Understanding Business Accounting For Dummies, UK Edition E-Book

Colin Barrow

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 716

Veröffentlichungsjahr: 2010

Beschreibung

Not everyone is cut out to be a professional accountant, but those who want to move up the corporate ladder know that they need to master the essentials of accounting.  Understanding Business Accounting For Dummies, 2^nd Edition makes truly light work of the financial fundamentals that many businesspeople try to bluff their way through every day.

The book will show you how to evaluate profit margins, establish budgets, control profit and cash flow, stem losses, manage inventory, make wise financial decisions, survive an audit, and use the latest computer technology to help you manage the bottom line.

This updated edition also includes the latest information on International Financial Reporting Standards, capital budgeting, and break even, plus new advice on how to find financial facts and read company accounts.  New sections include links to a number of key business spreadsheets and a new chapter on financing your business.

Leseprobe

Understanding Business Accounting For Dummies,® 2nd Edition

Table of Contents

Introduction

About This Book

Conventions Used in Financial Reports

Some Assumptions

How This Book Is Organised

Part I: Accounting Basics

Part II: Getting a Grip on Financial Statements

Part III: Accounting in Managing a Business

Part IV: Financial Reports in the Outside World

Part V: The Part of Tens

Part VI: Appendixes

Icons Used in This Book

Where to Go from Here

Part I: Accounting Basics

Chapter 1: Introducing Accounting to Non-Accountants

Accounting Everywhere You Look

The Basic Elements of Accounting

Accounting and Financial Reporting Standards

The importance of GAAP and evolving accounting standards

Why the GAAP rules are important

Income tax and accounting rules

Flexibility in accounting standards

Enforcing Accounting Rules

Protecting investors: Sarbanes-Oxley and beyond

The Accounting Department: What Goes On in the Back Office

Focusing on Business Transactions and Other Financial Events

Taking a Closer Look at Financial Statements

The balance sheet

The profit and loss account

The cash flow statement

Accounting as a Career

Chartered Accountant (CA)

The Financial Controller: The chief accountant in an organisation

Chapter 2: Bookkeeping 101: From Shoe Boxes to Computers

Bookkeeping versus Accounting

Pedalling through the Bookkeeping Cycle

Managing the Bookkeeping and Accounting System

Categorise your financial information: The chart of accounts

Standardise source document forms and procedures

Don’t be penny-wise and pound-foolish: The need for competent, trained personnel

Protect the family jewels: Internal controls

Keep the scale in balance with double-entry accounting

Check your figures: End-of-period procedures checklist

Keep good records: Happy audit trails to you!

Look out for unusual events and developments

Design truly useful accounting reports for managers

Double-Entry Accounting for Non-Accountants

The two-sided nature of a business entity and its activities

Recording transactions using debits and credits

Juggling the Books to Conceal Embezzlement and Fraud

Chapter 3: Taxes, Taxes, and More Taxes

Taxing Wages and Property

Putting the government on the payroll: Employer taxes

Taxing everything you can put your hands on: Property taxes

’Cause I’m the Tax Man: Value Added Tax

Taxing Your Bottom Line: Company Taxes

Different tax rates on different levels of business taxable income

Profit accounting and taxableincome accounting

Deductible expenses

Non-deductible expenses

Equity capital disguised as debt

Chapter 4: Accounting and Your Personal Finances

The Accounting Vice You Can’t Escape

The Ins and Outs of Figuring Interest and Return on Investment (ROI)

Individuals as borrowers

Individuals as savers

Individuals as investors

An Accounting Template for Retirement Planning

Part II: Getting a Grip on Financial Statements

Chapter 5: Profit Mechanics

Swooping Profit into One Basic Equation

Measuring the Financial Effects of Profit-Making Activities

Preparing the balance sheet equation

Exploring the Profit-Making Process One Step at a Time

Making sales on credit

Depreciation expense

Unpaid expenses

Prepaid expenses

Stock (or Inventory) and cost of goods sold expense

So Where’s Your Hard-Earned Profit?

Reporting Profit to Managers and Investors: The Profit and Loss Account

Reporting normal, ongoing profit-making operations

Reporting unusual gains and losses

Putting the profit and loss account in perspective

Chapter 6: The Balance Sheet from the Profit and Loss Account Viewpoint

Coupling the Profit and Loss Account with the Balance Sheet

Sizing Up Assets and Liabilities

Sales revenue and debtors

Cost of goods sold expense and stock

SA&G expenses and the four balance sheet accounts that are connected with the expenses

Fixed assets and depreciation expense

Debt and interest expense

Income tax expense

The bottom line: net profit (net income) and cash dividends (if any)

Financing a Business: Owners’ Equity and Debt

Reporting Financial Condition: The Classified Balance Sheet

Current (short-term) assets

Current (short-term) liabilities

Costs and Other Balance Sheet Values

Growing Up

Chapter 7: Cash Flows and the Cash Flow Statement

The Three Types of Cash Flow

Setting the Stage: Changes in Balance Sheet Accounts

Getting at the Cash Increase from Profit

Computing cash flow from profit

Getting specific about changes in assets and liabilities

Presenting the Cash Flow Statement

A better alternative for reporting cash flow from profit?

Sailing through the Rest of the Cash Flow Statement

Investing activities

Financing activities

Free Cash Flow: What on Earth Does That Mean?

Scrutinising the Cash Flow Statement

Chapter 8: Getting a Financial Report Ready for Prime Time

Reviewing Vital Connections

Statement of Changes in Owners’ Equity and Comprehensive Income

Making Sure that Disclosure Is Adequate

Types of disclosures in financial reports

Footnotes: Nettlesome but needed

Other disclosures in financial reports

Keeping It Private versus Going Public

Nudging the Numbers

Fluffing up the cash balance by ‘window dressing’

Smoothing the rough edges off profit

Browsing versus Reading Financial Reports

Part III: Accounting in Managing a Business

Chapter 9: Managing Profit Performance

Redesigning the External Profit and Loss Account

Basic Model for Management Profit and Loss Account

Variable versus fixed operating expenses

From operating profit (EBIT) to the bottom line

Travelling Two Trails to Profit

First path to profit: Contribution margin minus fixed expenses

Second path to profit: Excess over break-even volume contribution margin per unit

Calculating the margin of safety

Doing What-If Analysis

Lower profit from lower sales – but that much lower?

Violent profit swings due to operating leverage

Cutting sales price, even a little, can gut profit

Improving profit

Cutting prices to increase sales volume: A very tricky game to play!

Cash flow from improving profit margin versus improving sales volume

A Final Word or Two

Chapter 10: Business Budgeting

The Reasons for Budgeting

The modelling reasons for budgeting

Planning reasons for budgeting

Management control reasons for budgeting

Other benefits of budgeting

Budgeting and Management Accounting

Budgeting in Action

Developing your profit strategy and budgeted profit and loss account

Budgeting cash flow from profit for the coming year

Capital Budgeting

Calculating payback

Discounting cash flow

Calculating the internal rate of return

Staying Flexible with Budgets

Chapter 11: Choosing the Right Ownership Structure

From the Top Line to the Bottom Line

What Owners Expect for Their Money

Companies

Partnerships and limited partnerships

Sole proprietorships

Limited companies (Ltd) and public limited companies (plc)

Choosing the Right Legal Structure for Tax Purposes

Companies

Partnerships, limited liability partnerships, and sole proprietorships

Deciding which legal structure is best

Chapter 12: Cost Conundrums

Previewing What’s Coming Down the Road

What Makes Cost So Important?

Sharpening Your Sensitivity to Costs

Direct versus indirect costs

Fixed versus variable costs

Breaking even

Relevant versus irrelevant (sunk) costs

Separating between actual, budgeted, and standard costs

Product versus period costs

Putting Together the Pieces of Product Cost for Manufacturers

Minding manufacturing costs

Allocating costs properly: Not easy!

Calculating product cost

Fixed manufacturing costs and production capacity

Excessive production output for puffing up profit

A View from the Top Regarding Costs

Chapter 13: Choosing Accounting Methods

Decision-Making Behind the Scenes in Profit and Loss Accounts

Calculating Cost of Goods Sold and Cost of Stock

The FIFO method

The LIFO method

The average cost method

Identifying Stock Losses: Net Realisable Value (NRV)

Appreciating Depreciation Methods

Collecting or Writing Off Bad Debts

Reconciling Corporation Tax

Two Final Issues to Consider

Part IV: Financial Reports in the Outside World

Chapter 14: How Investors Read a Financial Report

Financial Reporting by Private versus Public Businesses

Analysing Financial Reports with Ratios

Gross margin ratio

Profit ratio

Earnings per share, basic and diluted

Price/earnings (P/E) ratio

Dividend yield

Book value per share

Return on equity (ROE) ratio

Current ratio

Acid-test ratio

Return on assets (ROA) ratio

Frolicking through the Footnotes

Checking for Ominous Skies on the Audit Report

Finding Financial Facts

Public company accounts

Private company accounts

Scoring credit

Chapter 15: Professional Auditors and Advisers

Why Audits?

Who’s Who in the World of Audits

What an Auditor Does Before Giving an Opinion

What’s in an Auditor’s Report

True and fair, a clean opinion

Other kinds of audit opinions

Do Audits Always Catch Fraud?

Looking for errors and fraud

What happens when auditors spot fraud

Auditors and GAAP

From Audits to Advising

Part V: The Part of Tens

Chapter 16: Ten Ways Savvy Business Managers Use Accounting

Make Better Profit Decisions

Understand That a Small Sales Volume Change Has a Big Effect on Profit

Fathom Profit and Cash Flow from Profit

Profit accounting methods are like hemlines

The real stuff of profit

Govern Cash Flow Better

Call the Shots on Your Management Accounting Methods

Build Better Budgets

Optimise Capital Structure and Financial Leverage

Develop Better Financial Controls

Minimise Tax

Explain Your Financial Statements to Others

Chapter 17: Ten Places a Business Gets Money From

Major Stock Markets

Minor Stock Markets

Private Equity

Business Angels

Banks: Long-Term Money

Banks: Short-Term Money

Leasing and Hire-Purchase

Factoring and Invoice Discounting

Grants and Incentives

Using the Pension Fund

Chapter 18: Ten (Plus One) Questions Investors Should Ask When Reading a Financial Report

Did Sales Grow?

Did the Profit Ratios Hold?

Were There Any Unusual or Extraordinary Gains or Losses?

Did Earnings Per Share Keep Up with Profit?

Did the Profit Increase Generate a Cash Flow Increase?

Are Increases in Assets and Liabilities Consistent with the Business’s Growth?

Are There Any Signs of Financial Distress? Will the Business Be Able to Pay Its Liabilities?

Are There Any Unusual Assets and Liabilities?

How Well Are Assets Being Utilised?

What Is the Return on Capital Investment?

What Does the Auditor Say?

Part VI: Appendixes

Appendix A: Glossary: Slashing through the Accounting Jargon Jungle

Appendix B: Accounting Software

Money 2007, www.microsoft.co.uk

MYOB, www.myob.co.uk

TAS Books, www.tassoftware.co.uk

QuickBooks 2008, www.intuit.co.uk/quickbooks/

Instant Accounting, www.sage.co.uk

Understanding Business Accounting For Dummies®, 2nd Edition

by John A Tracy and Colin Barrow

Understanding Business Accounting For Dummies®, 2nd Edition

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About the Authors

John A Tracy is Professor of Accounting, Emeritus, in the College of Business and Administration at the University of Colorado in Boulder. Before his 35-year tenure at Boulder he was on the business faculty for four years at the University of California in Berkeley. He has served as staff accountant at Ernst & Young and is the author of several books on accounting, including The Fast Forward MBA in Finance and How To Read a Financial Report. Dr Tracy received his MBA and PhD degrees from the University of Wisconsin and is a CPA in Colorado.

Colin Barrow is Head of the Enterprise Group at Cranfield School of Management, where he teaches entrepreneurship on the MBA and other programmes. He is also a visiting professor at business schools in the US, Asia, France, and Austria. His books on entrepreneurship and small business have been translated into fifteen languages including Russian and Chinese. He worked with Microsoft to incorporate the business planning model used in his teaching programmes into the software program, Microsoft Business Planner, now bundled with Office. He is a regular contributor to newspapers, periodicals, and academic journals such as The Financial Times, The Guardian, Management Today, and the International Small Business Journal.

Thousands of students have passed through Colin’s start-up and business growth programmes, raising millions in new capital and going on to run successful and thriving enterprises. He is a non-executive director of two venture capital funds, on the board of several small businesses, and serves on a number of Government Task Forces.

Authors' Acknowledgments

From John: I’m deeply grateful to everyone at the publishers who helped produce this book. Their professionalism and their unfailing sense of humour and courtesy were much appreciated. I supplied some raw materials (words), and then the outstanding editors moulded them into the finished product. Out of the blue, I got a call one day from Kathy Welton. Kathy asked if I’d be interested in doing this book. It didn’t take me very long to say yes. She can be very persuasive, and she certainly knows her stuff. Thank you, Kathy! I can’t say enough nice things about Pam Mourouzis, who worked with me as project editor on the first edition of the book. The book is immensely better for her insights and advice. Pam started out as an accounting ‘dummy’, and she’s now an accounting ‘smartie’. The two copy editors on the book, Diane Giangrossi and Joe Jansen, made innumerable corrections and suggestions which were extraordinarily helpful. You two should also take a bow, I sincerely thank you. Also, Mark Butler gave me the right nudge back then when I needed it. Mary Metcalfe provided invaluable comments and suggestions on the manuscript as it worked its way through the development process. I don’t know Mary personally, but in my mind’s eye she is one tough cookie!

I thank Holly McGuire and Jill Alexander for encouraging me to revise the book. The second edition has benefited greatly from the editing by Norm Crampton and Ben Nussbaum. They were extraordinarily helpful in revising the book. Both these gentlemen know their business, that’s for sure! I also appreciate their unfailing good humour in working with me on the revision. In short, it has been my great privilege and pleasure to work with the publishing team on this book. I couldn’t have done it without them.

Also, I owe a debt of gratitude to a faculty colleague at Boulder, an accomplished author in his own right, Professor Ed Gac. He offered very sage advice. Ed was always ready with a word of encouragement when I needed one, and I’m very appreciative.

I often think about why I like to write books. I believe it goes back to an accounting class in my undergraduate days at Creighton University in Omaha. In a course taught by the Dean of the Business School, Dr Floyd Walsh, I turned in a term paper and he said that it was very well written. I have never forgotten that compliment. I think he would be proud of this book.

From Colin: I would like to thank everyone at Wiley Publishing, especially Jason Dunne, Daniel Mersey, Samantha Clapp, and Steve Edwards for the opportunity to write this book, as well as for their help, encouragement, feedback, and tireless work to make this all happen.

Dedication

For all my grandchildren. —John A Tracy

Publisher’s Acknowledgements

We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.

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Part I

Accounting Basics

In this part . . .

Accounting is important in all walks of life, and it’s absolutely essential in the world of business. Accountants are the bookkeepers, scorekeepers, and occasionally the gatekeepers of business. Without accounting, a business couldn’t function, wouldn’t know whether it’s making a profit or loss, wouldn’t know its financial situation, or if it was in danger of running out of cash.

Bookkeeping – the record-keeping part of accounting – must be managed well to make sure that all the financial information needed to run the business is complete, accurate, and reliable, especially the numbers reported in financial statements and tax returns. Wrong numbers in financial reports and tax returns can cause all sorts of trouble.

Speaking of taxes, you can’t take more than three or four steps before bumping into dreaded taxes. No one likes to pay taxes, but managers must collect and pay taxes as part of running a business. In addition to income taxes, accounting plays a bigger role in your personal financial affairs than you might realise. This part of the book explains all this and more.