Accounting Business Reporting for Decision Making

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
  - Self-evaluation activities
  - Exercises
  - Problems
  - 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

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
- Key terms
- Exercises
- Problems
- 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
- Key terms

Exercises CONTENTS v

Problems

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

Key terms

Exercises

Problems
- 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
  - Key terms
  - Exercises
  - Problems
  - 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

Key terms

Exercises

Problems

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

Key terms
- Exercises
- Problems
- 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
  - Key terms
  - Exercises
  - Problems
  - 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

Key terms

Exercises

Problems

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

Key terms

Exercises
- Problems
- 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
  - Key terms
  - 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
  - Key terms
  - Exercises
  - Problems
  - References
  - Acknowledgements
- Appendix

Accounting Business Reporting for Decision Making

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