Accounting Business Reporting for Decision Making, 7th Edition 2019 Birt, Chalmers, Maloney, Brooks, Oliver, Bond Test Bank

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