FINANCIAL ACCOUNTING

Financial Accounting provides a very accessible and easy-to-follow introduction to the subject. It is intended as a core textbook for students studying financial accounting for the first time: either those following an undergraduate degree in a business school, or non-business studies students studying a financial accounting course. This includes students on both accounting and non-accounting degrees and also MBA students. It provides a self-contained, introductory, one semester course covering the major aspects of financial accounting. The book is also designed so that students can progress to more advanced follow-up courses so is well suited as an introduction for mainstream accounting graduates or MBA students as a basic text. It should be particularly useful in reinforcing the fundamental theory and practice of introductory financial accounting.

Michael Jones has taught accounting for 26 years, first at Hereford Technical College, then at Portsmouth Polytechnic (now University) and currently at Cardiff Business School. He has taught financial accounting at all levels from GCSE level to final-year degree course. He has published over 120 articles in both professional and academic journals. These articles cover a wide range of topics such as financial accounting, the history of accounting and international accounting. The author’s main research interest is in financial communication. He is Professor of Financial Reporting at Cardiff Business School and Director of the Financial Reporting and Business Communication Unit. Michael has one daughter, Katherine.

About the Author.

About the Book: Background, The Market, Scope, Coverage, Special Features.

Acknowledgements.

Section A: Financial Accounting: The Techniques.

1 Introduction to Accounting.

Introduction.

Nature of Accounting.

Importance of Accounting.

Financial Accounting and Management Accounting.

Users of Accounts.

Accounting Context.

Types of Accountancy.

Types of Accountant.

Limitations of Accounting.

Conclusion.

Discussion Questions.

2 The Accounting Background.

Introduction.

Financial Accounting.

Language of Accounting.

Student Example.

Why is Financial Accounting Important?

Accounting Principles.

Conclusion.

Discussion Questions.

Numerical Questions.

Appendix 2.1: Illustration of a Summarised Company Profit and Loss Account: Marks & Spencer plc 2004.

Appendix 2.2: Illustration of a Limited Company’s Balance Sheet.

Appendix 2.3: Illustration of a Limited Company’s Income Statement (Profit and Loss Account).

Appendix 2.4: Illustration of a Limited Company’s Cash Flow Statement.

3 Recording: Double-Entry Bookkeeping.

Introduction.

The Accounting Equation.

Worked Example.

Computers.

Conclusion.

Discussion Questions.

Numerical Questions.

4 Main Financial Statements: The Profit and Loss Account (Income Statement).

Introduction.

Context.

Definitions.

Layout.

Main Components.

Profit.

Listed Companies.

Capital and Revenue Expenditure.

Limitations.

Interpretation.

Conclusion.

Discussion Questions.

Numerical Questions.

5 Main Financial Statements: The Balance Sheet.

Introduction.

Context.

Definitions.

Layout.

Main Components.

Limitations.

Interpretation.

Listed Companies.

Conclusion.

Discussion Questions.

Numerical Questions.

Appendix 5.1: Horizontal Format of Balance Sheet.

6 Preparing the Financial Statements.

Introduction.

Main Financial Statements.

Trial Balance to Profit and Loss Account and Balance Sheet.

Adjustments to Trial Balance.

Comprehensive Example.

Conclusion.

Discussion Questions.

Numerical Questions.

7 Partnerships and Limited Companies.

Introduction.

Context.

Partnerships.

Limited Companies.

Limited Company Example: Stevens, Turner Ltd.

Limited Companies: Published Accounts.

Conclusion.

Discussion Questions.

Numerical Questions.

8 Main Financial Statements: The Cash Flow Statement.

Introduction.

Importance of Cash.

Context.

Cash and the Bank Account.

Relationship between Cash and Profit.

Preparation of Cash Flow Statement.

Conclusion.

Discussion Questions.

Numerical Questions.

9 Interpretation of Accounts.

Introduction.

Context.

Overview.

Importance of Ratios.

Closer Look at Main Ratios.

Worked Example.

Report Format.

Holistic View of Ratios.

Performance Indicators.

Limitations.

Conclusion.

Discussion Questions.

Numerical Questions.

Appendix 9.1: John Brown Ltd.

10 The Management of Working Capital and Sources of Finance.

Introduction.

Nature of Sources of Finance.

Short-Term Financing.

Long-Term Financing.

Cost of Capital.

Conclusion.

Discussion Questions.

Numerical Questions.

Section B: Financial Accounting: The Context.

11 Regulatory and Conceptual Frameworks.

Introduction.

Traditional Corporate Model: Directors, Auditors and Shareholders.

Regulatory Framework.

Regulatory Framework in the UK.

Corporate Governance.

Conceptual Framework.

Conclusion.

Selected Reading.

Discussion Questions.

12 Measurement Systems.

Introduction.

Overview.

Measurement Systems.

Deficiencies of Historical Cost Accounting.

Illustrative Example of Different Measurement Systems.

Real Life.

Conclusion.

Selected Reading.

Discussion Questions.

13 The Annual Report.

Introduction.

Definition.

Context.

Multiple Roles.

Main Contents of the Annual Report.

Presentation.

Group Accounts.

Impression Management.

Conclusion.

Selected Reading.

Discussion Questions.

14 Creative Accounting.

Introduction.

Definition.

Managerial Motivation.

Methods of Creative Accounting.

Example.

Real Life.

Case Studies.

Creative Presentation.

Controlling Creative Accounting.

Conclusion.

Selected Reading.

Discussion Questions.

15 International Accounting.

Introduction.

Context.

Divergent Forces.

Classification.

Country Snapshots.

Convergent Forces.

Conclusion.

Selected Reading.

Discussion Questions.

Further Reading.

Glossary of Key Accounting Terms.

Appendix: Answers.

Index.