Accounting Workbook For Dummies, UK Edition E-Book

Jane Kelly

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2009

Seitenzahl: 479

Beschreibung

Want to become an accountant? Own a small business but need help balancing your books? Worried about managing your finances under the cloud of the recession? This hands-on workbook gets you up to speed with the basics of business accounting, including reading financial reports, establishing budgets, controlling cash flow, and making wise financial decisions. The question and answer sections encourage you to find your own solutions to challenging accounting problems - and there's plenty of space to scribble your workings out! Accounting Workbook For Dummies is the only book that makes truly light work of the financial fundamentals that many businesspeople try to bluff their way through every day. Accounting Workbook For Dummies, UK Edition covers: Part I: Business Accounting Basics Chapter 1: Elements of Business Accounting Chapter 2: Financial Effects of Transactions Chapter 3: Getting Started in the Bookkeeping Cycle Chapter 4: The Bookkeeping Cycle: Adjusting and Closing Entries Part II: Preparing Financial Statements Chapter 5: The Effects and Reporting of Profit Chapter 6: Reporting Financial Condition in the Balance Sheet Chapter 7: Coupling the Profit & Loss Statement and Balance Sheet Chapter 8: Reporting Cash Flows and Changes in Owners' Equity Chapter 9: Choosing Accounting Methods Part III: Managerial, Manufacturing, and Capital Accounting Chapter 10: Analysing Profit Behavior Chapter 11: Manufacturing Cost Accounting Chapter 12: Figuring Out Interest and Return on Investment Part IV: The Part of Tens Chapter 13: Ten Things You Should Know About Business Financial Statements Chapter 14: A Ten-Point Checklist for Management Accountants Main changes in the UK edition include: * UK Accounting practice * Currency * UK institutions - Inland Revenue and Customs and Excise etc * National Insurance, PAYE * UK taxation and VAT * Partnerships and Limited company information * UK legal practice * UK specific forms * UK specific case studies

Leseprobe

Accounting Workbook For Dummies®

Table of Contents

Introduction

About This Book

Foolish Assumptions

How This Book Is Organised

Part I: Business Accounting Basics

Part II: Preparing Financial Statements

Part III: Managerial, Manufacturing and Capital Accounting

Part IV: The Part of Tens

Icons Used in This Book

Where to Go from Here

Part I: Business Accounting Basics

Chapter 1: Elements of Business Accounting

Keeping the Accounting Equation in Balance

Distinguishing Between Cash- and Accrual-Based Accounting

Summarising Profit Activities in the Profit and Loss Statement

Assembling a Balance Sheet

Partitioning the Cash Flow Statement

Tracing How Dishonest Accounting Distorts Financial Statements

Answers to Problems on Elements of Business Accounting

Chapter 2: Financial Effects of Transactions

Relying on Accurate Transaction Records

Classifying Business Transactions

Seeing Both Sides of Business Transactions

Concentrating on Sales

Concentrating on Expenses

Determining the Composite Effect of Profit

Answers to Problems on Financial Effects of Transactions

Chapter 3: Getting Started in the Bookkeeping Cycle

Constructing the Chart of Accounts

Discussing Nominal Accounts

Knowing Your Debits from Your Credits

Making Original Journal Entries

Recording Revenue and Income

Recording Expenses and Losses

Recording Investing and Financing Transactions

Answers to Problems on the Bookkeeping Cycle

Chapter 4: The Bookkeeping Cycle: Adjusting and Closing Entries

Getting Accurate with Adjusting Entries

Breaking Down the End-of-Year Adjusting Entries

Recording the depreciation expense

Recording the amortisation expense

Recording other adjusting entries

Closing the Books on the Year

Instituting Internal Controls

Answers to Problems on the Bookkeeping Cycle

Part II: Preparing Financial Statements

Chapter 5: Reporting Profit

Understanding the Nature of Profit

Profit and Loss Statement Format

Examining How Sales and Expenses Change Assets and Liabilities

Summing Up the Manifold Effects of Profit

Answers to Problems on the Effects and Reporting of Profit

Chapter 6: Reporting Financial Condition in the Balance Sheet

Getting Started on the Balance Sheet

Building a Balance Sheet

Fleshing Out the Balance Sheet

Classifying assets and liabilities

Comparing revenue with asset size

Clarifying the Values of Assets in Balance Sheets

Using the Balance Sheet in Business Valuation

Answers to Problems on Reporting Financial Condition in the Balance Sheet

Chapter 7: Coupling the Profit and Loss Statement and Balance Sheet

Rejoining the Profit and Loss Statement and Balance Sheet

Filling in Key Pieces of the Balance Sheet from the Profit and Loss Statement

Sales revenue and debtors

Cost of Goods Sold and stock

Connections between selling, admin and general expenses and the balance sheet

Practical action

Fixed assets and depreciation expense

Putting Fixed Assets in the Picture

Completing the Balance Sheet with Debt and Capital

Answers to Problems on Coupling the Profit and Loss Statement and Balance Sheet

Chapter 8: Reporting Cash Flows and Changes in Owners’ Capital

Figuring Profit from the Balance Sheet

Reporting the Statement of Changes in Shareholders’ Capital

Determining Cash Effect from Making Profit

Presenting the Cash Flow Statement

Reporting Cash Flows

Connecting Balance Sheet Changes with Cash Flows

Answers for Problems on Reporting Cash Flows and Changes in Owners’ Capital

Chapter 9: Choosing Accounting Methods

Getting Off to a Good Start

Cost of Goods Sold Expense Methods

Averaging things out

Going with the flow: The FIFO method

Investigating the LIFO method

Appreciating Depreciation Methods

Evaluating your depreciation options

Timing Bad Debts Expense

Answers to Problems on Choosing Accounting Methods

Part III: Managerial, Manufacturing and Capital Accounting

Chapter 10: Analysing Profit Behaviour

Mapping Profit for Managers

Analysing Operating Profit

Analysis method #1: Contribution margin minus fixed costs

Analysis method #2: Excess over breakeven

Analysing Return on Capital

Improving Profit Performance

Selling more units

Improving margin per unit

Making Trade-Offs Among Profit Factors

Answers to Problems on Analysing Profit Behaviour

Chapter 11: Manufacturing Cost Accounting

Minding Manufacturing Costs

Understanding product costs versus period costs

Separating period and product costs

Taking a Short Tour of Manufacturing Entries

Calculating Product Cost: Basic Methods and Problems

Connecting fixed manufacturing overhead costs and production capacity

Boosting profit by boosting production

Calculating Product Cost in Unusual Situations

Answers to Problems on Manufacturing Cost Accounting

Chapter 12: Figuring Out Interest and Return on Investment

Getting Down to the Basics of Interest

Keeping things simple with simple interest

Distinguishing nominal and effective interest rates

Lifting the Veil on Compound Interest

Borrowing and Investing in Instalments

Paying off a loan

Measuring Return on Investment (ROI)

Answers to Problems on Interest and Return on Investment

Part IV: The Part of Tens

Chapter 13: Ten Things You Need to Know about Business Financial Statements

Rules and Standards Matter

Exactitude Would Be Nice, but Estimates Are Key

Financial Statements Fit Together Hand in Glove

Accrual Basis Is Used to Record Profit, Assets and Liabilities

Cash Flow Differs from Accrual Basis Profit

Profit and Balance Sheet Values Can Be (and Often Are) Manipulated

Financial Statements Are Historical

Some Asset Values Are Current, but Others May Be Old

Financial Statements Leave Interpretation to Readers

Financial Statements Tell the Story of a Business, Not Its Individual Shareholders

Chapter 14: A Ten-Point Checklist for Management Accountants

Designing Internal Accounting Reports

Helping Managers Understand Their Accounting Reports

Involving Managers in Choosing Accounting Methods

Creating Profit Performance Reports for Managers

Formulating Cash Flow Reports for Managers

Devising Management Control Reports

Developing Models for Management Decision-Making Analysis

Working Closely with Managers in Planning

Establishing and Enforcing Internal Controls

Keeping Up-to-Date on Accounting, Financial Reporting and Tax Changes

Accounting Workbook For Dummies®

by Jane Kelly and John A. Tracy

Accounting Workbook For Dummies®

Published byJohn Wiley & Sons, LtdThe AtriumSouthern GateChichesterWest SussexPO19 8SQEngland

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About the Authors

Jane Kelly trained as a Chartered Management Accountant while working in industry. Her roles ranged from Company Accountant in a small advertising business to Financial Controller of a national housebuilding company. Jane has subsequently specialised in both using and teaching others how to use Sage software and also teaching people the bookkeeping basics.

Jane is the author of Sage 50 Accounts For Dummies and Bookkeeping Workbook For Dummies (Wiley).

John A. Tracy is Professor of Accounting, Emeritus, at the University of Colorado in Boulder. Before his 35-year tenure at Boulder, he was on the business faculty for 4 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 and finance, including Accounting For Dummies (Wiley). Dr. Tracy earned his MBA and PhD degrees from the University of Wisconsin.

Dedication

From Jane: I would like to dedicate this book to my daughter, Megan. I hope that she will be proud of her mum and maybe even write a book of her own one day – even if it is about Disney princesses and fairies!

From John: In memory of Gordon B. Laing – a gentleman and editor of the first rank.

Authors’ Acknowledgements

From Jane: I hope that this book will help many small businesses understand the basic concepts of accounting. I can’t emphasis enough the importance of setting up proper systems. With the right accounting systems in place, you’ll have a better chance of surviving the current economic climate. If you have any comments or suggestions about this book or maybe have a question, please contact [email protected].

I would like to thank all those at Wiley who have made this publication possible: here’s to the next project.

Finally, I would like to thank my husband, Malcolm, and my daughter, Megan, who have put up with my extended periods of absence while I’ve been pounding the keyboard!

From John: I’m deeply grateful to everyone at Wiley who helped produce this book. Their professionalism, courtesy and good humour were much appreciated. This book would not have been possible but for the success of Accounting For Dummies (Wiley). I owe Wiley and the several editors an enormous debt of gratitude, which I am most willing to acknowledge.

Thanks to all of you! I hope I have done you proud with Accounting Workbook For Dummies.

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/.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Project Editor: Rachael Chilvers

Development Editor: Kelly Ewing

Copyeditor: Andy Finch

Content Editor: Jo Theedom

Commissioning Editor: Samantha Spickernell

Assistant Editor: Jennifer Prytherch

Production Manager: Daniel Mersey

Cover Photos: © INSADCO Photography/Alamy

Cartoons: Ed McLachlan

Composition Services

Project Coordinator: Lynsey Stanford

Layout and Graphics: Carl Byers, Nikki Gately, Joyce Haughey, Christine Williams, Erin Zeltner

Proofreader: Laura Albert

Indexer: Claudia Bourbeau

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies

Ensley Eikenburg, Associate Publisher, Travel

Kelly Regan, Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings, Vice President and Publisher, Dummies Technology/General User

Composition Services

Debbie Stailey, Director of Composition Services

Introduction

First of all, we have to admit that accounting has an image problem. Be honest: What’s the first thing that pops into your mind when you see the word ‘accountant’? You probably think of a nerd wearing a bad suit. Well, we’ve never worn a bad suit, and can assure you that we’re not nerds. We own iPods, have a good sense of humour and to be honest we’re pretty normal!

This book offers a different take on accounting – one that offers new insights and perspectives. We don’t go out of our way to be contrary or confrontational, but accounting isn’t an exact science. Accounting is full of controversy and differences of opinion. In this book, we state our opinions forcefully and (we hope) clearly.

About This Book

Whether it’s a small family business or a large corporate, every business keeps track of its financial activities and its financial condition. You can’t run a business without an accounting system that tells you whether you’re making a profit or suffering a loss, whether you have enough cash to continue or your bank account balance is approaching zero, and whether you’re in good financial shape or are on the edge of bankruptcy.

Accounting Workbook For Dummies is largely about business accounting. It explains how business transactions are recorded in the accounts of a business and the financial statements that are prepared for a business to report its profit and loss, financial condition and cash flows. It also explains how business managers use accounting information for decision making. (The book doesn’t delve into business income taxation, which is the province of professional accountants.)

Most business managers have limited accounting backgrounds, and most have their enthusiasm for learning more about accounting well under control. But, deep down, they’re likely to think that they should know more about accounting. Business managers will find this book quite helpful even if they just dip their toes in.

If you’re a business bookkeeper or accountant, you can use this book to review the topics you need to know well. It can help you upgrade your accounting skills and lay the foundation for further advancement. One great thing about Accounting Workbook For Dummies is that it offers alternative explanations of accounting topics that are different from the explanations in standard accounting textbooks. The many questions and problems (with clearly explained answers) offer an excellent way to test your knowledge, and nobody knows your exam results but you.

If you’re a student presently enrolled in a beginning accounting course, you can use this book as a supplementary study guide to your textbook, one that offers many supplementary questions and exercises. Perhaps you took an accounting course a few years ago and need to brush up on the subject. This book can help you refresh your understanding of accounting and help you recall things forgotten.

Foolish Assumptions

Mastering accounting is like mastering many subjects: First, you must understand the lingo and the fundamentals. In accounting, you have to work problems to really get a grasp of the topic and technique. Passive reading just isn’t enough. In writing this book, we’ve assumed that you aren’t a complete accounting neophyte. We designed the book as a second step that builds on your basic accounting knowledge and experience. If you have no previous exposure to accounting, you may want to consider first reading Accounting For Dummies (Wiley).

You don’t have to be a maths wizard to understand accounting; basic school algebra is more than enough. However, you do have to pay attention to details, just as you have to pay close attention to the words when you study Shakespeare. Accounting involves calculations, and using a business/financial calculator is very helpful. In our experience, many people don’t take the time to learn how to use their calculators. But that’s time well spent. In many of the questions and problems posed throughout the book, we explain how to use a scientific calculator for the solution.

How This Book Is Organised

Accounting Workbook For Dummies consists of four parts that cover topics including recordkeeping basics, financial statements, accounting for business managers, and investment accounting. We wrap it all up with some advice about financial statements and tips for management accounting.

Part I: Business Accounting Basics

The general theme of the chapters in this part is how an accountant records the transactions of a business (its financial activities) in an accrual-basis accounting system and how the effects of transactions are reported in the three primary financial statements of a business – the profit and loss statement, the balance sheet and the cash flow statement. This part also includes a review of the bookkeeping cycle, from recording original entries through the adjusting and closing entries at year-end.

Part II: Preparing Financial Statements

This part examines the accounting issues and procedures involved in preparing the three primary financial statements of a business. Compared with the standard textbook approach to these topics, we put much more emphasis on the interconnections between the three financial statements. The statements fit together like a tongue-and-groove joint, and the chapters focus on these connections. This part closes with the decisions every business must make in choosing which accounting methods to use for recording profit.

Part III: Managerial, Manufacturing and Capital Accounting

This part of the book examines how managers use accounting information when making business decisions. In addition to financial statements, managers need profit models for their decision-making analysis, and accountants should take the lead in designing useful profit models for managers. This part also explains how the product cost of manufactures is determined and the difficult accounting issues involved in measuring product cost. The last chapter of this part discusses the accounting measurement of interest and return on investment. Most people have a basic understanding of interest and return on investment, but when it gets right down to a specific situation, they’re fuzzy on the details.

Part IV: The Part of Tens

Like all For Dummies books, Accounting Workbook For Dummies ends with a couple of chapters that provide tips to help you recall and apply important points sprinkled throughout the book. We provide two such chapters in this book – one being ten things you should know about business financial statements, and one being a ten-point checklist for management accountants.

Icons Used in This Book

Throughout this book, you can find useful ‘pointers’ that save you the trouble of buying a yellow highlighter pen and using sticky notes. These icons draw your attention to certain parts of the text. Think of them as road signs on your journey through accounting.

This icon marks the spot of an example question that explains and illustrates an important point. The answer follows the question. It’s a good idea to make sure that you understand the answer before attempting the additional questions on the topic. To get the most out of the example questions, don’t read the answer right away. First, try to answer the question, and then compare our answer with yours and how you got it.

This icon points out helpful information that might save time to make you a better accountant.

We use this icon to indicate that you need to bear these points in mind as you work your way through the book.

Simply put, this icon is a red flag that means ‘Watch out’. This warning sign means that the topic explained is a serious and troublesome issue in accounting, so pay close attention and handle it with care.

Where to Go from Here

Accounting Workbook For Dummies is designed to maximise modularity. Each chapter stands on its own feet to the fullest extent possible. Of course, it makes sense to read the chapters in order, but you can jump around as the spirit moves you.

You may be a business investor who’s interested in interpreting return on investment (ROI) (Chapter 12), or you may want to review manufacturing cost accounting (Chapter 11). You may be a business manager who needs to know about analysing profit behavior (Chapter 10), or you may be confused about cash flow (Chapters 7 and 8). If you’re a student studying for your first accounting exam, we suggest that you start with Part I and read the chapters in order.

In our view, a scientific calculator has become as essential as a TV remote control, and we highly recommend that you invest in one (a calculator, that is, not a remote control). Hewlett-Packard (HP) and Texas Instruments (TI) make very good ones. If you can avoid it, don’t buy the cheapest model; the next one up usually has better financial functions and a good display.

Part I

Business Accounting Basics

In this part . . .

Accountants are the scorekeepers of business. Without accounting, a business couldn’t function; it wouldn’t know whether it’s making a profit; and it wouldn’t know its financial condition. Bookkeeping – the recording-keeping part of accounting – must be done well to make sure that all the financial information needed to run the business is complete, accurate and reliable. This part of the book walks you through the basic bookkeeping cycle – from making original entries through adjusting entries, to financial statements. Before jumping into the mechanics of bookkeeping, however, we explain the financial effects and the manifold effects of sales and expenses on assets and liabilities.