Skip to main content

Financial Accounting, 2nd Edition

Financial Accounting, 2nd Edition

Michael J. Jones

ISBN: 978-1-119-97715-5

May 2014

544 pages

Select type: Paperback

$65.95

Product not available for purchase

Related Resources

Instructor

View Instructor Companion Site

Contact your Rep for all inquiries

About the Author xiii

About the Book xv

Acknowledgements xxi

1 INTRODUCTION TO ACCOUNTING 1

Introduction 2

Nature of Accounting 2

Importance of Accounting 4

Financial Accounting and Management Accounting 5

Users of Accounts 6

Accounting Context 8

Types of Accountancy 12

Types of Accountant 15

Limitations of Accounting 18

Conclusion 18

Discussion Questions 20

SECTION A: FINANCIAL ACCOUNTING: THE TECHNIQUES 21

2 THE ACCOUNTING BACKGROUND 23

Introduction 24

Financial Accounting 24

Language of Accounting 26

Student Example 34

Why Is Financial Accounting Important? 38

Accounting Principles 38

Accounting Conventions 39

Conclusion 41

Discussion Questions 42

Numerical Questions 43

Appendix 2.1: Illustration of a Consolidated Income Statement

for Marks & Spencer plc 2010 44 Appendix 2.2: Illustration of a Consolidated Statement of Financial

Position for Marks and Spencer plc 2010 46

Appendix 2.3: Illustration of a Consolidated Statement of Cash Flows for Marks and Spencer plc 2010 48

Appendix 2.4: Illustration of a Consolidated Income Statement for Volkswagen 2009 50

Appendix 2.5: Illustration of a Consolidated Balance Sheet (Statement of Financial Position) for Volkswagen 2009 51

Appendix 2.6: Illustration of a Consolidated Cash Flow

Statement (Statement of Cash Flows) for Volkswagen 2009 53

3 RECORDING: DOUBLE-ENTRY BOOKKEEPING 55

Introduction 56

The Accounting Equation 57

Worked Example 62

Day Books and Ledgers 74

Computers 78

Conclusion 79

Discussion Questions 79

Numerical Questions 80

Appendix 3.1: Complete Worked Example for Gavin Stevens 86

4 MAIN FINANCIAL STATEMENTS: THE INCOME STATEMENT (PROFIT AND LOSS ACCOUNT) 89

Introduction 90

Context 90

Definitions 92

Layout 93

Main Components 94

Profit 103

Listed Companies 106

Capital and Revenue Expenditure 106

Limitations 107

Interpretation 107

Conclusion 107

Discussion Questions 108

Numerical Questions 108

5 MAIN FINANCIAL STATEMENTS: THE STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) 110

Introduction 111

Context 112

Definitions 113

Layout 114

Main Components 116

Limitations 129

Interpretation 131

Listed Companies 131

Conclusion 132

Discussion Questions 132

Numerical Questions 133

Appendix 5.1: Horizontal Format of Statement of Financial Position 134

6 PREPARING THE FINANCIAL STATEMENTS 135

Introduction 136

Main Financial Statements 136

Trial Balance to the Income Statement (Profi t and Loss Account) and the Statement of Financial Position (Balance Sheet) 138

Adjustments to Trial Balance 142

Comprehensive Example 154

Conclusion 158

Discussion Questions 158

Numerical Questions 159

7 PARTNERSHIPS AND LIMITED COMPANIES 172

Introduction 173

Context 174

Partnerships 175

Limited Companies 181

Distinctive Accounting Features of Limited Companies 185

Accounting Treatment For Limited Companies 194

Limited Company Example: Stevens, Turner Ltd 196

Limited Companies: Published Accounts 201

Conclusion 206

Discussion Questions 207

Numerical Questions 208

Appendix 7.1: Example of an Income Statement (Profit and Loss Account) using UK GAAP (Manchester United Ltd) 218

Appendix 7.2: Example of a Statement of Financial Position (Balance Sheet) using UK GAAP (Manchester United Ltd) 219

8 MAIN FINANCIAL STATEMENT: THE STATEMENT OF CASH FLOWS 221

Introduction 222

Importance of Cash 223

Context 225

Cash and the Bank Account 225

Relationship between Cash and Profit 229

Preparation of Statement of Cash Flows 231

Bank Reconciliation Statements 245

Conclusion 246

Discussion Questions 247

Numerical Questions 248

Appendix 8.1: Main Headings for the Cash Flow Statement (Statement of Cash Flows) for Sole Traders, Partnerships and some Non-Listed Companies under UK GAAP 255

Appendix 8.2: Preparation of a Sole Trader’s Cash Flow Statement Using the Direct Method Using UK Format 256

Appendix 8.3: Preparation of the Cash Flow Statement of Any Company Ltd using the Indirect Method Using UK GAAP 257

Appendix 8.4: Example of Statement of Cash Flows (Cash Flow Statement) Using UK GAAP (Manchester United Ltd) 260

9 INTERPRETATION OF ACCOUNTS 262

Introduction 263

Context 263

Overview 264

Importance of Ratios 266

Closer Look at Main Ratios 267

Worked Example 279

Report Format 287

Holistic View of Ratios 289

Performance Indicators 290

Limitations 291

Conclusion 292

Discussion Questions 293

Numerical Questions 294

Appendix 9.1: John Brown Plc 303

Appendix 9.2: The Cash Flow Ratio using UK GAAP 305

SECTION B: FINANCIAL ACCOUNTING: THE CONTEXT 307

10 REGULATORY AND CONCEPTUAL FRAMEWORKS 309

Introduction 310

Traditional Corporate Model: Directors, Auditors and Shareholders 311

Regulatory Framework 316

Regulatory Framework in the UK 318

Corporate Governance 323

Conceptual Framework 328

Conclusion 335

Selected Reading 336

Discussion Questions 337

11 MEASUREMENT SYSTEMS 338

Introduction 339

Overview 339

Measurement Systems 342

Deficiencies of Historical Cost Accounting 344

Illustrative Example of Different Measurement Systems 344

Real Life 347

Conclusion 348

Selected Reading 348

Discussion Questions 349

12 THE ANNUAL REPORT 350

Introduction 351

Definition 351

Context 352

Multiple Roles 353

Main Contents of the Annual Report 358

Presentation 375

Group Accounts 377

Impression Management 381

Conclusion 384

Selected Reading 385

Discussion Questions 386

13 CREATIVE ACCOUNTING 387

Introduction 388

Definition 390

Managerial Motivation 392

Methods of Creative Accounting 394

Example 401

Real Life 401

Case Studies 404

Creative Presentation 408

Controlling Creative Accounting 410

Conclusion 410

Selected Reading 411

Discussion Questions 412

Numerical Questions 413

14 INTERNATIONAL ACCOUNTING 414

Introduction 415

Context 415

Divergent Forces 417

Classification 423

Country Snapshots 423

Convergent Forces 430

Conclusion 437

Selected Reading 437

Discussion Questions 438

Appendix 14.1: List of International Standards 439

Glossary of Key Accounting Terms 441

Appendix: Answers 465

Index 511

  • Full IFRS coverage
  • Interactive concept modules designed to enhance understanding of key concepts.  Each interactive module contains a summarized version of the text book with the inclusion of audio voice over and interactive activities designed to test knowledge and assist learning.
  • A lively presentational style integrating cartoons and soundbites
  • Brings the subject to life with numerous real life examples.
  • Provides the student with an understanding of the theory behind the processes of financial accounting.
  • End of chapter questions of escalating difficulty, together with accompanying answers, enabling the student to develop their understanding of the key concepts discussed in the text.
  • A rich supporting website including solutions, extra question material and powerpoint slides for lecturers, multiple choice quizzes and an online glossary for students.
  • Full IFRS coverage