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Accounting For Managers: Interpreting Accounting Information for Decision-Making, 4th Edition

Accounting For Managers Interpreting Accounting Information for Decision-Making, 4th Edition

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9781119979678
  • Published In: February 2012
  • Format: Paperback , 580 pages
  • Jurisdiction: International or US ? Disclaimer:
    Countri(es) stated herein are used as reference only

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  • Contents 
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    Updated and revised, the new fourth edition of Accounting for Managers builds on the international success of the previous editions in explaining how accounting is used by non-financial managers.

    Emphasizing the interpretation rather than the construction of accounting information, Accounting for Managersencourages a critical, rather than an unthinking acceptance of accounting techniques. Whilst immensely valuable for planning, decision-making and control, users of accounting information need to recognize the assumptions behind, and the limitations of particular accounting techniques.  As in the previous editions, Accounting for Managers links theory with practical examples and case studies drawn from real business situations across a wide range of manufacturing, retail and service industries.

    New to this Edition:

    • New content explaining linkages between financial and management accounting
    • Updated content on global financial crisis
    • Updated coverage of IFRS
    • Expanded treatment of ethics & CSR
    • Chapter 17 on budgetary control will be simplified
    • Includes 2010 Corporate Governance Code

     

    Features:

    • Emphasizes the interpretation rather than the construction of accounting information
    • Helps readers achieve a better understanding of the role played by accounting and how it affects organizations and business units
    • Links theory with practical examples and case studies drawn from real business situations across a wide range of manufacturing, retail and service industries
    • Encourages a critical rather than an un-thinking acceptance of accounting techniques
    • Enables students to recognize the assumptiojns behind and the limitations of particular accounting techniques
    • Includes 4 readings from the accounting literature that support the most important concepts in the book
  • Preface to the Fourth Edition xvii

    About the Author xxi

    Acknowledgements xxii

    PART I Context of Accounting 1

    1 Introduction to Accounting 3

    Accounting, accountability and the account 3

    Introducing the functions of accounting 5

    A short history of accounting 6

    The role of financial accounting 7

    The role of management accounting 8

    Recent developments in accounting 10

    The relationship between financial accounting and management accounting 12

    A critical perspective 13

    Conclusion 15

    References 15

    Questions 16

    2 Accounting and its Relationship to Shareholder Value and Corporate Governance 17

    Capital and product markets 17

    Shareholder value-based management 18

    Shareholder value, strategy and accounting 21

    Company regulation and corporate governance 23

    The regulation of companies 23

    Corporate governance 23

    Principles of corporate governance 24

    Responsibility of directors 24

    Audit 25

    Audit committees 25

    Stock Exchange Listing Rules 26

    Risk management, internal control and accounting 26

    A critical perspective 27

    Conclusion 28

    References 28

    Websites 28

    Questions 29

    3 Recording Financial Transactions and the Principles of Accounting 30

    Business events, transactions and the accounting system 30

    The double entry: recording transactions 31

    Extracting financial information from the accounting system 35

    Basic principles of accounting 37

    Accounting entity 37

    Accounting period 37

    Matching principle 38

    Monetary measurement 38

    Historic cost 38

    Going concern 39

    Conservatism 39

    Consistency 39

    Cost terms and concepts: the limitations of financial accounting 39

    Conclusion 41

    References 41

    Questions 42

    4 Management Control, Accounting and its Rational-Economic Assumptions 44

    Management control systems 44

    Planning and control in organizations 47

    Non-financial performance measurement 51

    A theoretical framework for accounting 55

    Conclusion 56

    References 56

    Websites 58

    5 Interpretive and Critical Perspectives on Accounting and Decision Making 59

    Research and theory in management control and accounting 60

    Alternative paradigms 62

    The interpretive paradigm and the social construction perspective 65

    Culture, control and accounting 67

    The radical paradigm and critical accounting 68

    Power and accounting 70

    Case study 5.1: easyJet 71

    Ethics and accounting 74

    Case study 5.2: Enron 76

    Case study 5.3: WorldCom 77

    Conclusion 77

    References 78

    PART II The Use of Financial Statements for Decision Making 81

    6 Constructing Financial Statements: IFRS and the Framework of Accounting 83

    International Financial Reporting Standards (IFRS) 84

    Framework for the Preparation and Presentation of Financial Statements 85

    Objectives of financial statements 86

    Qualitative characteristics of financial statements 86

    Elements of financial statements 87

    Concepts of capital maintenance 88

    True and fair view 88

    Reporting profitability: the Statement of Comprehensive Income 89

    Reporting financial position: the Statement of Financial Position 92

    Accruals accounting 94

    Depreciation 95

    Specific IFRS accounting treatments 97

    Accounting for sales taxes 98

    Accounting for goodwill and impairment testing 98

    Accounting for research and development expenditure 99

    Accounting for leases 99

    Reporting cash flow: the Statement of Cash Flows 100

    Differences between the financial statements 102

    Illustration 102

    A theoretical perspective on financial statements 103

    Agency theory 104

    A critical perspective on financial statements and accounting standards 105

    Conclusion 105

    Reference 106

    Websites 106

    Appendix: IFRS as at 1 January 2011 106

    Questions 107

    7 Interpreting Financial Statements 111

    Annual Reports 111

    The context of financial statements 113

    Ratio analysis 113

    Profitability 115

    Return on (shareholders’) investment (ROI) 115

    Return on capital employed (ROCE) 115

    Operating margin (or operating profit/sales) 116

    Gross margin (or gross profit/sales) 116

    Overheads/sales 116

    Sales growth 116

    Liquidity 117

    Working capital 117

    Acid test (or quick ratio) 117

    Gearing 117

    Gearing ratio 117

    Interest cover 117

    Activity/efficiency 118

    Asset turnover 118

    Working capital 119

    Managing receivables 119

    Managing inventory 120

    Managing payables 121

    Managing working capital 121

    Shareholder return 122

    Dividend per share 122

    Dividend payout ratio 122

    Dividend yield 122

    Earnings per share (EPS) 123

    Price/earnings (P/E) ratio 123

    The relationship between financial ratios 123

    Interpreting financial statements using ratios 125

    Profitability 125

    Liquidity 126

    Gearing 126

    Activity/efficiency 126

    Shareholder return 126

    Using the Statement of Cash Flows 127

    Case study 7.1: HMV Group – interpreting financial statements 127

    Limitations of ratio analysis 135

    Case study 7.2: Carrington Printers – an accounting critique 135

    Alternative theoretical perspectives on financial statements 138

    Intellectual capital 138

    Institutional theory 139

    Corporate social responsibility 140

    Sustainability and the ‘triple bottom line’ 141

    Global Reporting Initiative 142

    Applying different perspectives to financial statements 142

    Conclusion 143

    References 144

    Website 144

    Questions 144

    8 Accounting for Inventory 152

    Introduction to inventory 152

    Flow of costs 153

    Cost formulas for inventory 153

    Inventory valuation under the weighted average method 154

    Inventory valuation under FIFO 155

    Retail method 155

    Net realizable value 156

    Methods of costing inventory in manufacturing 156

    Long-term contract costing 159

    Management accounting statements 161

    Conclusion 162

    Questions 162

    PART III Using Accounting Information for Decision Making, Planning and Control 167

    9 Accounting and Information Systems 169

    Introduction to accounting and information systems 169

    Methods of data collection 170

    Types of information system 171

    Business processes 173

    Internal controls for information systems 174

    Developing information systems 176

    Conclusion 177

    References 177

    10 Marketing Decisions 178

    Marketing strategy 178

    Cost behaviour 180

    Costvolumeprofit analysis 181

    Breakeven with multiple products 185

    Operating leverage 186

    Limitations of CVP analysis 187

    Alternative approaches to pricing 188

    Cost-plus pricing 188

    Target rate of return pricing 189

    Optimum selling price 189

    Special pricing decisions 190

    Transfer pricing 192

    Segmental profitability 192

    Case study 10.1: Retail Stores plc – the loss-making division 194

    Customer profitability analysis 196

    Case study 10.2: SuperTech – using accounting information to win sales 198

    Conclusion 199

    References 199

    Questions 200

    11 Operating Decisions 203

    The operations function 203

    Managing operations manufacturing 205

    Managing operations services 207

    Accounting for the cost of spare capacity 208

    Capacity utilization and product mix 209

    Theory of Constraints 211

    Operating decisions: relevant costs 212

    Make versus buy? 212

    Equipment replacement 213

    Relevant cost of materials 214

    Total quality management and the cost of quality 217

    Environmental cost management 218

    Case study 11.1: Quality Printing Company – pricing for capacity utilization 218

    Case study 11.2: Vehicle Parts Company – the effect of equipment replacement on costs and prices 220

    Case study 11.3: Quality and waste at Planet Engineering 222

    Conclusion 223

    References 223

    Questions 224

    12 Human Resource Decisions 228

    Human resources and accounting 228

    The cost of labour 229

    Relevant cost of labour 231

    Case study 12.1: The Database Management Company – labour costs and unused capacity 234

    Case study 12.2: Trojan Sales – the cost of losing a customer 236

    Conclusion 238

    References 238

    Questions 238

    13 Overhead Allocation Decisions 243

    Cost classification 243

    Product and period costs 243

    Direct and indirect costs 245

    The overhead allocation problem 247

    Shifts in management accounting thinking 248

    Alternative methods of overhead allocation 250

    Variable costing 250

    Absorption costing 251

    Over- or under-recovery of overhead 255

    Activity-based costing 256

    Differences between absorption and activity-based costing 258

    Contingency theory 260

    International comparisons 261

    Management accounting in Japan 262

    Behavioural implications of management accounting 263

    Case study 13.1: Tektronix Portables division 266

    Case study 13.2: Quality Bank – the overhead allocation problem 267

    Conclusion 269

    References 269

    Questions 271

    14 Strategic Investment Decisions 276

    Strategy 276

    Capital expenditure evaluation 277

    Accounting rate of return 279

    Payback 281

    Discounted cash flow 282

    Net present value 282

    Internal rate of return 284

    Comparison of techniques 285

    Case study 14.1: Goliath Co. – investment evaluation 286

    Conclusion 288

    References 288

    Appendix: Present value factors 288

    Questions 290

    15 Performance Evaluation of Business Units 293

    Structure of business organizations 293

    The decentralized organization and divisional performance measurement 296

    Absolute profit 296

    Return on investment 297

    Residual income 297

    Controllability 298

    Case study 15.1: Majestic Services – divisional performance measurement 299

    Transfer pricing 302

    Transaction cost economics 304

    Conclusion: a critical perspective 305

    References 306

    Questions 307

    16 Budgeting 310

    What is budgeting? 310

    The budgeting process 311

    The profit budget 313

    Case study 16.1: Superior Hotel – service budget example 314

    Case study 16.2: Sports Stores Co-operative Ltd – retail budget example 316

    Case study 16.3: Telcon Manufacturing – manufacturing budget example 317

    Cash forecasting 319

    Case study 16.4: Retail News Group – cash forecasting example 320

    A behavioural perspective on budgeting 323

    A critical perspective: beyond budgeting? 325

    Case study 16.5: Svenska Handelsbanken – is budgeting necessary? 326

    Conclusion 327

    References 328

    Questions 328

    17 Budgetary Control 333

    What is budgetary control? 333

    Flexible budgeting 334

    Variance analysis 335

    Case study 17.1: Wood’s Furniture Co. – variance analysis example 336

    Sales variance 338

    Cost variances 339

    Materials variance 340

    Labour variance 342

    Overhead variances 344

    Reconciling the variances 345

    Criticism of variance analysis 346

    Cost control 347

    Applying different perspectives to management accounting 348

    Conclusion 349

    References 349

    Questions 350

    18 Strategic Management Accounting 354

    Strategic management accounting 354

    Accounting techniques to support strategic management accounting 357

    Value chain and supply chain management 357

    Human resource accounting 358

    Activity-based management 358

    Lifecycle costing 360

    Target costing 361

    Kaizen costing 362

    Just-in-time 362

    Backflush costing 363

    Lean production and lean accounting 363

    Case study 18.1: TNA and strategic management accounting 365

    Conclusion 367

    References 368

    Further reading 368

    Books 369

    Articles published in the following journals 369

    PART IV Supporting Information 371

    Introduction to the Readings 373

    Reading A 375

    Questions 375

    Further reading 375

    A Cooper and Kaplan (1988). How cost accounting distorts product costs 376

    Reading B 388

    Questions 388

    Further reading 388

    B Otley, Broadbent and Berry (1995). Research in management control: an overview of its development 389

    Reading C 407

    Questions 407

    Further reading 407

    C Covaleski, Dirsmith and Samuel (1996). Managerial accounting research: the contributions of organizational and sociological theories 408

    Reading D 439

    Questions 439

    Further reading 439

    D Dent (1991). Accounting and organizational cultures: a field study of the emergence of a new organizational reality 440

    Glossary of Accounting Terms 471

    Solutions to Questions 485

    Index 543

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