accounting General background Stakeholder concept What is social responsibility? Corporate social responsibility (CSR)— what does it mean? Accounting for corporate social responsibilities Triple bottom line reporting The Global Reporting Initiative (GRI) General background Background and development of the GRI Guidelines Current position—the GRI Standards Integrated reporting The balanced scorecard approach The financial perspective The business process perspective The customer perspective The learning and growth perspective Overall conclusion 431 431 431 433 Summary References Discussion questions Application exercises Case study Solutions to activities 462 462 463 464 467 470 436 440 442 444 444 444 446 455 457 457 458 458 458 461 CHAPTER 10 Analysis and interpretation of financial statements Financial ratios Financial ratio classification The need for comparison The key steps in financial ratio analysis The ratios calculated A brief overview Profitability ratios Return on ordinary shareholders’ funds (ROSF) (also known as return on equity (ROE)) Return on capital employed (ROCE) Operating profit margin Gross profit margin Efficiency ratios Average inventories turnover period Average settlement period for accounts receivable (debtors) Average settlement period for accounts payable (creditors) Sales revenue to capital employed Sales revenue per employee Alternative formats The relationship between profitability and efficiency Liquidity Current ratio Acid test ratio Cash flows from operations ratio Financial gearing (leverage) ratios Gearing ratio Interest cover ratio (times interest earned) An aside on personal debt Investment ratios Dividends per share ratio Dividend payout ratio Dividend yield ratio Earnings per share ratio Operating cash flow per share Price/earnings ratio CONTENTS Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:54 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e 472 473 473 474 475 475 478 479 479 480 481 481 483 483 484 485 486 486 486 487 489 489 490 490 491 494 494 496 497 497 498 498 499 500 500 ix www.freebookslides.com 760 ACCOUNTING FOR BUSINESS STUDENTS bonus shares Reserves which are converted into shares and given ‘free’ to shareholders comparability A quality which helps users identify similarities and differences between items of information bottom–up A term applied to decisions in which great weight is given to the views of relatively junior staff, who often have good experience and detailed knowledge of what is going on in the business and its markets The term is often used in budgeting, where budgets are driven by the views of staff such as sales representatives conceptual framework A framework, or set of principles, developed to guide the development of financial statements break-even analysis A way of analysing cost behaviour and revenues so as to enable the break-even point (and other target levels of profit) to be calculated contingent liability A potential liability that might arise in the event of a particular event occurring It will become a liability contingent on that event happening break-even point A level of activity where total revenue will exactly equal total cost, so there is neither profit nor loss contribution margin ratio Contribution per unit divided by sales revenue per unit expressed as a percentage budget A financial plan for the short term, typically one year contribution per unit The difference between the revenue per unit (sales price) and the variable cost per unit, which is effectively a contribution to fixed costs and profit budget committee A group of managers formed to supervise and take responsibility for the budget-setting process budget holder The person who is responsible for working towards and implementing a particular section of a budget budget officer An individual, often an accountant, appointed to carry out, or take immediate responsibility for having carried out, the tasks of the budget committee budgetary control Using the budget as a yardstick against which the effectiveness of actual performance can be assessed business angel An individual who supplies finance (usually equity finance) to a start-up business or a small business wishing to expand Often business angels take a close interest in the running of the businesses in which they invest business entity convention The convention which holds that, for accounting purposes, the business and its owner(s) are treated as quite separate and distinct business ethics The study of proper business policies and practices regarding potentially controversial issues, such as corporate governance, insider trading, bribery, discrimination, corporate social responsibility and fiduciary responsibilities Business ethics are often guided by law, while other times provide a basic framework that businesses may choose to follow in order to gain public acceptance C Copyright © 2017 P.Ed Australia All rights reserved capital Another name for owners’ equity, often associated with sole proprietorships or partnerships The owner’s claim on the assets of the business capital asset pricing model (CAPM) A model which sees the required rate of return as being equal to the risk-free rate of return plus its risk premium, where its risk reflects the effects of diversification carrying amount The net book value shown in the statement of financial position at a point of time cash discount A reduction in the amount due for goods or services sold on credit in return for prompt payment Ceres Principles A set of principles, which is effectively a 10-point code of environmental conduct chart of accounts A listing of all of the accounts contained in the ledger accounts, usually with a system of coding, which links with the balance sheet and income statement claim An obligation on the part of the business to provide cash or some other benefit to an outside party common costs See indirect costs common size reports Statements which try to set the key magnitude at 100 and then express everything else as a percentage consistency convention The accounting convention which holds that when a particular method of accounting is selected to deal with a transaction, this method should be applied consistently over time control To compel events to conform to the plan conventions Rules that have been devised over time in order to deal with practical problems experienced by preparers and users of financial reports convertible loan stock/notes Loan notes that give investors the right to convert loan notes into ordinary shares at a specified price and a given future date (or range of dates) corporate governance The system by which corporations are directed and controlled corporate social responsibility How companies manage the business process to produce an overall positive impact on society cost The amount of resources, usually measured in monetary terms, sacrificed to achieve a particular objective cost behaviour The manner in which costs alter with changes in the level of activity cost centre Some area, object, person or activity for which costs are separately collected cost drivers Activities which cause costs cost of capital The cost to a business of long-term finance needed to fund its investments cost of sales The cost attributable to the sales revenues cost plus pricing An approach to pricing output that is based on full cost, plus a percentage profit loading cost pool The sum of the overhead costs that are seen as being caused by the same cost driver cost unit The object for which the cost is being deduced, usually an individual product creative accounting Creative accounting consists of accounting practices that follow required laws and regulations, but deviate from what those standards intend to accomplish Creative accounting capitalizes on loopholes in the accounting standards to falsely portray a better image of the company Although creative accounting practices are legal, the loopholes they exploit are often reformed to prevent such behaviors (Investopedia) cumulative preference shares Preference shares where any dividend missed in a particular year will accumulate for payment in later years, when profits become available for future dividends current assets Assets that are not held on a continuing basis They include cash and other assets which are expected to be consumed or converted to cash, usually within the next 12 months or within the operating cycle Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:50 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com GLOSSARY current liabilities Amounts due for repayment to outside parties within 12 months of the statement of financial position date, or within the operating cycle current ratio A liquidity ratio that relates the current assets of the business to the current liabilities D debenture A long-term loan, usually made to a company, evidenced by a trust deed deep discount bonds Redeemable bonds which are issued at a low or zero rate of interest and at a large discount to their redeemable value depreciation A measure of that portion of the cost (less residual value) of a fixed asset which has been expensed during an accounting period direct costs Costs which can be identified with specific cost units, to the extent that the effect of the cost can be measured in respect of each particular unit of output direct labour hours The number of hours of direct labour spent on a job or jobs direct labour rate variance The difference between the actual cost of the direct labour hours worked and the direct labour cost allowed (actual direct labour hours worked at the budgeted labour rate) direct labour usage (efficiency) variance The difference between the actual direct labour hours worked and the number of direct labour hours according to the flexed budget (budgeted direct labour hours for the actual output) multiplied by the budgeted direct labour rate for one hour direct materials price variance The difference between the actual cost of the direct material used and the direct materials cost allowed (actual quantity of material used at the budgeted direct material cost) direct materials usage variance The difference between the actual quantity of direct materials used and the quantity of direct materials according to the flexed budget (budgeted usage for actual output) This quantity is multiplied by the budgeted direct materials cost for one unit of the direct materials direct method The method of calculating operating cash flows by analysing the cash records to identify cash payments and receipts by type Copyright © 2017 P.Ed Australia All rights reserved directors Individuals who are elected to act as the most senior level of management of a company disclosing entity An entity that issues securities that are quoted on a stock exchange or made available to the public via a prospectus discount factor The rate applied to future cash flows to derive the present value of those cash flows discretionary budget A budget which is entirely at the discretion of management; that is, it is not linked directly to output or sales (e.g research and development) discriminant function A boundary line, produced by multiple discriminant analysis, which can be used to identify those businesses that are likely to suffer financial distress and those that are not dividend cover ratio An investment ratio that relates the earnings available for dividends to the dividend announced, to indicate how many times the former covers the latter dividend payout ratio An investment ratio that relates the dividends announced for the period to the earnings available for dividends that were generated in that period 761 dividend per share An investment ratio that relates the dividends paid for a period to the number of shares on issue dividend per share ratio An investment ratio that relates the dividends announced for a period to the number of shares in issue dividend reinvestment plan A plan in which shareholders are permitted to reinvest all or part of their dividend payments in new shares dividend yield ratio An investment ratio that relates the cash return from a share to its current market value dividends Transfers of assets (usually cash) made by a company to its shareholders double-entry book-keeping/accounting The formal system of recording using ledger accounts which reflect the dual aspect of financial transactions dual aspect convention The accounting convention which holds that each financial transaction has two aspects, and that each aspect must be recorded in the financial statements E earnings per share (EPS) An investment ratio that relates the earnings generated by the business during a period, and available to the shareholders, to the number of shares on issue economic order quantity (EOQ) The quantity of inventories that should be bought with each order so as to minimise total inventories ordering and carrying costs encryption The coding of a message to make it unintelligible to any user not authorised to read the message entitlement offer An offer made to a specific investor to enable the purchase of a security or other asset The offer cannot be transferred to another party An entitlement offer is offered at a specific price and must be used during a set timeframe entity approach An approach to the layout of the statement of financial position which emphasises that the report is focusing on the entity as a whole equity The share of the business which represents the owners’ interests ethics A code of behaviour considered correct, especially that of a particular group, organisation or individual eurobonds A form of long-term borrowing where the finance is raised on an international basis Eurobonds are issued in a currency that is not that of the country in which the bonds are issued expense A measure of the outflow of assets (or increase in liabilities) incurred as a result of generating revenues F factoring A method of raising short-term finance A financial institution (factor) will manage the sales ledger of the business and will be prepared to advance sums to the business based on the amount of accounts receivable outstanding fair value Exchange values in an arm’s length transaction faithful representation A quality that says that accounting information should represent what it is supposed to represent—it should be complete, neutral, and free from error favourable variance A difference between planned and actual performance where the difference causes the actual profit to be higher than that budgeted FIFO A method of inventory valuation based on the assumption that the first inventory received is the first to be used finance lease A financial agreement where the asset title remains with the owner (the lessor) but the lease arrangement transfers virtually all the rewards and risks to the business (the lessees) Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:50 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com 762 ACCOUNTING FOR BUSINESS STUDENTS financial accounting Financial accounting provides generalpurpose financial information for a variety of users, with the information being of a general-purpose nature financial assets Securities issued by other organisations (e.g bonds) financial derivative Any form of financial instrument, based on share capital or borrowings, which can be used by investors either to increase their returns or to decrease their exposure to risk gross profit The difference between the revenue from sales and the cost of those sales gross profit margin ratio A profitability ratio that expresses the gross profit as a percentage of the sales revenue for a period financial gearing The existence of fixed payment-bearing sources of finance (e.g borrowings) in the capital structure of a business group or consolidated accounts An amalgamation of sets of accounts for a group of companies such that the group accounts appear as if the entire group was one entity financial management A subject area concerned with the financing and investing decisions of a business H five Cs of credit A checklist of factors to be taken into account when assessing the creditworthiness of a customer historic cost convention The accounting convention which holds that assets should be recorded at their historic (acquisition) cost fixed charge Where specific assets are pledged as security for a loan I fixed cost A cost which stays fixed (the same) in total when changes occur to the volume of activity fixed interest rate An interest rate on borrowings that will remain unchanged with rises and falls in market rates of interest fixed overhead spending (expenditure) variance The difference between the actual fixed overhead cost and the fixed overhead cost according to the flexed (and the original) budget flexed budget A budget which is modified to reflect costs that would have been expected for the actual activity/level of output flexing the budget Revising the budget to reflect differences between the planned level of output and the actual output floating charge Where all of a business’s assets, rather than specific assets, are pledged as security for a loan The charge will only fix on specific assets if the business defaults on its obligations floating (variable) interest rate An interest rate on borrowings that will rise and fall with market rates of interest free cash flow Free cash flow represents the cash flow that a company is able to generate after laying out the money required to maintain or expand its asset base full cost The total amount of resources, usually measured in monetary terms, sacrificed to achieve a particular objective full costing Deducing the total direct and indirect (overhead) costs of pursuing some objective or activity of the business fully paid shares Shares on which the shareholders have paid the full issue price Copyright © 2017 P.Ed Australia All rights reserved controlling interest in another company, less the value of the equity or net assets, usually calculated on a fair value basis fundamental qualities These are the two most important qualities which underline the preparation of accounting reports; namely, relevance and faithful representation G gearing The existence of fixed-payment bearing securities (e.g loans) in the capital structure of a business gearing ratio A ratio that relates the long-term, fixed-return finance contributed (such as borrowings) to the total long-term finance of the business Global Reporting Initiative (GRI) A multi-stakeholder institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines going concern (or continuity) convention The accounting convention which holds that the business will continue operations for the foreseeable future In other words, there is no intention or need to liquidate the business goodwill on consolidation The amount paid by an investing company for the purchase of sufficient shares to acquire a impairment The amount of loss that must be written-off for an asset in the situation where the carrying amount of the asset exceeds its recoverable amount imprest system A system (usually associated with petty cash) in which an allowance is given for a period, from which expenditure, of an approved nature, can be made income Increases in economic benefits for the accounting period in the form of inflows of assets or decreases in liabilities that result in increases in equity, other than those relating to ownership contributions income statement The statement that measures and reports how much wealth (profit) has been generated in a period income tax An amount levied on income, which is payable to the government incremental budgeting An approach to budgeting which uses what happened in the last year as the starting point for negotiating the budget for the next year indirect costs (or overheads) All costs except direct costs; that is, those which cannot be directly measured in respect of each particular unit of output indirect method An approach to deducing the cash flows from operating activities, in a cash flow statement, by analysing the business’s financial statements inflation A tendency for a currency to lose value over time owing to increasing prices of goods and services initial public offering (IPO) An initial share offering on a public stock exchange intangible assets Assets which, while providing expected future benefits, have no physical substance (e.g copyrights, patents) integrated reporting A process that results in communication, most visibly in a periodic ‘integrated report’, about value creation over time An integrated report is a concise communication about how an organisation’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term interest cover ratio A gearing ratio that divides the operating profit (i.e profit before interest and taxation) by the interest expense for a period internal rate of return (IRR) The discount rate for an investment that will have the effect of producing a zero NPV International Accounting Standards See International Financial Reporting Standards International Financial Reporting Standards Transnational accounting rules that have been adopted, or developed, by the International Accounting Standards Board, and which should be Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:50 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com GLOSSARY followed in preparing the published financial statements of listed limited companies International Integrated Reporting Council (IIRC) A coalition that is currently working on systems to develop integrated reporting invoice discounting Where a financial institution provides a loan based on a proportion of the face value of a business’s credit sales outstanding issuing house A financial institution which specialises in the issuing of new securities materiality The quality of information which has the potential to alter the decisions that users make J multiple discriminant analysis A statistical technique used to reduce the differences between variables in order to classify them into a set number of broad groups job costing A technique for identifying the full cost per unit of output, where that output is not similar just-in-time (JIT) A system of inventories management that aims to have supplies delivered just in time for their required use in production or sales L materiality convention The convention which says that items need to be separately disclosed if they will be seen as important (material) by users Items not deemed to be important enough to justify separate disclosure can be grouped together money measurement The accounting convention which holds that accounting should only deal with those items which are capable of being expressed in monetary terms mortgage Borrowing secured on property mutually exclusive projects Projects where a choice has to be made between alternatives, but in which only one can actually be undertaken N net assets The difference between assets and external liabilities lead time The time lag between placing an order for goods or services and their delivery to the required location ledger The book which contains the detailed accounts for an organisation liabilities Claims of individuals and organisations, apart from the owner(s), that have arisen from past transactions or events, such as supplying goods or lending money to the business LIFO A method of inventory valuation based on the assumption that the last inventory received is the first to be used limited company An artificial legal entity which has an identity separate from that of those who own and manage it limited liability The situation in which an investor in a business (a limited company) has his or her liability limited to a maximum specified amount; namely, the maximum that he or she has agreed to subscribe to the business limiting factor Some aspect of the business (e.g lack of sales demand) which will stop it from achieving its objectives to the maximum extent loan covenants Conditions contained within a loan agreement which are designed to help protect the lenders Copyright © 2017 P.Ed Australia All rights reserved 763 net book value Another term for written-down value net present value (NPV) The sum of the cash flows associated with a project (investment), after discounting at an appropriate rate, reflecting the time value of money and risk net realisable value (NRV) The estimated selling price less any further costs that may be necessary to complete the goods and any costs involved in selling and distributing those goods non-controlling interests/minority interests The proportion of a subsidiary company that is owned by other than the parent company non-cumulative preference shares Preference shares where dividends not paid in any year are lost forever non-current assets Assets held with the intention of being used to generate wealth rather than being held for resale They can be seen as the tools of the business, and are normally held by the business on a continuing basis non-current liabilities Those amounts due to other parties which are not liable for repayment within the next 12 months after the statement of financial position date loan stock/notes Long-term borrowings usually made by limited companies not-for-profit organisation An organisation whose main aim is not to make a profit, but to achieve some other clear goal, usually of a social nature M O management accounting An approach which aims to provide managers with the information they require to run the organisation offer for sale An issue of shares which involves a public limited company (or its shareholders) selling the shares to a financial institution, which will, in turn, sell the shares to the public management by exception Term used to describe a system of control in which attention is given to areas which are out of line with plans; that is, are exceptional operating cash cycle (OCC) The period between the outlay of cash to buy supplies and the ultimate receipt of cash from the sale of goods margin of safety The extent to which the planned level of output or sales lies above the break-even point operating cycle Normally represents the time between the acquisition of the assets and their ultimate realisation in cash or cash equivalents marginal cost The addition to total cost which will be incurred by making/providing one more unit of output master budgets A summary of the individual budgets, usually consisting of a budgeted income statement, a budgeted statement of financial position, and a budgeted statement of cash flows matching convention The accounting convention which holds that, in measuring income, expenses should be matched to the revenues they helped generate in the same accounting period as those revenues were realised operating gearing The relationship between the total fixed and the total variable costs for some activity operating lease An arrangement where a business hires an asset, usually for a short time Hiring an asset under an operating lease tends to be seen as an operating decision rather than a financing decision operating profit The increase in wealth for a period that is generated from normal operations Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:50 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com 764 ACCOUNTING FOR BUSINESS STUDENTS operating profit margin ratio A profitability ratio that expresses the operating profit as a percentage of the sales revenue for the period process costing A technique for deriving the full cost per unit of output, where the units of output are the same or very similar, or it is reasonable to treat them as being so opportunity cost The cost of the best alternative strategy profit before taxation The result when all of the appropriately matched expenses of running a business have been deducted from the revenue for the year, but before the taxation charge has been deducted ordinary shares Shares of a company owned by those who are due the benefits of the company’s activities after all other stakeholders have been satisfied other gains Gains from non-operating activities outlay cost Costs that involve the spending of money or some other transfer of assets overhead absorption (recovery) rate The rate at which overheads are charged to cost units (jobs), usually in a job costing system overtrading The situation in which a business is trying to operate at a capacity which is beyond that capable of being achieved with its current level of funding owners’ equity The claim of the owner(s) on the assets of the business P parent/holding company A company which invests in another company by purchasing sufficient shares to obtain a controlling interest proprietary approach An approach to the layout of the statement of financial position which emphasises that the report is focusing on the proprietors (owners) proprietary (private) company A limited company for which the directors can restrict the ownership of its shares Shares cannot be traded on a public stock exchange provisions An estimated liability for which there is greater uncertainty regarding the amount or timing of the amount than for a normal liability prudence convention The convention which holds that financial reports should err on the side of caution, effectively anticipating losses but only recognising profits when they are realised public company A company that can offer shares to the general public Shares can be traded on a public stock exchange public issue An issue of shares that involves a public company making a direct invitation to the public to purchase shares in the company partly paid shares Shares on which the full issue price of the share has not been paid as at reporting date This would normally relate to shares that are to be paid in instalments or a series of calls, and not all of the total share issue price is required to be paid (or has been called up) as at the reporting date R partnership The relationship that exists between two or more persons carrying on a business with a view to profit reducing-balance method A method of depreciation in which a fixed percentage is applied to the written-down value of the asset payback period (PP) The time taken for the initial investment in a project to be repaid from the net cash inflows of the project relevance A quality that states that, in order to be relevant, accounting information must be able to influence decisions periodic budget A budget which is prepared for a specific period, typically a year relevant cost The cost which is relevant to any particular decision periodic inventory system A system of inventory recording which is much simpler than the perpetual method, where it is necessary to count the stock at the end of the period in order to calculate cost of sales for the period perpetual inventory system A system of recording inventory in detail so as to always be aware of the current level and value of inventory, and which also enables immediate calculation of the transfer to cost of sales Copyright © 2017 P.Ed Australia All rights reserved profit for the period The profit for the year after a reasonable estimate of tax likely for the year personal guarantee A guarantee given by one person (the guarantor) to a lender, guaranteeing that in the event of default by the borrower, the guarantor will make good the payment due preference shares Shares which have a fixed rate of dividend that must be paid before any ordinary dividend can be paid Often preference shares have higher priority than ordinary shares in the event of the company going into liquidation prepaid expenses Expenses that have been paid in advance at the end of the reporting period price/earnings (P/E) ratio An investment ratio that relates the market value of a share to the earnings per share private equity Equity finance, primarily for small or medium-sized businesses, provided by venture capitalists, such as large financial institutions private placing An issue of shares that involves a limited company arranging for the shares to be sold to the clients of particular issuing houses or stockbrokers, rather than to the general investing public reporting entity An entity with users who rely on general-purpose financial statements for their information relating to that entity reporting period The particular period for which the accounting information is prepared reserves Amounts reflecting increases in owners’ claims residual value The expected value at the end of the useful life of a non-current asset retained profit The amount of profit made over the life of a business which has not been taken out by owners in the form of drawings or dividends return The gain that results from a particular event or occurrence return on capital employed ratio (ROCE) A profitability ratio that expresses the operating profit (i.e profit before interest and taxation) as a percentage of the long-term funds (equity and borrowings) invested in the business return on ordinary shareholders’ funds ratio (ROSF) A profitability ratio that expresses the profit for the period available to ordinary shareholders as a percentage of the funds that they have invested revenues Increases in the owners’ claim as a result of operations rights issue An issue of shares for cash to existing shareholders on the basis of the number of shares already held, at a price that is usually lower than the current market price risk The likelihood that what is projected to occur will not actually occur risk premium A rate of return in excess of what would be expected from a risk-free investment, to compensate the investor for bearing that particular risk Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:50 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com GLOSSARY rolling (or continual) budget A budget (typically covering a year) is modified regularly (typically monthly) by changing the dates covered by the budget For example, an annual budget might be prepared to cover the period January–December At the end of January, the budget is reviewed and revised to cover the period February–January of the next year S sale and lease-back An agreement to sell an asset (usually property) to another party and simultaneously to lease the asset back in order to continue using it sales price variance The difference between the actual sales revenue figure for the period and the sales revenue figure as shown in the flexed budget sales revenue per employee ratio An efficiency ratio that relates the sales revenue generated during a period to the average number of employees of the business sales revenue to capital employed ratio An efficiency ratio that relates the sales revenue generated during a period to the capital employed sales volume variance The difference between the profit as shown in the original budget and the profit as shown in the flexed budget for the period securitisation Bundling together illiquid physical or financial assets of the same type to provide backing for issuing interestbearing securities, such as bonds security Assets pledged or guarantees given to provide lenders with some protection against default segmental financial reports Reports on segments of the operations of a business semi-fixed (semi-variable) cost A cost which has both an element of fixed cost and an element of variable cost sensitivity analysis An analysis in which variables in a decision are changed one at a time, with the view to identifying which variables are most important to the success of the decision, plan or project share purchase plan (SPP) A plan that aims to balance shareholders’ rights with the need to be able to raise funds quickly and cheaply SMB/SME Abbreviation for small or medium-sized business/ enterprise Copyright © 2017 P.Ed Australia All rights reserved sole proprietorship An individual in business on his or her own account stable monetary unit convention The accounting convention which holds that money, which is the unit of measurement in accounting, will not change in value over time stakeholder theory A theory which argues that organisations have a variety of interested parties and that these interests need to be considered and incorporated in a harmonised manner, in order to achieve the best overall outcomes standard costing A more detailed system of flexible budgeting which enables more detailed variance analysis to occur 765 and transactions with owners in their capacity as owners, showing contributions by and distributions to owners statement of comprehensive income A statement that presents all items of income and expense recognised in a period, either in a single statement of comprehensive income, or in two statements, the first being a statement displaying components of profit and loss (normal income statement), and a second which begins with profit or loss and displays components of other comprehensive income From January 2018 the two-statement approach will need to be modified to a two-section approach, with the income statement preceding the other comprehensive income section statement of financial performance/income statement The statement that measures and reports how much wealth (profit) has been generated in a period statement of financial position A statement that shows the assets of a business and the claim on those assets at a point in time stock approach A calculation of profit for a period based on a comparison of net assets over the period adjusted for any known injections or withdrawals of equity, with the resulting difference providing an estimate of profit or loss for the period stock exchange A market where ‘second-hand’ shares may be bought and sold and new capital raised straight-line depreciation A method of accounting for depreciation which allocates the amount to be depreciated evenly over the useful life of the asset strategic management An approach which seeks to provide a business with a clear sense of purpose and to ensure that appropriate action occurs to achieve that purpose subsidiary company A company which is controlled by another, by the fact that this other company owns a controlling interest in the company concerned sunk cost A cost that has already been incurred and, as such, is not relevant for future decisions sustainability reporting A system of reporting that attempts to report on key issues that impact on environmental and social sustainability T takeover Where one company buys enough shares in another to obtain a controlling interest tangible assets Those assets that have a physical substance (e.g plant and machinery, motor vehicles) tender issue Shares for sale to investors for which the investors must state the amount they are prepared to pay for the shares term loan Finance provided by financial institutions, such as banks and insurance companies, under a contract with the borrowing business that indicates the interest rate and dates of payment of interest and repayment of the loan The loan is not normally transferable from one lender to another timeliness Being available early enough to be of use to users standards Planned quantities and cost (or revenues) for individual units of input or output Standards are the building blocks used to produce the budget top–down An approach to budgeting where the senior management of each budget area originates the budget targets, perhaps discussing them with lower levels of management statement of cash flows The statement that shows the sources and uses of cash for a period total cost The sum of the variable and fixed costs of pursuing some activity statement of changes in equity The statement that shows all changes in the owners’ interest in the net assets of the business as a result of transactions and events during a period This includes total comprehensive income for the period, including profit or loss, total direct labour variance The difference between the actual direct labour cost and the direct labour cost according to the flexed budget (budgeted direct labour hours for the actual output) Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:50 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com 766 ACCOUNTING FOR BUSINESS STUDENTS total direct materials variance The difference between the actual direct materials cost and the direct materials cost according to the flexed budget (budgeted usage for the actual output) variance The financial effect, on the budgeted profit, of the particular factor under consideration being more or less than budgeted transfer price The price at which sales are made between different segments of the business variance analysis A system of comparing differences between budget and actual by reason trend analysis A form of analysis that uses trends, usually graphically or by percentage analysis venture capital Long-term capital provided by certain institutions to small and medium-sized businesses in order to exploit relatively high-risk opportunities trial balance A listing of all accounts in a ledger as a check to see whether they balance triple bottom line reporting A system of reporting which focuses on economic performance, environmental performance and social performance U understandability Clearly set out to facilitate understanding units of production method of depreciation A method of depreciation based on the relationship between the production achieved in a particular period and the total production expected to be achieved in the lifetime of the particular asset univariate analysis A statistical technique that can be used to help predict financial distress, which involves the use of a single ratio as predictor V voluntary liquidation A situation in which a business is closed on a voluntary basis W weighted average cost (AVCO) A method of inventory valuation which makes the assumption that the valuation attached to cost of sales is based on an average cost of inventory weighted average cost of capital (WACC) A weighted average of the costs of the range of different ways of long-term funding for a particular business written-down value The cost or fair value of an asset less the accumulated amount written off as depreciation to date Z zero-based budgeting A budget process which starts with the assumption that everything must be justified There can be no reliance on needs from earlier periods Copyright © 2017 P.Ed Australia All rights reserved variable cost A cost which varies according to the volume of activity verifiability Something that can be checked and verified Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:48:50 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com INDEX Note: Page numbers in definitions of key terms indicate Copyright © 2017 P.Ed Australia All rights reserved AAS (Australian Accounting Standards) 285, 328, 612 AASB (Australian Accounting Standards Board) conceptual framework 334–7 and segmental reporting rules 354 AASB 101: Presentation of Financial Statements 344–52 AASB 107: Statement of Cash Flows 383–4 ABC see activity-based costing (ABC) ABN 24 absorption costing 610 see also full costing accelerated depreciation 113, accelerated rights issues accountability 285–6 accounting 3, 228 accruals 105–110 business and 20–32 computerised see computerised accounting system conventional practice see convention(s) creative see creative accounting financial 9–10, 15–18 for groups of companies 307–10 importance of 231 as information system 6–7 management 9–10, 18 nature and role of 3–7 need to study 31–2 as service function 4–5 social issues in 431–5 see also sustainability reporting trends in 28–32 accounting entity auditors –9 business entity convention 63 companies see companies disclosing entities partnership –3 reporting entities sole proprietorship –21 accounting equation 50–4, 61, 95 accounting information see also financial reports costs and benefits of 5–6 fundamental qualities range of 10 system 6–7 usefulness of 6, 33–4 users of 8–9 accounting profit 711 accounting rate of return (ARR) –11 net present value vs 720 problems with 710–11 and return on capital employed 709–10 accounting scandals 29 accounting standards 126, see also Australian Accounting Standards (AAS) Australian Securities Exchange 337–42 International Accounting Standards –4 International Financial Reporting Standards , 333 need for 331–7 role in company accounting 331–2 accounting year 61 accounts payable (creditors), average settlement period for 485 accounts receivable (debtors) average settlement period for 484 bad and doubtful debts 127–30 accruals accounting 105–110, , 183–4 accruals convention accrued expenses acid test ratio activity-based costing (ABC) 603–10, benefits of 607 criticisms of 610 indirect cost and 606 in postal system 607–8 in practice 610 traditional approach vs 605–6 activity ratios see efficiency ratios Adler, Rodney 29 adverse variance 668–9 Al-Omiri, M 586 amortisation 68, see also depreciation annual budgets 649–50 Ansett 339 Apple 482 ARR see accounting rate of return (ARR) Arrium 495 Arthur Andersen 339 artificial trading 359 ASIC (Australian Securities and Investments Commission) 285, 327–30 asset(s) 47 characteristics of 47 claims against 48–9 classification of 55–6 cost of 112–13 current 55 depreciation of see depreciation identification, decision chart for 48 impairment of 68–70, 119, 129–30 intangible 47 net 95 non-current see non-current assets tangible 47 useful life of 113 valuation 67–71 associate company ASX see Australian Securities Exchange audit 230, –6 305 auditors –9, 339, 340 audit trail Australia Post 608 Australian Accounting Standards (AAS) 285, 328, 612 AASB 101: Presentation of Financial Statements 344–52 AASB 107: Statement of Cash Flows 383–4 Australian Accounting Standards Board (AASB) conceptual framework 334–7 and segmental reporting rules 354 Australian Company Number 24 Australian Crosby Textor Shareholder Jury 438–9 Australian Department of Environment and Heritage 443 Australian Learning and Teaching Council (ALTC) 35–6 Australian Securities and Investments Commission (ASIC) 285, 327–30, 434 Australian Securities Exchange (ASX) 283, 297, 434 accounting rules 337–42 rules 286 Autonomy 104–5 AVCO (weighted average cost) 122–3, 126 average inventories turnover period ratio 483–4 average investment 710–11 average settlement period for accounts payable ratio 485 average settlement period for accounts receivable ratio 484 bad debts –30, 187–8 Baker, Mallen 436 balance sheet see also statement balanced scorecard 457–8 bank reconciliation statement 250–1 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com Copyright © 2017 P.Ed Australia All rights reserved 768 ACCOUNTING FOR BUSINESS STUDENTS batch costing –2 benchmarking 29, 474–5, 515 benefit/cost ratio 727 Beyond Budgeting 674–6 BHP Billiton 453–4, 495, 639 board of directors –5 see also directors Bond Corporation 339 bonus shares –4 book-keeping, double-entry see doubleentry book-keeping Boral Limited 106, 130 borrowings 298 see also debt(s) bottom line 137 bottom–up budgeting –2 BP 433–4 brands 65–6 break-even analysis –3 contribution 543–9 expected vs historic costs 554–5 load factors and 542–3 margin of safety 546–7 operating gearing 546–7 profit-volume charts 545–6 spreadsheets 551–5 weaknesses of 548 break-even point budget(s) 634–704, 649 benefits of 654 bottom-up –2 cash 656–8 controlling 26 discretionary flexed 663 incremental interrelationship of 650–1 limitations of 672 master non-financial measures in 655 overview of 677 performance vs 662–3 periodic 649 planning and control 635–6 in practice 655 preparation of 655, 656–60 rolling/continual 649–50 setting, process of 651–2 time horizons of plans and 649–50 top-down –2 uses of 653–5 zero-based –3 budget committee budget holder budget officer budgetary control 662–71, behavioural aspects of 672–3 flexing the budget 663–5 limitations of 672 necessary conditions for 671 performance comparison 662–3 in practice 670 standard costing 668 variances see variance(s) business see also companies and accounting 20–32 assets of see asset(s) cash management 377–8 see also cash flows ethical behaviour in 30–2 internal control, functional area and 234–7 internationalisation of 28 liabilities of see liability(ies) liquidity 72, 473, 489–91 management of 25–6, 27 modified manual system 254 objectives see business objectives ownership see ownership, business section/department of, closing/continuing 562–3 small and medium-sized business/ enterprise 655, 656 successful people, characteristics of, 37 transactions, effect on statement of financial position 52–4 trends in 28–32 business angels business entity convention 63 business ethics –2 business objectives 11–14 budgeting and 635 relevant costs and 557 risk and return, relationship between 14 setting 25 business process perspective, balanced scorecard approach 458 business start-ups 297 buy in 292 buy/make decisions 561–2 buy-out or buy-in capital 297 capital 289–92, see also equity cost of –20 early-stage 297 expansion 297 reserves 57, 289, 305, 306 share see share(s) working 377–8 capital asset pricing model (CAPM) capital-intensive production 603 capital investment decisions 705–58 appraisal methods see investment appraisal methods evaluation of 751–2 nature of 706 practical points 728–32 capital rationing 726–7 CAPM (capital asset pricing model) carrying amount 68, , 398 cash 16 budget 656–8 importance of 378–81 management of 377–8 cash book 239, 243–6 see also ledger cash equivalents 382 cash flows 376–429 calculations 728–31 discounted 729, 751–2 from financing activities 384, 390–1, 402 importance of 378–81 from investing activities 383–4, 390–1, 401 net present value and 720 from operating activities 383, 388–90, 396–400 payback period and 713 statement of see statement of cash flows cash flows from operations ratio 490–1 CEO (chief executive officer) 24 Ceres Principles 436–8 channel stuffing 359 Chartered Institute of Management Accountants (CIMA) 610, 647, 655, 670, 677, 735 chart of accounts 199–203 Chevron 706 chief executive officer (CEO) 24 China Media Express 360–1 CIMA (Chartered Institute of Management Accountants) 610, 647, 655, 670, 677, 735 claims, against assets 48–9 Clem tunnel 548 CLERP (Corporate Law Economic Reform Program) 339 close off, accounts 179–82 cloud computing 256–7, 261–3 Coles 432 common costs see indirect costs common size reports companies see also business associate borrowings 298 corporate governance see also directors entity structure, advantages/ disadvantages of 288 equity see ethical 438–9 group accounting 307–10, 328 limited see limited companies parent/holding proprietary/private public regulation of see regulation subsidiary taxation of 281, 305 company law 327–8 Company Law Review Act 1998 290 comparability 4–5 competitive analysis 30, 474 computerised accounting system 255–64 cloud computing 256–7 elements of 255–6 principles of 256 conceptual framework 334–7 consistency convention consolidated (group) accounts –10, 328 contingent liability 49 continual budget continuity (going concern) convention 64 contract(s) long-term 103–4 special 560 contribution margin ratio 545 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com Copyright © 2017 P.Ed Australia All rights reserved INDEX contribution per unit 543–9 control budgets for see budgetary control internal 286 process 26, 27, 635–6 control accounts 249–50 convention(s) 63–7 accruals business entity 63 consistency dual aspect 64–5 going concern/continuity 64 historic cost 63–4 matching –7 materiality money measurement 65 prudence 64 stable monetary unit 74 corporate governance 338 see also directors ASX principles 337–42 Corporate Law Economic Reform Program (CLERP) 339 corporate objectives see business objectives corporate social responsibility (CSR) 436–41 Corporations Act 2001 (Cth) 24, 281, 283, 327–30 cost(s) 556 allocation 597 apportionment 597 of asset 112–13 behaviour of 535–8, 555, 587–92 common 585 direct 586, 603 expected vs historic 554–5 fixed 535–6, 548, 555 full 583 see also full costing future 557, 732 indirect see indirect costs of inventory 120–5 marginal 544 opportunity 715, 732 outlay 558 relevant 556–64, 732 of sales 121–5 semi-fixed (semi-variable) 537–9 sunk 557 total variable 535, 536–7, 555 cost–benefit analysis 5–6 cost drivers cost of capital –20 cost-plus pricing cost unit 397 cost–volume–profit analysis 534–81 break-even analysis –3 contribution 543–9 cost behaviour 535–8 marginal analysis 559–64 relevant cost 556–64 cost centre 596 creative accounting 358–62 checking for 361 and economic growth 361–2 examples of 360–1 methods 358–60 credit, bad and doubtful debts 127–30 creditors 485 creditors ledger 239 Creighton, Adam 495 CSR (corporate social responsibility) 436–41 current assets 55 current liabilities 56 current ratio 489–90 customer perspective, balanced scorecard approach 458 DCF (discounted cash flow) 729, 751–2 debt(s) bad –30 personal 496–7 written off 127 debtors see accounts receivable (debtors) debtors ledger 239 decision making see also control closing/continuing of section/department 562–3 investment see capital investment decisions make/buy decisions 561–2 personal 2–3, 565–6, 648 planning and 25–6 see also planning decision-usefulness role, accounting 3–4 Deepwater Horizon oil disaster 433–4 deferred revenue 105 depreciation –19 accelerated 113, accounting judgements and 119 calculating 112–18 impairment and 119 non-current assets 68, 118 as period-end adjustment 185–7 reducing-balance method –17 and replacement of fixed assets 119 straight-line –18 direct costs 586, 603 direct labour hours 590, 603 direct labour rate variance 666 direct labour usage (efficiency) variance 666 direct materials price variance 666 direct materials usage variance 666 direct method 388 directors –5 board of –5 duties of 285–6, 327–30 managing 24 relationship with shareholders and auditors 329 disclosing entities disclosure, corporate governance 285 discount rate 719–20 tables 718–19 discounted cash flow (DCF) 729, 751–2 discounted payback 720–21 discretionary budgets 769 discriminant function disposal value 119 dividend cover ratio 498 dividend payout ratio 498 dividends per share ratio 497–8 dividend policy 301–2 dividend reinvestment plan dividend yield ratio 498–9 dividends 301–2, 305 double-entry bookkeeping 65, 163, 167–75 trial balance 177–8 doubtful debts 127–30, 187–8 Drury, C 586 dual aspect convention 64–5 Dun and Bradstreet 485 early-stage capital 297 earnings per share (EPS) ratio 499–500 e-commerce, internal control and 232–3 economic benefits (service potential) 397 economic performance, GRI Standards 450–1 economic value 720 efficiency, scarce resources 560–1 efficiency ratios 473, 483–8 alternative formats 486–7 average inventories turnover period ratio 483–4 average settlement period for accounts payable ratio 485 average settlement period for accounts receivable ratio 484 profitability ratios and 487–8 sales revenue per employee ratio 486 sales revenue to capital employed ratio 486 Elkington, John 442 embezzlement 287 encryption English Premier League (EPL) 549 Enron 29, 339, 360 entitlement offer –6 entity approach 59 entrepreneurship, social 460 Environmental Impacts, GRI Standard 451 EPL see English Premier League EPS (earnings per share) ratio 499–500 equation, accounting 50–4, 61, 95 equity , 16 see also capital 49, 57, 289–92 presentations, in balance sheets 57 return on 479–80 statement of changes in –1 estimated residual value (disposal value) 113 ethical companies 438–9 see also sustainability reporting ethics –2 expansion capital 297 expected costs 554–5 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com 770 ACCOUNTING FOR BUSINESS STUDENTS expense(s) 93, 94 accrued classification of 99 depreciation see depreciation prepaid recognition of 106–110 Copyright © 2017 P.Ed Australia All rights reserved fair values 112–13, 119 fairness 286 faithful representation 75 favourable variance 664 FIFO (first in, first out) 126 final accounts 18 finance/financing, cash flows from 384, 391–3, 402 financial accounting 9–10, 15–18 financial gearing effect of 493 operating 546–7 ratios 473–4, 491–7 trends in 495–6 financial information see accounting information financial performance appraisal, usage of financial ratios in 514–15 budget vs 662–3 past 474 planned 474–5 statement of see statement of financial performance financial perspective, balanced scorecard approach 457 financial position, statement of see statement of financial position financial ratios 473–8 analysis of 474–8 calculation of 475–7 classification of 473–4 efficiency 473, 483–8 gearing 473–4 index/percentage analysis 506–7 investment 474, 497–501 limitations of 511–12 liquidity 473, 489–91 and overtrading –3 in performance appraisal 514–15 prediction models 507–11 profitability 473, 479–82 trend analysis Financial Reporting Council (FRC), 333 financial reports 15–18 analysis and interpretation of see financial ratios auditing 24, 285–6, 305, 328–30, 339, 340 form and content of, factors influencing 62–71 limited company 303–5 nature of presentation of 344–52 quality of 511 segmental see segmental financial reports social responsibility and see sustainability reporting standards see accounting standards time factors see reporting period; time horizon finite lives, assets with 67–8 first in, first out (FIFO) 126 first-principles approach 131–6 fixed assets see non-current assets fixed costs 535–6, 548, 555 fixed overhead spending (expenditure) variance 666–7, 667 flexed budget 663 flexing the budget 663–5 Fonterra 432 Ford Motor Company 482 Fortescue Metals 495 Foundation, GRI Standard 448–9 fraud 29, 234, 287 FRC (Financial Reporting Council) 333 free cash flow 384 Freeman, R Edward 9, 13, 30 full cost 583 full costing 582–633, 583 activity-based costing (ABC) see activitybased costing (ABC) alternative approach to 604–5 criticisms of 613–15 multi-product operations 585–93 nature of 583, 602 single-product business 584–5 uses of 611–16 fully paid shares fundamental qualities future costs 557, 732 GAAP (generally accepted accounting principles) 63, 331, 332 gain(s) see also income; revenues other 93 realised vs unrealised 345 gearing see financial gearing gearing ratio 494 General Disclosures, GRI Standard 449–50 general ledger 239 General Motors Company 482 general reserve 305 generally accepted accounting principles (GAAP) 63, 331, 332 GFC see global financial crisis Gittins, Ross 716 Glencore 495 global financial crisis (GFC) 29, 495 Global Reporting Initiative (GRI) 444–55 guidelines, development of 444–6 overview of 444 Standards 446–54 going concern (continuity) convention 64 goodwill 65 on consolidation Grant, Jeremy 495 GRI see Global Reporting Initiative (GRI) gross profit 97 gross profit margin ratio –2 group (consolidated) accounts 328, –10 Harvey Norman 106, 130, 355–6 HECS (higher education contribution scheme) fees 716 Hewlett-Packard (HP) 104–5 high–low (range) method 537 HIH Insurance Group 29, 339 historic cost convention 63–4 historic costs 554–5 holding/parent company horizontal analysis 506 horizontal format 58–9 human resources 66 hurdle rate 724–5 IAS (International Accounting Standards) –4 IASB (International Accounting Standards Board) 332–4 conceptual framework 334–7 ICAEW (Institute of Chartered Accountants in England and Wales) 677 IFAC (International Federation of Accountants) 30, 342 IFRS (International Financial Reporting Standards) , 333 IIRC (International Integrated Reporting Council) 455 Impact Investment Group 706 impairment, of assets 68–70, 119, 129–30 imprest system income 93 see also revenues income statement see also statement of financial performance income tax 141–2, incremental budgeting indefinite lives, assets with 68 index analysis 506–7 indirect costs 585 and activity-based costing 606 basis for charging 591–2 on departmental (cost centre) basis 594–600 direct costs and, relationship between 586 in practice 586 problem of 587 production trends 603 segmentation of 594–602 as service providers 588 indirect method 396 industrial production 603–4 inflation 511–12, 715 Institute for Global Ethics 30 Institute of Chartered Accountants in England and Wales (ICAEW) 677 intangible assets 47 integrated reporting 455 interest cover ratio 494 interest rates, investment appraisal and 732 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com INDEX Copyright © 2017 P.Ed Australia All rights reserved internal control 228–37, 286 in certain circumstances 233 components 229 defined 228 and e-commerce 232–3 in practice 230–2 internal rate of return (IRR) –7 International Accounting Standards (IAS) –4 International Accounting Standards Board (IASB) 332–4 conceptual framework 334–7 International Federation of Accountants (IFAC) 30, 342 International Financial Reporting Standards (IFRS) , 333 International Integrated Reporting Council (IIRC) 455 InTheBlack (Tsahuridu) 32 intra-group transactions 309 inventory cost of 120–5 defined 120 net realisable value of –6 period-end adjustment 189–90 valuation of 120–6 investment cash flows from 383–4, 390–1, 401 decisions see capital investment decisions investment appraisal methods 707 accounting rate of return –11 internal rate of return –7 net present value –21 payback period –14 in practice 734–8 investment ratios 474, 497–501 dividend cover ratio 498 dividend payout ratio 498 dividends per share ratio 497–8 dividend yield ratio 498–9 earnings per share ratio 499–500 operating cash flow per share 500 price/earnings ratio IRR (internal rate of return) –7 issuing house James Hardie 433 job costing 586 see also full costing activity-based see activity-based costing (ABC) example of 589–91 traditional approach to 603 journals 240–2, 247–8 cash 243–6 labour variances 666 last in, first out (LIFO) , 126 learning and growth perspective, balanced scorecard approach 458 ledger –75 legal nature, of companies 281 lender, confidence of 294 leverage see financial gearing liability(ies) 48–9 classification of 56–7 contingent 49 current 56 limited 282, 299 non-current 56 LIFO (last in, first out) , 126 limited companies –5, 280–325 equity/capital of 289–92 features of 281–8 financial statements of 303–5 legal separation of 281 limited liability 282, 299 limiting factors 650 line of best fit 537–8 liquidation, voluntary liquidity 72 liquidity ratios 473 acid test ratio cash flows from operations ratio 490–1 current ratio 489–90 load factors, and break-even analysis 542–3 loan, stock/notes 298 see also debt(s) logical investment 716–18 long-term contracts 103–4 long-term finance, venture capital and long-term planning 25, 635 losses, realised vs unrealised 345 Madoff, Bernard 287 make/buy decisions 561–2 Malaysian Airways 548 management separation of ownership from 284–5 strategic –6, 27 management accounting 9–10, 18, 30 Management Approach, GRI Standard 450 management buy-in (MBI) 297 management buy-out (MBO) 297 management by exception 654 management fraud 29, 287 managing director 25 manufacturing and trading accounts 191–5 margin of safety 546–7 marginal analysis 559–64 marginal cost 544 Maroochy Shire Council 443 master budgets matching convention –7 materiality materiality convention materials variances 666 MDA (multiple discriminant analysis) 508–9 Microsoft 482 minority interests mission statement 25, 635 money measurement convention 65 multi-product operations break-even analysis 548 full costing in 585–93 multiple discriminant analysis (MDA) 508–9 771 Murray Goulbourn 360, 432–3 mutually exclusive projects –6 Myer 349, 393 narrative (vertical) format 59–61 NBN Co 724 net assets 95 net book value 68, net present value (NPV) –21 accounting rate of return/payback period vs 720 internal rate of return and 721–7 net realisable value (NRV) –6 nominal ledger 239 non-cash transactions 384, 396–8 non-controlling interests/minority interests non-current assets 56 depreciation and 68, 118 finite 67–8 impairment of 68–70, 119, 129–30 indefinite 68 valuation 70–1 non-current liabilities 56 non-financial measures, in budgets 655 non-linear relationships 548 Norton 457 not-for-profit organisations –7 NPV (net present value) –21 NRV (net realisable value) –6 OE see offer for sale One.Tel 339 operating activities, cash flows from 383, 388–90, 396–9 operating cash flow per share 500 operating cycle 55 operating gearing 546–7 operating profit 97–8 operating profit margin ratio opinion section 328 opportunity cost 715, 732 Oracle 482 ordinary shares Origin Energy Ltd 356 other gains 93 outlay cost 558 outsourcing 564 overtrading 377 overhead absorption (recovery) rate 604 overheads see indirect costs overtrading –3 49, 57, 289–92 see also capital; equity ownership, business partnership –3 separation from management 284–5 share, transferring 284 sole proprietorship –21 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com 772 ACCOUNTING FOR BUSINESS STUDENTS Copyright © 2017 P.Ed Australia All rights reserved P/E (price/earnings) ratio parent/holding company partly paid shares partnership –3 patent 67 payback period (PP) –14 percentage analysis 506–7 performance see financial performance period-end adjustments bad and doubtful debts 187–8 depreciation 185–7 inventory 189–90 prepayments and accruals 183–4 revenues due and prepaid 184–5 periodic budget 649 periodic (physical) inventory method perpetual existence 281–2 perpetual inventory system –5 personal debt 496–7 petty cash system 244–5 physical (periodic) inventory method planned performance 474–5 planning investment appraisal in 735–8 long-term 25, 635 process, steps in 25–6, 27 projected financial statements and see projected financial statements short-term 26 time horizons for 649–50 ponzi scheme 287 postal system, activity-based costing in 607–8 PP (payback period) –14, 720 prediction models 507–11 combinations of ratios, usage of 508–9 single ratios, usage of 507–8 preference shares 302 prepaid expense , 183–4 present value (PV) 717–19 see also net present value (NPV) Presentation of Financial Statements (AASB 101) 344–52 price/earnings (P/E) ratio price/pricing activity-based costing see activity-based costing (ABC) capital asset pricing model cost-plus pricing , 612–13 shares 31, 294 strike 296 traditional approach to 603 transfer 356 PricewaterhouseCoopers 442 private (proprietary) company private equity –8 private placings –7 proceeds on disposal 398 process costing 585 product cost centres 597 profit 93, 304–5 accounting 711 analysis see cost–volume–profit analysis gross 97 maximisation of 11 measurement of bad debts –30 break-even analysis see break-even analysis depreciation and 111–19 expenses recognition 106–110 inventory valuation 120–6 see also inventory retained 299 revenue recognition 102–6 stock approach 95–6 transaction recognition criteria 105–6 operating 97–8 reconciliation 396–9 retained see retained profit targets and 286 profit and loss statement see statement of financial performance profit before taxation profit for the period profitability index 727 profitability ratios 473, 480–2 and efficiency ratios 487–8 gross profit margin ratio –2 operating profit margin ratio return on capital employed ratio –1 ratio 479–80 profit–volume (PV) charts 545–6 projected financial statements 637–47 evaluation of 643 importance of 646–7 information needed for 638–40 sensitivity analysis and 645 spreadsheets and 645 statement of cash flows and 642–3 promoters 289 proprietary approach 59–61 proprietary (private) company see also companies provisions 49 prudence convention 64 public companies see also companies public issues purchases budget 650 purchases ledger 239 PV (present value) 717–19 PV (profit-volume) charts 545–6 Quintex Corporation 339 range (high–low) method 537 rate of return accounting –11 internal –7 ratios see financial ratios raw materials inventory budget 650, 660 realised gains/losses 345 real estate agent, accounting system for 261 reconciliation statement, bank 250–1 recording transactions 162–226 close off, accounts 179–82 double-entry bookkeeping 167–75 ledger system –75 manufacturing and trading accounts 191–5 period-end adjustments see period-end adjustments process of 163–6 worksheet approach 195–8 recovery (overhead absorption) rate 604 Red Sena Bhd 724 redeemable preference shares 302 reducing-balance method –17 regulation 285–7, 326–75 standards see accounting standards relevance 4, 75 relevant cost 556–64, 732 reliability 75 reporting entity –3 reporting period 10, 94 accounting year 61 past 474 statement of financial performance 101 statement of financial position 61 report(s) see financial reports repurchased shares 402 reserves 57, 289, –3 305, 306 residual value 119 responsible investment 439 retained profit 57, 306 return rate of see rate of return risk and return on capital employed (ROCE) ratio –1, 487–8, 709–10 return on equity (ROE) 479–80, 482 (ROSF) ratio 479–80 revaluation reserve 346 revenues 93 see also income deferred 105 due and prepaid 184–5 manipulation, types of 359 maximisation of 11 recognition of 102–6 rewards 30 rights issue –6 risk assessment 229 investment appraisal and 715–16 return and and uncertainty 738 ROCE (return on capital employed) ratio –1, 487–8, 709–10 ROE (return on equity) 479–80, 482 rolling budget 649–50 funds) ratio 479–80 Royal Dutch Shell 706 Ryman Healthcare 707 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com Copyright © 2017 P.Ed Australia All rights reserved INDEX SACs (statements of accounting concepts) 335 safeguards, legal 282–3 sales, cost of 121–5 sales ledger 239 sales price variance 666 sales revenue per employee ratio 486 sales revenue to capital employed ratio 486 sales volume variance 664 Sarbanes-Oxley Act of 2002 339 scarce resources 560–1 segmental financial reports 353–7 disclosure 354–5 problems 356–7 rules 354 semi-fixed (semi-variable) costs 537–9 sensitivity analysis 551, 645, 647, 735 service cost centres 597 service function, accounting as 4–5 service potential (economic benefits) 397 service providers, overheads as 588 services, revenue recognition and 104 settlement average period 484 share(s) bonus –4 buy in 292 dividends fully paid issues see share issues ordinary ownership, transferring 284 partly paid preference pricing 31, 294 repurchased 402 share issues 294 dividend reinvestment plan offer for sale private equity –8 private placings –7 public issues rights issue –6 tender issue share purchase plan (SPP) shareholders 23, 281 confidence of 294 equity 289 see also capital relationship with directors and auditors 329 rights, restrictions on 299–302 social responsibility issues 438 short-term planning 26 single-product business 584–5 Skase, Christopher 339 small and medium-sized business/enterprise (SMB/SME) 655, 656 SMB/SME see small and medium-sized business/enterprise Social, GRI Standard 451–4 social entrepreneurship 460 social responsibility 433–5 sole proprietorship –21 special contracts 560 SPP (share purchase plan) spreadsheets, usage of 551–5, 645 stable monetary unit convention 75 stakeholder concept 431–3 stakeholder theory 8–9, 13 standard costing 668 standards 668 see also accounting standards statement of cash flows 18, 352, 382–6 accounting standards 379 format of 383–6 interpretation of 404–7 preparation of 386–93, 400–2 profit reconciliation 396–9 projected financial statements and 642–3 Statement of Cash Flows (AASB 107) 383–4 statement of changes in equity –1 statement of comprehensive income 345–50 statement of financial performance 18, 92–161 first-principles approach 131–6 format of 97–101 nature of 93–6 purpose of 93–6 statement of financial position and 94–5 usefulness of 137–8 statement of financial position 18, 46–91, 305 deficiencies 74–5 effect of trading operations on 52–4 factors influencing 62–71 first-principles approach 131–6 formats for 58–61, 344–5 horizontal format 58–9 for limited company 303–5 nature of 47–9 purpose of 47–9 ratios based on 512 at specified point in time 61 statement of financial performance and 94–5 usefulness of 72–3, 87 vertical/narrative format 59–61 statements of accounting concepts (SACs) 335 stewardship role, accounting stock approach 95–6 stock exchange see also Australian Securities Exchange (ASX) straight-line depreciation –18 strategic management –6, 27 Strategic Management: A Stakeholder Approach (Freeman) strike price 296 subscribing capital 23 subsidiary company subsidiary records, ledger and 238–9 sunk costs 557 773 Sunshine Coast Regional Council 443 sustainability reporting 30, 430–71, 436 balanced scorecard 457–8 Ceres Principles 436–8 corporate social responsibility 436–41 Global Reporting Initiative see Global Reporting Initiative (GRI) integrated reporting 455 social issues 431–5 trend toward 440–1, 459–60 triple bottom line reporting –3 Sustainability Reporting Guidelines (GRI) 444–6 takeover tangible assets 47 targets, and profit 286 taxation companies 281, 305 income tax 141–2, investment appraisal and 732 profit before TBL (triple bottom line) reporting –3 Telstra 283, 564 tender issue threshold learning outcomes 36 time horizon 10 see also reporting period plans and budgets 649–50 trend analysis 503 timeliness times interest earned 494 top-down budgeting –2 total cost total direct labour variance 666 total direct materials variance 666 Tottenham Hotspur Football Club 66–7 Toyota Motor Corp 482 trade credit see credit trade loading 359 transaction recognition criteria 105–6 transactions, recording see recording transactions transfer price 356 trend analysis trial balance 177–8, 230 adjustments 195–8 triple bottom line (TBL) reporting –3 Tsahuridu, Eva 32 turnover ratios see efficiency ratios uncertainty, risk and 738 understandability United Parcel Service (UPS) 607 units of production-based depreciation 113, 116 univariate analysis unlimited (perpetual) life 281–2 unrealised gains/losses 345 UPS (United Parcel Service) 607 users, of accounting information 8–9 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e www.freebookslides.com 774 ACCOUNTING FOR BUSINESS STUDENTS vertical (narrative) format 59–61 vision statement 635 Volkswagen 31–2 voluntary liquidation voluntary reporting, for corporate social responsibilities 440–1 WACC (weighted average cost of capital) wealth determination of see statement of financial position enhancement of 11, 137 weighted average cost (AVCO) 122–3, 126 weighted average cost of capital (WACC) Westpac 434 Wheatstone LNG 706 Williams, Ray 29 Woodside Petroleum 706 Woolworths 482, 504–5 working capital 377–8 worksheet approach, for recording transactions 195–8 WorldCom 360 written-down value 68, written off debt 127 Xstrata 495 see zero-based budgeting Wesfarmers 482 –3 Copyright © 2017 P.Ed Australia All rights reserved valuation assets 67–71 inventory 120–6 values-driven ethics 32 variable cost 536–7, 555 variance(s) 665–7 adverse 668–9 calculation of 666 favourable 664 fixed overhead 666–7 investigating 669 labour 666 materials 666 sales price 666 sales volume 664 venture capital verifiability vertical analysis 506 Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017 ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577 Created from usyd on 2018-03-05 19:56:13 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e ... projected financial statements Likely information needed for forecast statements ACCOUNTING FOR BUSINESS STUDENTS Atrill, Peter, et al Accounting for Business Students eBook, P.Ed Australia, 2017... Atrill/Accounting for Business Students 1e 16 ACCOUNTING FOR BUSINESS STUDENTS equity The share of the business which represents the owners’ interests 1.1 Cash is vital for any business to function... Atrill/Accounting for Business Students 1e 20 ACCOUNTING FOR BUSINESS STUDENTS BUSINESS AND ACCOUNTING LO6 Outline the main types of business ownership, describe the way in which a business is typically