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Accounting Simplified

Accounting Simplified

Hilary Fortes

(2011)

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Book Details

Abstract

Accounting Simplified is a step-by-step introduction to financial accounting written in plain simple language. Taking students from the very basics to the elementary principles of management accounting, the text emphasises the real-world application of accounting methods and the importance of practising skills in order to reinforce learning. Drawing on years of experience as a university lecturer marking student exam papers, the author uses plenty of worked examples to set out the details of each topic before providing self-test questions for quick revision.

Table of Contents

Section Title Page Action Price
Cover Cover
Accounting Simplified i
Contents v
Preface xiii
Acknowledgements xiv
Introduction to accounting 1
Objectives 1
Introduction 1
What is accounting? 2
Accounting groups 2
Financial and management accounting 3
The need for financial accounting 5
Users of business accounts 5
Revising the basics 7
Double entry 9
Objectives 9
Double-entry system 9
Source of transactions 10
The ledger 12
A ledger account 13
Subsidiary books 17
Understanding ledger entries 18
What the books tell us 23
Ledger accounts 25
Objectives 25
Balancing the ledger accounts 25
Carry forwards 28
Cash book 30
Objectives 30
Introduction 30
The 2-column cash book 31
Source documents 32
The 3-column cash book 32
Balancing the cash book 34
Bank reconciliation 36
Objectives 36
Introduction 36
Definitions 37
Bank reconciliation statement 37
Petty cash book 42
Objectives 42
Introduction 42
Petty cash vouchers 43
Value added tax 46
Objectives 46
Introduction 46
Adjustments to VAT 47
VAT ledger account 47
Trade discount 49
Cash discounts 50
Purchases and returns day books 53
Objectives 53
Books of original (prime) entry 53
Purchases day book 54
Purchases returns book 55
Sales and returns day books 58
Objectives 58
Sales day book 58
Sales returns book 59
Control accounts 62
Objectives 62
Introduction 62
Advantages of control accounts 63
Limitations of control accounts 63
Sales ledger (debtors) control account 64
Purchase ledger (creditors) control account 65
Contra accounts (set-offs) 65
Balances on both sides 67
Accruals and prepayments 70
Objectives 70
Accruals 70
Prepayments 72
Depreciation 75
Objectives 75
Introduction 75
Straight line depreciation 76
Reducing balance method 77
Revaluation method 80
Sale of fixed assets 81
Summary of depreciation 83
Appreciation of fixed assets 83
Bad debts 86
Objectives 86
Introduction 86
Provision for bad debts 87
Recovery of bad debts 90
The journal 92
Objectives 92
Introduction 92
Why use a journal? 92
Trial balance 96
Objectives 96
Introduction 96
Errors affecting the trial balance 98
Period-end adjustments 99
From trial balance to financial statements 101
Errors and suspense accounts 104
Objectives 104
Introduction 104
Suspense account 105
Revision 112
Objectives 112
Introduction 112
The valuation of stock 120
Objectives 120
Introduction 120
Valuation methods 120
Using different methods 123
Net realisable value 123
Trading account 126
Objectives 126
Introduction 126
Returns and carriage 126
Stock 127
Returns 128
Treatment of carriage charges 128
Sales 128
Transfer of balances 129
Cost of sales 130
Linking trading and profit and loss 131
Profit and loss account 133
Objectives 133
Introduction 133
Format of the profit and loss account 133
What is profit? 134
Classification of expenditure 134
Changes to net profit 136
Manufacturing account 140
Objectives 140
Introduction 140
Direct costs 141
Indirect costs 141
Stock 141
Apportioning expenses 142
Balance sheet 147
Objectives 147
Introduction 147
Definitions – assets 148
Definitions – liabilities 149
Definitions – capital 150
Additional definitions 150
Balance sheet layout 152
Balance sheet presentation 154
Valuation in the balance sheet 161
Revision 162
Objectives 162
Final accounts 162
Net worth 163
Revision questions 163
Summary 175
Incomplete records 176
Objectives 176
Introduction 176
Preparing accounting records 176
Calculating the trading results 177
Financial statements 177
Accounting concepts 185
Objectives 185
Introduction 185
Fundamental concepts 186
Other concepts 187
Qualitative characteristics – a summing up 189
The requirements of accounting standards 190
Partnerships 192
Objectives 192
Introduction 192
Sole trader 192
Partnership 193
Accounting for partnerships 193
Partnership agreement 194
Profit and loss appropriation account 195
Changes in the partnership 200
Limited liability partnership 203
Non-profit making organisations 204
Objectives 204
Introduction 204
Limited liability companies 210
Objectives 210
Introduction 210
The nature of limited companies 210
Private limited companies (Ltd) 211
Public limited companies (Plc) 212
Share capital 212
Dividends 217
Bonus shares 219
Reserves 220
Rights issue 220
Debentures 221
Application and allotment of shares 222
Shares or debentures? 224
Amalgamations 225
Company financial reports 231
Objectives 231
Introduction 231
The content of financial statements 231
Annual report 242
Reporting on the internet 247
Revision 248
Objectives 248
Introduction 248
Cash flow statements 268
Objectives 268
Introduction 268
Why is cash so important? 269
What is a cash flow statement? 269
The contents of the cash flow statement 270
The working capital cycle 273
The cash flow statement 275
Advantages of a cash flow statement 276
Analysis of financial statements – an introduction 284
Objectives 284
Introduction 284
Key factors in using ratios 284
How are ratios used? 284
Limitations of ratios 285
Introduction to cost accounting 307
Objectives 307
Introduction 307
Terminology 307
Costing methods 308
Break-even analysis 323
Objectives 323
Introduction 323
Types of cost 323
Margin of safety 324
Budgeting 332
Objectives 332
Introduction 332
Budget 333
The objectives of budgeting 333
Budget preparation 333
Benefits of a budget 335
Stages in the budget process 336
Different types of budget 338
Cash budget 340
Budgets for control 345
Standard costing 346
Objectives 346
Introduction 346
Benefits of standard costing 346
Setting the standards 347
Variance analysis 348
Types of variance 349
Revision 356
Objectives 356
Introduction 356
Investment appraisal 370
Objectives 370
Introduction 370
Financial management 370
Initial assessment 371
Methods of calculation 373
Analysis of discounted methods 379
Choosing a method 380
Revision 385
Objectives 385
Introduction 385
Computerised accounting 404
Objectives 404
Introduction 404
Buying a system 405
Accounting by computer 407
Limitations of computers 408
International accounting – the future 411
Objectives 411
Introduction 411
Accounting practices 412
Financial statements 412
Accounting standard setters 413
Changes in terminology 414
Changes in financial statement presentation 415
International Accounting Standards 418
Appendix 1: Self-test answers 422
Appendix 2: Present value table 635
Index 637