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Accounting Business Reporting for Decision Making

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  • CHAPTER About the authors xii

  • business decision making Introduction to accounting and

  • 1.1 The accounting process

    • decision making 1.2 Accounting information and its role in

    • accounting 1.3 Financial accounting and management

    • business planning 1.4 Role of accounting information in

    • Benefits of a business plan

    • Operation of the business

    • Evaluation of the business plan



  • 1.5 Globalisation of accounting

  • 1.6 Sources of company regulation

    • (ASIC) Australian Securities and Investments Commission

    • Australian Securities Exchange (ASX)

      • Commission (ACCC) Australian Competition and Consumer



    • Reserve Bank of Australia (RBA)

      • (APRA) Australian Prudential Regulation Authority



    • Australian Taxation Office (ATO)

    • Other government agencies

    • standards 1.7 Australian and international accounting

    • Financial Reporting Council (FRC)

    • Development of accounting standards

    • Regulation in New Zealand

    • Role of professional associations



  • 1.8 Role of the Conceptual Framework

    • The objective of financial reporting

    • Qualitative characteristics of financial reports

    • Cost constraint on financial information

      • financial statements Definition and recognition of the elements of





  • 1.9 Limitations of accounting information

    • information Potential costs of providing accounting



  • 1.10 Careers in accounting

    • New opportunities

    • Summary of learning objectives

    • Key terms

      • Apply your knowledge

      • Comprehension questions

      • Problems

      • Decision-making activities

      • References

      • Acknowledgements

      • Appendix 1A: The business planning process

      • CHAPTER

      • Accounting in society

        • and theories 2.1 Business sustainability, drivers, principles

        • Theories of business sustainability



      • 2.2 Reporting and disclosure

        • Triple bottom line

          • abundance Beyond sustainability and towards



        • Role of accountants in sustainability



      • 2.3 Corporate governance

        • What is corporate governance?

        • and practices 2.4 Corporate governance principles, guidelines



      • 2.5 Ethics in business

        • Ethical philosophies

        • decision-making methods 2.6 Professional codes of ethics and ethical

        • Ethical decision-making methods

        • Summary of learning objectives

        • Key terms

        • Apply your knowledge

        • Self-evaluation activities

        • Comprehension questions

        • Exercises

        • Problems

        • Decision-making activities

        • References

        • Acknowledgements

        • CHAPTER



      • Business structures

      • 3.1 Forms of business entities

      • 3.2 Definition and features of a sole trader

        • a sole trader 3.3 Advantages and disadvantages of

        • Advantages

        • Disadvantages







  • 3.4 Definition and features of a partnership iv CONTENTS

    • The partnership agreement

    • partnership 3.5 Advantages and disadvantages of a

    • Advantages

    • Disadvantages



  • 3.6 Definition and features of a company

    • Forming a company



  • 3.7 Types of companies

    • Proprietary companies and SMEs

    • Public companies

    • a company 3.8 Advantages and disadvantages of

    • Advantages

    • Disadvantages



  • 3.9 Definition and features of a trust

    • trust 3.10 Advantages and disadvantages of a



  • 3.11 Comparison of business reports

    • Sole trader reports

    • Partnership reports

    • Company reports — private company

    • Company reports — public company



  • 3.12 Differential reporting

    • Summary of learning objectives

    • Key terms

    • Apply your knowledge

    • Self-evaluation activities

    • Comprehension questions

    • Exercises

    • Problems

    • Decision-making activities

    • References

    • Acknowledgements

    • CHAPTER



  • Business transactions

  • 4.1 Recognising business transactions

    • Examples of business transactions

    • business events 4.2 Business and personal transactions and



  • 4.3 The accounting equation

    • The concept of duality



  • 4.4 Analysis of business transactions

  • 4.5 The accounting worksheet

    • ledger accounts 4.6 Capturing accounting information: journals and

    • The journal

    • The ledger

    • Chart of accounts



  • 4.7 Rules of debit and credit

    • 4.8 The trial balance

    • 4.9 Accounting errors

      • Single-entry error

      • Transposition error

      • Incorrect entry

        • missing figures Using the accounting equation to solve for



      • Summary of learning objectives

      • Key terms

      • Apply your knowledge

      • Self-evaluation activities

      • Comprehension questions

      • Exercises

      • Problems

      • Decision-making activities

      • Reference

      • Acknowledgements

      • CHAPTER



    • Balance sheet

    • 5.1 Financial reporting obligations

      • statements General purpose and special purpose financial



    • 5.2 Nature and purpose of the balance sheet

      • judgements 5.3 Accounting policy choices, estimates and



    • 5.4 The definition of assets

      • Asset definition



    • 5.5 The definition of liabilities

      • Liability definition



    • 5.6 The definition and nature of equity

    • 5.7 Assets, liabilities and equity

      • balance sheet 5.8 Format and presentation of the

      • the balance sheet 5.9 Presentation and disclosure of elements on

      • Current and non-current assets and liabilities

        • and equity Presentation and disclosure of assets, liabilities



      • liabilities 5.10 Measurement of various assets and

      • Measurement principles

      • Measuring receivables

      • Measuring inventory

      • Measuring non-current assets



    • 5.11 Potential limitations of the balance sheet

      • Summary of learning objectives

      • Key terms

      • Apply your knowledge

      • Self-evaluation activities

      • Comprehension questions



    • Exercises CONTENTS v

    • Problems

    • Decision-making activities

    • References

    • Acknowledgements

    • CHAPTER



  • equity and statement of changes in

    • performance 6.1 Purpose and importance of measuring financial

    • reporting 6.2 Accounting concepts for financial

    • The reporting period

    • Accrual accounting versus cash accounting

    • Depreciation

    • and judgements on financial statements 6.3 Effect of accounting policy choices, estimates



  • 6.4 Measuring financial performance

  • 6.5 Income

    • Income definition

    • Income classification



  • 6.6 Expenses

    • Expense definition

    • Expense classification

    • expenses 6.7 Applying recognition criteria to income and

    • Income (revenue) recognition

    • Expense recognition



  • 6.8 Presenting the statement of profit or loss

    • statements Prescribed format for general purpose financial

    • Material income and expenses

      • accounting standards Format for entities not required to comply with





  • 6.9 Financial performance measures

    • Gross profit

    • Profit



  • 6.10 The statement of comprehensive income

    • The statement of changes in equity

    • statements 6.11 The link between the financial

    • Summary of learning objectives

    • Key terms

    • Apply your knowledge

    • Self-evaluation activities

    • Comprehension questions

    • Exercises

    • Problems

      • Decision-making activities

      • References

      • Acknowledgements

      • CHAPTER

      • Statement of cash flows

        • of cash flows 7.1 The purpose and usefulness of a statement

          • accounting Difference between cash and accrual

          • other financial statements Relationship of the statement of cash flows to





      • 7.2 Format of the statement of cash flows

        • Operating activities

        • Investing activities

        • Financing activities

          • with operating profit Reconciliation of cash from operating activities



        • Presentation of the statement of cash flows



      • 7.3 Preparing the statement of cash flows

      • 7.4 Analysing the statement of cash flows

        • Trend and ratio analysis

        • Complexity of transactions

        • Summary of learning objectives

        • Key terms

        • Apply your knowledge

        • Self-evaluation activities

        • Comprehension questions

        • Exercises

        • Problems

        • Decision-making activities

        • References

        • Acknowledgements

        • CHAPTER



      • financial statements Analysis and interpretation of

      • 8.1 Users and decision making

      • 8.2 Nature and purpose of financial analysis

      • 8.3 Analytical methods

        • Horizontal analysis

        • Trend analysis

        • Vertical analysis

        • Ratio analysis

        • Benchmarks



      • 8.4 Profitability analysis

        • Return on equity

        • Return on assets

        • Profit margin ratios

        • Analysis of profitability: JB Hi-Fi Ltd







  • 8.5 Asset efficiency analysis vi CONTENTS

    • Asset turnover ratio

    • Days inventory and days debtors ratios

    • Analysis of asset efficiency: JB Hi-Fi Ltd



  • 8.6 Liquidity analysis

    • Current ratio and quick ratio

    • Cash flow ratio

    • Analysis of liquidity: JB Hi-Fi Ltd



  • 8.7 Capital structure analysis

    • Capital structure ratios

    • Interest servicing ratios

    • Debt coverage ratio

    • Analysis of capital structure: JB Hi-Fi Ltd



  • 8.8 Market performance analysis

    • Net tangible assets per share

    • Earnings, cash flow and dividend per share

    • Price earnings ratio

    • Analysis of market performance: JB Hi-Fi Ltd



  • 8.9 Ratio interrelationships

  • 8.10 Limitations of ratio analysis

    • Summary of learning objectives

    • Key terms

    • Apply your knowledge

    • Self-evaluation activities

    • Comprehension questions

    • Exercises

    • Problems

    • Decision-making activities

    • References

    • Acknowledgements

    • Appendix 8A: Summary of ratios

    • CHAPTER



  • Budgeting

  • 9.1 Strategic planning and budgeting

  • 9.2 Budgets

    • The budgeting process



  • 9.3 Types of budgets

  • 9.4 Master budget

    • service entity Preparation of an operating budget for a

    • manufacturing entity Preparation of an operating budget for a



  • 9.5 The cash budget

  • 9.6 Budgets: planning and control

    • Improving cash flow



  • 9.7 Behavioural aspects of budgeting

    • Styles of budgeting

    • Effect of budget targets on behaviour

    • Summary of learning objectives

    • Key terms

      • Apply your knowledge

      • Self-evaluation activities

      • Comprehension questions

      • Exercises

      • Problems

      • Decision-making activities

      • References

      • Acknowledgements

      • CHAPTER

      • analysis Cost–volume–profit

      • 10.1 Cost behaviour

        • Fixed, variable and mixed costs



      • 10.2 Break-even analysis

        • service Break-even analysis for a single product or

        • Break-even analysis for multiple products



      • 10.3 Contribution margin ratio

      • 10.4 CVP assumptions

      • 10.5 Using break-even data

      • 10.6 Operating leverage

        • factor 10.7 Contribution margin per limiting

        • making 10.8 Relevant information for decision



      • 10.9 Outsourcing decisions

      • 10.10 Special order decisions

        • Summary of learning objectives

        • Key terms

        • Apply your knowledge

        • Self-evaluation activities

        • Comprehension questions

        • Exercises

        • Problems

        • Decision-making activities

        • References

        • Acknowledgements

        • CHAPTER



      • entity Costing and pricing in an

      • 11.1 Use of cost information

      • 11.2 Direct costs

        • Indirect costs



      • 11.3 Cost allocation

        • Cost drivers



      • 11.4 Allocation process

        • Determination of full cost



      • 11.5 Inventoriable product cost





  • 11.6 Pricing of products and services CONTENTS vii

    • Summary of learning objectives

    • Key terms

    • Apply your knowledge

    • Self-evaluation activities

    • Comprehension questions

    • Exercises

    • Problems

    • Decision-making activities

    • References

    • Acknowledgements

    • CHAPTER



  • Capital investment

    • decisions 12.1 The nature and scope of investment

    • The process of decision making



  • 12.2 Accounting rate of return

    • Decision rule for ARR

    • Advantages and disadvantages of ARR



  • 12.3 Payback period

    • Decision rule for payback period

    • Advantages and disadvantages of PP



  • 12.4 Net present value

    • Decision rule for NPV

    • Discount tables

    • Determining the discount rate

      • NPV method Advantages and disadvantages of the





  • 12.5 Internal rate of return

    • Decision rule for IRR

    • Advantages and disadvantages of IRR

    • Effects of unconventional cash flows

    • Comparing the NPV and IRR for a project



  • 12.6 Practical issues in making decisions

    • Collecting data

    • Taxation effects

    • Finance

    • Human resources

    • Goodwill and future opportunities

      • environment Social responsibility and care of the natural

      • decisions coconut oil manufacturers’ investment



    • Summary of learning objectives

    • Key terms

    • Apply your knowledge

    • Self-evaluation activities

    • Comprehension questions

    • Exercises

      • Problems

      • Decision-making activities

      • References

      • Acknowledgements

      • Appendix 12A

      • Appendix 12B: Calculating net present value

      • CHAPTER

      • Financing the business

      • 13.1 Managing net working capital

        • capital Deciding the appropriate level of net working



      • 13.2 Managing cash

        • The need to have sufficient cash

        • The timing of cash flows

        • The cost of cash

        • The cost of not having enough cash



      • 13.3 Managing accounts receivable

        • Benefits and costs of granting credit

          • receivable Determinants of the level of accounts





      • 13.4 Managing inventories

        • Types of inventories

        • Benefits and costs of holding inventories

        • Inventory management techniques



      • 13.5 Sources of short-term finance

        • Accrued wages and taxes

        • Trade credit

        • Bank overdrafts

        • Commercial bills and promissory notes

        • Factoring or debtor/invoice/trade finance

        • Inventory loans or floor-plan finance



      • 13.6 Sources of long-term debt finance

        • Intermediated finance

        • Debt finance from the Australian market



      • 13.7 Equity finance

        • Ordinary shares

        • Preference shares

        • Rights and options



      • 13.8 Hybrid finance

        • Convertible notes

        • Convertible preference shares



      • 13.9 International sources of funding

        • Summary of learning objectives

        • Key terms

        • Apply your knowledge

        • Self-evaluation activities

        • Comprehension questions

        • Exercises

        • Problems





    • Decision-making activities viii CONTENTS

    • References

    • Acknowledgements

    • CHAPTER



  • measurement Performance

    • measurement 14.1 Organisational performance

    • Integrated report

    • Balanced scorecard



  • 14.2 Divisional performance measurement

    • Divisional performance evaluation

    • Pricing guide

    • Evaluation of investment level

    • evaluation 14.3 Investment centre performance

    • Residual income

    • Economic value added

      • ROI, RI and EVA compared

      • The investment base

      • 14.4 Environmental and social performance

        • Eco-efficiency

        • Greenhouse gas accounting

        • The Sustainability Report Card



      • 14.5 Individual performance measurement

      • 14.6 Non-financial performance evaluation

        • Summary of learning objectives

        • Key terms

        • Apply your knowledge

        • Self-evaluation activities

        • Comprehension questions

        • Exercises

        • Problems

        • Decision-making activities

        • References

        • Acknowledgements



      • Appendix





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