Accounts Demystified, 6th edition
The Astonishingly Simple Guide to Accounting



By Anthony Rice
August 2011
Pearson Education
Distributed by Trans-Atlantic Publications Inc.
ISBN: 9780273744702
260 Pages, Illustrated
$47.50 Paper Original


An astonishingly simple guide to the fundamental principles of accounting, written specifically for those without a financial background.

Simple, easily absorbed and clearly explained, this book will guide you through all the major accounting concepts. You will learn how to master company accounts, understand balance sheets, profit and loss accounts and cash flow systems and how to analyse and monitor your company’s financial performance.

This new edition is updated throughout to incorporate changes in accounting regulations and includes a new chapter on keeping personal accounts.

Whether you manage a small company, are a trainee accountant, an entrepreneur, a business studies or MBA student, an investor on the stock market or a manager in a big corporation, you will not want to be without this definitive and user-friendly guide to the fundamental principles of accounting.

 

Contents

Preface xi

Acknowledgements xii

Prologue xiii

Introduction xv

Part 1: The basics of accounting

1 The balance sheet and the fundamental principle 3

Assets, liabilities and balance sheets 4

Sarah’s ‘personal’ balance sheet 4

The balance sheet of a company 7

The balance sheet chart 10

Summary 12

2 Creating a balance sheet 13

Procedure for creating a balance sheet 13

SBL’s balance sheet 14

The different forms of balance sheet 38

Basic concepts of accounting 40

Summary 42

3 The profit & loss account and cash flow statement 43

The profit & loss account 43

The cash flow statement 45

‘Definitive’ vs ‘descriptive’ statements 46

Summary 48

4 Creating the profit & loss account and cash flow statement 49

Creating the profit & loss account 49

Creating the cash flow statement 53

Summary 61

5 Book-keeping jargon 63

Basic terminology 63

The debt and credit convention 66

Part 2: Interpretation of accounts

6 Wingate’s annual report 75

Accounting rules 76

The reports 77

Assets 78

Liabilities 86

Shareholders’ equity 91

Terminology 93

The P&L and cash flow statement 94

The notes to the accounts 99

Summary 100

7 Further features of company accounts 101

Investments 102

Associates and subsidiaries 104

Accounting for associates 105

Accounting for subsidiaries 107

Funding 108

Debt 109

Equity 111

Revaluation reserves 113

Statement of recognised gains and losses 115

Note of historical cost profits and losses 115

Intangible fixed assets 116

Pensions 117

Leases 118

Corporation tax 121

Exchange gains and losses 121

Fully diluted earnings per share 123

Summary 125

Part 3: Analysing company accounts

8 Financial analysis – introduction 129

The ultimate goal 130

The two components of a company 133

The general approach to financial analysis 140

Wingate’s highlights 142

Summary 144

9 Analysis of the enterprise 145

Return on capital employed (ROCE) 145

The components of ROCE 148

Where do we go from here? 151

Expense ratios 152

Capital ratios 157

Summary 163

10 Analysis of the funding structure 165

The funding structure ratios 165

Lenders’ perspective 168

Gearing 170

Shareholders’ perspective 173

Liquidity 179

Summary 182

11 Valuation of companies 183

Book value vs market value 183

Valuation techniques 185

Summary 189

12 Tricks of the trade 191

Self-serving presentation 192

Creative accounting 193

Why bother? 212

Summary 214

Glossary 215

Appendix 235

Index 249



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