Financial Accounting for Decision Makers

3 Measuring and reporting financial performance 
73
Introduction
 
73
Learning outcomes
 
73
The income statement 
74
Different roles 
75
Income statement layout 
76
Further issues 
78
Recognising revenue 
81
Recognising expenses 
84
Profit, cash and accruals accounting 
88
Depreciation 
89
Costing inventories 
98
Trade receivables problems 
104
Uses and usefulness of the income statement 
108
Self-assessment question 
108
Summary
109
Key terms
111
Further reading
111
Critical review questions
111
Exercises
112
4 Accounting for limited companies (1) 
116
Introduction
 
116
Learning outcomes
 
116
The main features of limited companies 
117
Legal safeguards 
120
Public and private companies 
120
Taxation 
122
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CONTENTS 
ix
The role of the Stock Exchange 
123
Capital market efficiency 
124
Managing a company 
126
Financing limited companies 
126
Share capital 
128
Reserves 
130
Bonus shares 
132
Share capital jargon 
134
Borrowings 
135
Raising share capital 
137
Withdrawing equity 
142
The main financial statements 
145
Dividends 
148
Self-assessment question 
150
Summary
151
Key terms
152
References
153
Further reading
153
Critical review questions
153
Exercises
154
5 Accounting for limited companies (2) 
160
Introduction
 
160
Learning outcomes
 
160
The directors’ duty to account 
161
The need for accounting rules 
162
Sources of accounting rules 
164
Problems with standards 
167
Accounting rules or accounting choice? 
169
The need for a conceptual framework 
170
The IASB framework 
171
The auditors’ role 
173
The framework of annual financial reports 
173
Presenting the financial statements 
174
Management commentary 
181
Directors’ report 
182
Strategic report 
182
Accounting standards and accounting policies 
185
Creative accounting 
189
Self-assessment question 
196
Summary
197
Key terms
199
References
199
Further reading
199
Critical review questions
199
Exercises
200
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6 Measuring and reporting cash flows 
202
Introduction
 
202
Learning outcomes
 
202
The statement of cash flows 
203
Why is cash so important? 
204
The main features of the statement of cash flows 
206
A definition of cash and cash equivalents 
206
The relationship between the main financial statements 
208
The layout of the statement of cash flows 
208
The normal direction of cash flows 
211
Preparing the statement of cash flows 
213
Reconciliation of liabilities from financing activities 
222
What does the statement of cash flows tell us? 
222
Problems with IAS 7 
225
Self-assessment question 
225
Summary
227
Key terms
228
Reference
228
Further reading
228
Critical review questions
229
Exercises
229