Slide 2.

Chapter 2 : Measuring and Reporting Financial position

BA (Hons) Business and Financial Management Module UGB 102 Accounting for business and management

UOS @SEGi College Penang

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.2

About Myself
Master in Business Administration (USA) BA (Hons) Accounting and Financial Analysis (UK) Diploma in Education (NEC) Diploma in Business Studies major in Accounting (TARC) Previous Working Experience: 1) Full Time : Vice Principal in Chinese Independence High School 2)Part Time: KDU,DISTED,ATIC,& SEGi College part time lecturer, home and tuition center tutor. Now: Full time lecturer In SEGi College and Part Student of Doctor in Business Admin (UUM) Contact / email: tychiang@segi.edu.my; tydrew88@yahoo.com Facebook: tydrew88@yahoo.com
Prepared by Accounting TYCHIANG Peter Atrill and Eddie McLaney, and Finance for Non-Specialists, 6th Edition, Pearson Education Limited2 2008

Slide 2.3 READING LIST

The main textbook is: McLeaney, E. and Atrill, P., (2006), Accounting and Finance for NonSpecialists , 5th edition, FT/Prentice Hall

The list below indicates appropriate additional reading. As with all reading lists, you are not expected to purchase the entire list. Supporting Texts: McLeaney, E. and Atrill, P., (2002), Accounting: An Introduction, FT/Prentice Hall Davies, T. and Pain, B., (2002), Business Accounting and Finance, 2nd edition, McGraw Hill Berry, A. and Jarvis, R. (1999), Accounting in a Business Context, 3rd edition, Thompson Business Press. Glautier, M.W.E and Underdown, B., (2001), Accounting Theory and Practice, 7th edition, Prentice Hall. Holmes, Sugden, and Gee., (2004), Interpreting Company Reports and Accounts, 9th edition, Financial Times / Prentice Hall. Drury, C. (2001) Management Accounting for Business Decisions, International Thomson Business Press
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.4

Course content
Week 1 Lecture Topic Introduction to accounting: measuring and reporting the financial position: Chapter 2 of the set text. Measuring and reporting the financial position: Chapter 3 of the set text. Accounting for limited companies: Chapter 4 of the set text. Measuring and reporting cash flows: Chapter 5 of the set text. Analysing and interpreting financial statements: Chapter 6 of the set text. Cost-Volume-Profit analysis Chapter 7 of the set text Full Costing Chapter 8 of the set text

2 3 4 5 6 7

8
9 10 11 12

Budgeting Chapter 9 of the set text

Making Capital Investment Decisions Chapter 10 of the set text Financing the Business Chapter 11 of the set text Managing Working Capital Chapter 12 of the set text NO LECTURE THIS WEEK
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.5

ASSESSMENTS :

100% Exam in June (2 hours)

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.6

Exam Format

2 hours
Section A : 20 objective questions (40%)

B: Financial Ratio Analysis (30%)

C: 1)Income statement/ BS /CFS (30%)

2) Budgeting (30%) (Section c: 2 choose 1)

:
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.7

Teaching and leaning method

Number Frequency Duration

Lectures

12

One per week

1 hour

Workshops

12

One per week

2 hour

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.8

Chapter 2

Measuring and reporting financial position

LEARNING OUTCOMES You should be able to explain the nature and purpose of the three major financial statements;

prepare a simple balance sheet and interpret the information that it contains;

discuss the accounting conventions underpinning the balance sheet;

discuss the limitations of the balance sheet in portraying the financial position of a business.
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.9

The major financial statements an overview

Cash flow statement

Income statement

Balance sheet

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.10

Relationship between the balance sheet, income statement and cash flow statement
Balance sheet at the beginning of period 1 Balance sheet at the end of period 1 Balance sheet at the end of period 2

Income statement 1

Income statement 2

Cash flow statement 1

Cash flow statement 2

Period 1

Period 2

Time

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.11

Assets
Major characteristics:

A probable future benefit exists

The business has an exclusive right to control the benefit The benefit must arise from some past transaction or event The asset must be capable of measurement in monetary terms.
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.12

Claims

There are essentially two types of claim against a business:

Equity

Liabilities

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.13

The balance sheet equation

equals

plus

Assets

Equity

Liabilities

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.14

The effect of trading operations on the balance sheet

The balance sheet equation can be extended as follows:

equals

plus (minus)

plus

Assets

Equity

Profit (Loss)

Liabilities

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.15

Equity appearing on the balance sheet

Equity (owners equity) Opening balance Profit Drawings Closing balance 10,000 2,000 (1,500) 10,500

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.16

The classification of assets

The classification of assets may vary according to the nature of the business:

Current assets

Non-current assets.

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.17

The circulating nature of current assets

Inventories (stock)

Cash

Trade receivables (debtors)

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.18

The classification of claims

Current liabilities

Non-current liabilities

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.19

The equation for the standard layout

Noncurrent assets

Current assets

Equity

Noncurrent liabilities

Current liabilities

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.20

Example 2.3

Brie Manufacturing
000

Balance sheet as at 31 December 2008

Non-current assets Property Plant and equipment Motor vans Current assets Inventories Trade receivables Cash at bank Total Assets

45 30 19 94 23 18 12 53 147

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.21

Example 2.3

Brie Manufacturing (Continued)

000

Balance sheet as at 31 December 2008

Equity (owners capital) Opening balance Profit Drawings Non-current liabilities Long-term borrowings Current liabilities Trade payables Total equity and liabilities

50 14 (4) 60 50 37 147

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.22

The equation for the non-standard layout

Noncurrent assets

Current assets

Current liabilities

Noncurrent liabilities

Equity

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.23

Example 2.4
Non-current assets Property Plant and equipment Motor vans

Brie Manufacturing
000 45 30 19 94

Balance sheet as at 31 December 2008

Current assets
Inventories Trade receivables Cash at bank 23 18 12 53

Total Assets

147

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.24

Example 2.4
Non-current liabilities Long-term borrowings Current liabilities Trade payables Total liabilities Net assets

Brie Manufacturing (Continued)

000 (50) (37) (87) 60 50 14 (4) 60

Balance sheet as at 31 December 2008

Equity (owners capital)

Opening balance Profit Drawings Total equity

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.25

Accounting conventions and the balance sheet

Accounting conventions:

Business entity Historic cost Going concern Dual aspect Prudence.

Prudence: Income and assets not overstated , liabilities and fees not understated. Dual aspect: Double entry or A=C+L Business entity=separate entity
Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.26

Money measurement

Problems in measuring internally generated goodwill and brands and human resources

Normally assumed that money does not change in value over time

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008

Slide 2.27

Uses of the balance sheet

It shows how the business is financed and how these funds are deployed It can provide a basis for assessing the value of the business

Relationships between assets and claims can be assessed

Performance can be better assessed

Peter Atrill and Eddie McLaney, Accounting and Finance for Non-Specialists, 6th Edition, Pearson Education Limited 2008