FINANCIAL ACCOUNTING

1 What is accounting? 1 Introduction 1 Purposes of accounting 1 A brief history 3 Types of accounting 3 Who cares anyway? The users 10 The future of financial accounting 11 Summary 13 Self-assessment questions 14 2 The statement of financial position 17 Introduction 17 The sources and applications of funds 17 The format of the statement of financial position 20 A few words about non-commercial organisations 23 What the statement of financial position tells the user 23 The alternative valuation methods 25 Statement of changes in equity 26 Summary 29 Self-assessment questions 30 3 The statement of comprehensive income 33 Introduction 33 Structure of the statement 34 The income statement part 34 Operating costs 37 The appropriation account 38 Statement of changes in equity 39 Other comprehensive income 41 Inventory valuation 42 Non-commercial organisations 46 Limited companies 48 Information technology and accounting 48 Summary 49 Self-assessment questions 50 Contents vii 4 Concepts and characteristics 53 Introduction 53 Concepts and policies 55 Accounting estimation and measurement bases 62 Revenue recognition 62 A true and fair view 63 The ‘Framework’ 64 Summary 69 Self-assessment questions 69 5 The double entry system 71 Introduction 71 The need for a double entry system 71 Double entry system – duality 73 Double entry system – account 73 Credit transactions 78 Worked example of double entry 79 Balancing off accounts 80 Trial balance 84 Statement of comprehensive income 86 Format of the statement of comprehensive income 88 Balance remaining in the books 89 Summary 92 Self-assessment questions 92 6 Adjustments, including entries in ledger accounts 96 Introduction 96 Accruals and prepayments 96 Adjustment to ledger accounts 98 Adjustments for bad and doubtful debts 103 Bad debts 103 Provision for bad debts 105 Provision for bad debts after the first year 106 Depreciation 108 Sale of non-current assets 113 Summary 115 Self-assessment questions 116 7 Preparation of statement of comprehensive income and statement of financial position from trial balance and adjustments 120 Introduction 120 Extended example 121 Summary 133 Self-assessment questions 133 8 Accounts of limited companies and other organisations 138 The need for companies 138 The company 139