Preface x
About the authors xiii
Chapter 1 Introduction to accounting and business decision making 1
Chapter preview 2
1.1 The accounting process 2
1.2 Accounting information and its role in decision making 3
1.3 Financial accounting and management accounting 5
1.4 Role of accounting information in business planning 8
1.5 Globalisation of accounting 9
1.6 Digital disruption and the impact on accounting 9
1.7 Business sustainability, drivers, principles and theories 10
1.8 Reporting and disclosure 13
1.5 Globalisation of accounting 9
1.6 Digital disruption and the impact on accounting 9
1.7 Business sustainability, drivers, principles and theories 10
1.8 Reporting and disclosure 13
1.9 Careers in accounting 17
Summary of learning objectives 19
Key terms 20
Apply your knowledge 21
Comprehension questions 22
Problems 22
Decision-making activities 23
References 24
Acknowledgements 25
Appendix 1 26
Acknowledgements 44
Chapter 2 Accounting in society 45
Chapter preview 46
2.1 Sources of company regulation 46
2.2 Australian and international accounting standards 49
2.3 Role of the Conceptual Framework 52
2.4 Corporate governance 55
2.5 Corporate governance principles, guidelines and practices 56
2.6 Ethics in business 58
2.7 Professional codes of ethics and ethical decision-making methods 61
2.8 Limitations of accounting information 64
Summary of learning objectives 67
Key terms 68
Apply your knowledge 69
Self-evaluation activities 69
Comprehension questions 72
Exercises 73
Problems 75
Decision-making activities 76
References 77
Acknowledgements 78
Chapter 3 Business structures 79
Chapter preview 80
3.1 Forms of business entities 80
3.2 Definition and features of a sole trader 80
3.3 Advantages and disadvantages of a sole trader 81
3.4 Definition and features of a partnership 82
3.5 Advantages and disadvantages of a partnership 83
3.6 Definition and features of a company 84
3.7 Types of companies 85
3.8 Advantages and disadvantages of a company 88
3.9 Definition and features of a trust 89
3.10 Advantages and disadvantages of a trust 89
3.11 Comparison of business reports 89
3.12 Differential reporting 94
Summary of learning objectives 96
Key terms 97
Apply your knowledge 98
Self-evaluation activities 99
Comprehension questions 101
Exercises 102
Problems 105
Decision-making activities 107
References 107
Acknowledgements 108
Chapter 4 Business transactions 109
Chapter preview 110
4.1 Recognising business transactions 110
4.2 Business and personal transactions and business events 111
4.3 The accounting equation 111
4.4 Analysis of business transactions 112
4.5 The accounting worksheet 114
4.6 Capturing accounting information: journals and ledger accounts 117
4.7 Rules of debit and credit 119
4.8 The trial balance 120
4.9 Accounting errors 121
Summary of learning objectives 123
Key terms 124
Apply your knowledge 124
Self-evaluation activities 125
Comprehension questions 130
Exercises 130
Problems 132
Decision-making activities 136
References 137
Acknowledgements 137
Chapter 5 Statement of financial position 138
Chapter preview 139
5.1 Financial reporting obligations 139
5.2 Nature and purpose of the statement of financial position 141
5.3 Accounting policy choices, estimates and judgements 144
5.4 The definition of assets 145
5.5 The definition of liabilities 146
5.6 The definition and nature of equity 148
5.7 Assets, liabilities and equity 148
5.8 Format and presentation of the statement of financial position 150
5.9 Presentation and disclosure of elements in the statement of financial position 152
5.10 Measurement of various assets and liabilities 162
5.11 Potential limitations of the statement of financial position 169
Summary of learning objectives 171
Key terms 172
Apply your knowledge 174
Self-evaluation activities 175
Comprehension questions 178
Exercises 179
Problems 184
Decision-making activities 187
References 189
Acknowledgements 189
Chapter 6 Statement of profit or loss and statement of changes in equity 190
Chapter preview 191
6.1 Purpose and importance of measuring financial performance 191
6.2 Accounting concepts for financial reporting 193
6.3 Effects of accounting policy choices, estimates and judgements on financial statements 196
6.4 Measuring financial performance 199
6.5 Income 200
6.6 Expenses 201
6.7 Applying recognition criteria to income and expenses 202
6.8 Presenting the statement of profit or loss 205
6.9 Financial performance measures 209
6.10 The statement of comprehensive income 211
6.11 The link between the financial statements 213
Summary of learning objectives 215
Key terms 216
Apply your knowledge 217
Self-evaluation activities 218
Comprehension questions 220
Exercises 221
Problems 225
Decision-making activities 229
References 232
Acknowledgements 232
Chapter 7 Statement of cash flows 233
Chapter preview 234
7.1 The purpose and usefulness of a statement of cash flows 234
7.2 Format of the statement of cash flows 246
7.3 Preparing the statement of cash flows 250
7.4 Analysing the statement of cash flows 259
Summary of learning objectives 266
Key terms 266
Apply your knowledge 267
Self-evaluation activities 268
Comprehension questions 272
Exercises 273
Problems 277
Decision-making activities 281
References 282
Acknowledgements 282
Chapter 8 Analysis and interpretation of financial statements 283
Chapter preview 284
8.1 Users and decision making 284
8.2 Nature and purpose of financial analysis 285
8.3 Analytical methods 286
8.4 Profitability analysis 294
8.5 Asset efficiency analysis 298
8.6 Liquidity analysis 301
8.7 Capital structure analysis 302
8.8 Market performance analysis 305
8.9 Ratio interrelationships 308
8.10 Limitations of ratio analysis 309
Summary of learning objectives 311
Summary of ratios 312
Key terms 314
Apply your knowledge 316
Self-evaluation activities 316
Comprehension questions 321
Exercises 322
Problems 327
Decision-making activities 333
References 335
Acknowledgements 335
Chapter 9 Budgeting 336
Chapter preview 337
9.1 Strategic planning and budgeting 337
9.2 Budgets 338
9.3 Types of budgets 340
9.4 Master budget 341
9.5 The cash budget 347
9.6 Budgets: planning and control 350
9.7 Behavioural aspects of budgeting 352
Summary of learning objectives 354
Key terms 354
Apply your knowledge 355
Self-evaluation activities 355
Comprehension questions 356
Exercises 357
Problems 362
Decision-making activities 367
References 369
Acknowledgements 369
Chapter 10 Cost–volume–profit analysis 370
Chapter preview 371
10.1 Cost behaviour 37
10.2 Break-even analysis 373
10.3 Contribution margin ratio 379
10.4 CVP assumptions 380
10.5 Using break-even data 380
10.6 Operating leverage 381
10.7 Contribution margin per limiting factor 383
10.8 Relevant information for decision making 384
10.9 Outsourcing decisions 384
10.10 Special order decisions 387
Summary of learning objectives 390
Key terms 391
Apply your knowledge 391
Self-evaluation activities 392
Comprehension questions 393
Exercises 394
Problems 400
Decision-making activities 406
Acknowledgements 407
Chapter 11 Costing and pricing in an entity 408
Chapter preview 409
11.1 Use of cost information 409
11.2 Direct costs 410
11.3 Cost allocation 412
11.4 Allocation process 414
11.5 Inventoriable product cost 421
11.6 Pricing of products and services 426
Summary of learning objectives 428
Key terms 428
Apply your knowledge 429
Self-evaluation activities 430
Comprehension questions 430
Exercises 431
Problems 434
Decision-making activities 439
Acknowledgements 439
Chapter 12 Capital investment 440
Chapter preview 441
12.1 The nature and scope of investment decisions 441
12.2 Accounting rate of return 444
12.3 Payback period 445
12.4 Net present value 446
12.5 Practical issues in making decisions 450
Summary of learning objectives 454
Key terms 454
Apply your knowledge 455
Self-evaluation activities 455
Comprehension questions 456
Exercises 456
Problems 457
References 460
Decision-making activities 460
Acknowledgements 460
Appendix 12A 461
Appendix 12B 461
Chapter 13 Financing the business 462
Chapter preview 463
13.1 Managing net working capital 463
13.2 Managing cash 465
13.3 Managing accounts receivable 467
13.4 Managing inventories 469
13.5 Sources of short-term finance 472
13.6 Sources of long-term debt finance 476
13.7 Equity finance 478
13.8 Hybrid finance 480
13.9 International sources of funding 480
13.10 New funding opportunities for business 481
Summary of learning objectives 482
Key terms 483
Apply your knowledge 484
Self-evaluation activities 484
Comprehension questions 486
Exercises 486
Problems 487
Decision-making activities 489
References 490
Acknowledgements 490
Chapter 14 Performance measurement 491
Chapter preview 492
14.1 Organisational performance measurement 492
14.2 Divisional performance measurement 497
14.3 Investment centre performance evaluation 501
14.4 Environmental and social performance 507
14.5 Individual performance measurement 509
14.6 Non-financial performance evaluation 511
Appendix 529
Index 571
