Chapter 1 Solutions - accountability. Accounting is a collection of s...

Chapter 1 Solutions 1.1 Explain the difference between accounting, an account, and accountability.Accounting is a collection of systems and processes used to record, report and interpret business transactions. An account is an explanation or report in financial terms about those transactions. Accountability arises from the stewardship function, that managers have to provide an account to other stakeholders in the business.

1.2 Summarise the main activities of management accountants.The main activities of management accountants includes participation in planning, primarily through budgets; generating, analysing, presenting and interpreting information to support decision-making, and monitoring and controlling performance.

1.3 Explain how the role of management accounting has changed over the last 100 years.The origin of management accounting was cost accounting in factories, where accountants were close to the business and advised non-financial managers.Management accountants have advised on economies of scale as well as of scope as businesses grew and diversified as divisionalization, conglomerates and multinational organizations increased the demand for accounting information. Non-financial performance information has come to challenge management accounting information. Although new techniques have been developed, new manufacturing technologies and the growth of service industries has not been matched by the changing role of management accountants. Management accounting is increasingly decentred in organizations, with IT carrying out the bulk of routine transaction processing.Organizations are increasingly looking for management accountants to use their financial expertise to contribute to strategy formulation and implementation.Accounting For Managers Interpreting Accounting Information for Decision Making 4e Paul M. Collier (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) Missing Chapters (4, 5, 9) By Publisher 1 / 4

Chapter 2 Solutions

2.1 Explain the idea of value-based management and how shareholder value relates to the interaction between product and capital markets.Value-based management uses a variety of techniques to measure increases in shareholder value, which is assumed to be the primary goal of all business organizations. Shareholder value refers to the economic value of an investment by discounting future cash flows to their present value using the cost of capital for the business. To achieve shareholder value, a business must generate profits in their markets for goods and services (product markets) that exceed the cost of capital (the weighted average cost of equity and borrowings) in the capital market.

2.2 Explain the key issues in corporate governance as they relate to accounting.The responsibilities of the Board include setting the company’s strategic goals, providing leadership to senior management, monitoring business performance and reporting to shareholders. The last two of these explicitly relate to accounting, and the first two implicitly do so. In the UK the Combined Code and in the US the Sarbanes-Oxley Act include important responsibilities of the Board in relation to financial statements and performance management. The role of a Board is to provide leadership of the company within a framework of prudent and effective controls which enables risk to be assessed and managed.These controls include many accounting controls including budgets, capital expenditure evaluations, etc. The financial reports of a company are the responsibility of the Board which must ensure that the company keeps proper accounting records which disclose with reasonable accuracy the financial position of the company at any time and ensure that financial reports comply with the Companies Act. The Board is also responsible for safeguarding the company’s assets and for taking reasonable steps to prevent and detect fraud.

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Chapter 3 Solutions

3.1 An accounting system comprises accounts that can be grouped into:

• assets, liabilities, income and expenses

3.2 A transaction to record the sale of goods on credit would involve a double

entry for the sales value to the following accounts:

• increase debtors and increase sales

Note there also is an associated entry for the cost of goods sold: increase cost of sales and reduce inventory

3.3 A retail business has sales of £100,000 cost of goods sold of £35,000 salaries of £15,000 rental of £4,000 and advertising of £8,000. All of the income and expenses have been paid out of the owner’s initial capital of £25,000. In addition, the business paid cash of £30,000 for stock (which remains unsold) and purchased equipment on credit for £20,000. The

financial statements of the business would show:

b) Profit of £38,000 cash of £33,000 and capital of £63,000

Profit Sales 100,000 Cost of sales -35,000 Salaries -15,000 Rent - 4,000 Advertising - 8,000

£38,000

Cash Capital £25,000 Plus profit 38,000

• Inventory -30,000

£33,000

Capital Initial £25,000 Plus profit 38,000

£63,000

Assets Cash 33,000 + Equipment 20,000 + Inventory 30,000 = 83,000 Liabilities Creditors (Equipment) 20,000 + Capital 63,000 = 83,000

3.4 A Balance Sheet shows liabilities of £125,000 and assets of £240,000. The Income Statement shows income of £80,000 and expenses of £35,000.

Capital is:

• £115,000 3 / 4

Capital = assets – liabilities = 240,000 – 125,000 = 115,000

3.5 A transaction to record the purchase of fixed assets on credit would

involve:

• increasing creditors and increasing fixed assets

3.6 For each of the following transactions, identify whether there is an

increase or decrease in profit, cash flow, assets or liabilities:

Transaction Profit Income - Expenses Cash Flow Assets (excluding cash) Liabilities Issues shares to public Increases Increases (Equity) Borrows money over 5 years Increases Increases (Long term debt) Pays cash for equipment Decreases Increases (Fixed asset)

Buys inventory on credit Increases (Current

asset: stock)

Increases (Current

liability:

creditors) Sells goods on credit Increases (Selling price less cost price)

• Increases

(Current

asset: debtors

@ selling price)

• Decreases

(Current

asset: stock @

cost price)

Pays cash for salaries, rent, etc.Decreases (Expenses) Decreases Pays cash to suppliers Decreases Decreases (Current

liability:

Creditor) Receives cash from customers Increases Decreases (Current

asset: debtors

Depreciates equipment Decreases (Depreciation expense) Decreases (Fixed assets)

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