ACC 40630: 2016/17

Accounting Information for Managers

These references are for students using

the 7th edition version of Accounting, An Introduction by E. McLaney and P.Atrill.

SUMMARY SCHEDULE OF TOPICS

Topic Description

1 Introduction.
Objectives of accounting
Distinction between financial and management accounting
An introduction to the three main financial statements
Contemporary issues

2 The Statement of Financial Position

The basic accounting equation
Classified statement of financial position
The impact of basic transactions on the statement of financial position
The application of accounting conventions

3 The Income Statement

The extended accounting equation
The application of revenue recognition, matching and accruals
The classified income statement
Depreciation, inventory valuation and doubtful debts

4 Analysing and Interpreting Financial Statements

Techniques for the analysis of financial statements
Basic and advanced ratio analysis
Interpretation of ratio analysis
Strengths and weaknesses of ratio analysis

5 Selected Topics in Corporate Financial Reporting

Corporate financial statements
Accounting for groups
Creative accounting
The statement of cash flow

6 Cost-Volume-Profit Analysis
 Understand cost behaviour
Break-even analysis
Margin of safety, profit targets and operational gearing
Use of contribution approach in decision-making

7 Budgeting
Understand the nature of the budgetary process
Discuss the benefits of budgetary control
Describe the budget setting process
Have an awareness of how budgets operate in practice
Prepare a cash and other budgets
Have an awareness of contemporary issues in budgeting

8 Accounting for Control

The importance of internal performance analysis
Calculation of key variances
Interpretation of variances
Behavioural issues in budgeting

9 Revision

The Detailed Schedule of Topics/Readings Follows.

As above, this schedule is provisional. Changes may be made

depending on progress etc. Any changes will be announced in
class and on Blackboard.
 TOPIC 1:
Introduction to accounting

Recommended Reading:
Topic 1 slides and notes on Blackboard
McLaney & Atrill (MLA): All of Chapter 1
MLA: Chapter 4: pages 117-122
MLA: Chapter 5: page 155 and pages 169-170
MLA: Chapter 5: pages 174-180

When you have completed this topic you should be able to:

Explain the nature and scope of accounting and its interrelationship with other disciplines
Identify the primary user groups of accounting information
Comment on the extent to which contemporary accounting information is useful
Identify the key characteristics of useful information from an accounting perspective
Differentiate between financial accounting and management accounting
Understand some of the key challenges facing accounting in the 21st century
Explain the main alternative forms of business organisations and their key characteristics
Discuss the main financial objectives of business organisations
Understand the roles of auditors and directors in the reporting process
 DETAILED GUIDE:

TOPIC 1 Introduction to Accounting

KEY ISSUES & ASSOCIATED READING

Issue 1.1: Definition of accounting and distinction between accounting and finance:
MLA pages 1-3

Issue 1.2: Users of accounting Information: MLA pages 3-5

Issue 1.3: The usefulness of accounting information: MLA pages 5-11

Issue 1.4: Accounting as an information system: MLA pages 11-12

Issue 1.5: Distinguishing between financial and management accounting: MLA pages
13-15

Issue 1.6: An overview of some contemporary issues in accounting: MLA pages 15-16
and pages 174-180

Issue 1.7: Types of business organisation and their key characteristics: MLA pages 19-
24 and pages 117-122

Issue 1.8: The objectives of business organisations: MLA pages 18-19 and pages 25-29

Issue 1.9: The roles of directors and auditors in the financial reporting process: MLA
page 155 and pages 169-170.

KEY NUMERICAL COMPETENCIES:

There are no required numerical competencies with respect to this

topic.
 TOPIC 2:

The Statement of Financial Position

Recommended Reading:
Topic 2 notes on blackboard.
MLA: All of Chapter 2

Recommended problems/exercises to be done:

Review Questions 2.1 to 2.4 & Exercises 2.1 to 2.7 at the end of Chapter 2 of MLA
Solutions to the exercises will be posted on Blackboard but you should always attempt
the questions in advance first

When you have completed this topic you should be able to:

Understand the basic purposes of the three main financial statements.

Understand the basic accounting equation and the extended accounting equation
Prepare a classified statement of financial position
Show the impact of basic transaction on the classified statement of financial position
Explain the fundamental accounting conventions underlying the statement of financial
position
Discuss in detail the impact of the fundamental accounting conventions on the statement
of financial position
Comment on the usefulness of the statement of financial position
 DETAILED GUIDE:

TOPIC 2 - The Statement of Financial Position

KEY ISSUES & ASSOCIATED READING

Issue 2.1: An overview of the three main financial statements: MLA pages 38-42

Issue 2.2: The statement of financial position and the basic accounting equation: MLA
pages 42-47

Issue 2.3: The effect of trading transactions and the extended accounting equation:
MLA pages 48-49

Issue 2.4: The classified statement of financial position : MLA pages 50-54

Issue 2.5: Accounting conventions and their impact on the financial statements: MLA
pages 55-67

Issue 2.6: The usefulness of the statement of financial position: MLA page 68

KEY NUMERICAL COMPETENCIES:

Prepare basic financial statements for simple transactions

(Exercise 2.3)
Prepare a classified statement of financial position (Exercise 2.4
and 2.5)
Prepare a classified statement of financial position after some
basic transaction (Exercise 2.7)
 TOPIC 3:

The Income Statement

Recommended Reading:
Topic 3 notes and slides on blackboard.
MLA: All of Chapter 3

Recommended problems/exercises to be done:

Review Questions 3.1 to 3.4 & Exercises 3.1 to 3.7 at the end of Chapter 3 of MLA
Solutions to the exercises will be posted on Blackboard but you should always attempt
the questions in advance first

When you have completed this topic you should be able to:

Explain the terms: revenue and expense

Understand the conventions underlying the Income Statement
Understand the terms accruals and prepayments and perform relevant calculations
Explain the distinction between accounting profit and cash flow
Understand the purpose of depreciation and perform relevant calculations
Understand alternative methods of inventory costing and perform relevant calculations
Understand the treatment of bad debts and allowance for trade receivables and perform
relevant calculation
Prepare a classified Statement of Financial Position and Income Statement after
adjustments
Comment on the usefulness of the income statement
 DETAILED GUIDE:

TOPIC 3 - The Income Statement

KEY ISSUES & ASSOCIATED READING

Issue 2.1: The nature and purpose of the income statement: MLA pages 76-78

Issue 2.2: Preparation of a classified income statement: MLA pages 78-82

Issue 2.3: Revenue recognition: MLA pages 83-85

Issue 2.4: Expense recognition: including matching, accruals and prepayments: MLA
pages 86-89

Issue 2.5: Distinguishing between profit and cash flow: MLA pages 90

Issue 2.6: The nature and purpose of depreciation: MLA pages 90-98

Issue 2.7: Inventory costing approaches: MLA pages 99-104

Issue 2.8: Bad debts and allowance for trade receivables: MLA pages 106-108

Issue 2.9: Usefulness of the income statement: MLA: page 108

Issue 2.10: Preparation of a classified statement of financial position and income

statement after some transactions: all of chapters 2 and 3

KEY NUMERICAL COMPETENCIES:

Prepayments and accruals ( Exercise 3.5)

Depreciation (Exercise 3.2)
Inventory (Exercise 3.4)
Prepare a classified statement of financial position and income
statement after relevant adjustments (Exercise 3.6 and Exercise
3.7)
 TOPIC 4:

Analysing and interpreting financial

statements
Recommended Reading:
Topic 4 notes and slides on blackboard.
Chapter 7 MLA: All except pages 267-271

Recommended problems/exercises to be done:

Exercises 7.1 to 7.8 at the end of Chapter 7 of MLA
Solutions to the exercises will be posted on Blackboard but you should always attempt
the questions in advance first

When you have completed this topic you should be able to:

Understand the nature and purpose of financial ratios

Understand the importance of performing a general overview of corporate performance
Calculate and interpret financial ratios for analyzing: (i) profitability (ii) efficiency (iii)
gearing (iv) working capital management (v) performance from an investor perspective
(vi) cash flow
Comment on the meaning of ratios both individually and in conjunction with one another
Understand the limitations of ratio analysis
 DETAILED GUIDE

TOPIC 4 Analysing and Interpreting Financial Statement

KEY ISSUES & ASSOCIATED READING

Issue 4.1: The nature and purpose of financial ratios: MLA pages 228-232

Issue 4.2: An overview of financial performance: MLA pages 234

Issue 4.3: Calculation and interpretation of financial ratios: 235-266

Issue 4.4: Limitations of ratio analysis: pages 272-274

KEY NUMERICAL COMPETENCIES:

Calculation of all relevant financial ratios (Exercises 7.4 and 7.5).

Note, ratio formulas will NOT be provided in the exam.
 TOPIC 5:

Selected Topics in Corporate Financial

Reporting

Recommended Reading:
Topic 5 notes and slides on blackboard.
Chapter 4 MLA: pages 137-144
Chapter 5 MLA: pages 174-180
Chapter 6 MLA: pages 196-205

When you have completed this topic you should be able to:

Have an awareness of the wide range of information contained in corporate financial

statements
Understand how corporate financial statements differ from those of sole traders
Understand the concepts underlying group accounting
Understand the terms goodwill and non-controlling interest
Describe some of the major forms of creative accounting
Understand the information contained in a classified statement of cash flow
 DETAILED GUIDE

TOPIC 5 Selected Topics in Corporate Financial Reporting

KEY ISSUES & ASSOCIATED READING

Issue 5.1: Corporate financial statements - an overview: MLA pages 137-140

Issue 5.2: Accounting for groups: MLA pages 140-144

Issue 5.3: Creative accounting: MLA pages 174-180

Issue 5.4: An overview of the statement of cash flow: MLA pages 196-205

KEY NUMERICAL COMPETENCIES:

There are no required numerical competencies with respect to this

topic.
 TOPIC 6:

Cost-Volume Profit Analysis

Recommended Reading:
Topic 6 notes and slides on blackboard.
Chapter 9 MLA

Recommended problems/exercises to be done:

Review Questions 9.1 to 9.4 & Exercises 9.1 to 9.7 at the end of Chapter 9 of MLA
Solutions to the exercises will be posted on Blackboard but you should always attempt
the questions in advance first

When you have completed this topic you should be able to:

Understand the nature of cost behaviour

Calculate the break-even point
Calculate margin of safety, operational gearing and required sales to meet a profit target
Understand economists perspectives on break-even
Discuss the weaknesses of break-even analysis
Apply the principles of contribution analysis to specific decision-making contexts such as
make or buy decisions and limiting factor analysis
 DETAILED GUIDE

TOPIC 6 Cost-Volume Profit Analysis

KEY ISSUES & ASSOCIATED READING

Issue 6.1: Cost behaviour: MLA pages 310-315

Issue 6.2: Calculating break-even: MLA pages 315-322

Issue 6.3: Extensions: margin of safety, target profit and operational gearing: MLA
pages 322-327

Issue 6.4: Economists perspectives on break-even: MLA pages 328 - 329

Issue 6.5: Weaknesses of break-even analysis: MLA pages 330-333

Issue 6.6: Decision making using contribution analysis MLA pages 333-342

KEY NUMERICAL COMPETENCIES:

Calculation of break-even (Exercise 9.1 & 9.2)

Contribution analysis in decision-making (Exercises 9.3 and 9.4)
 TOPIC 7:

Budgeting

Recommended Reading:
Topic 7 notes and slides on blackboard.
Chapter 12 MLA

Recommended problems/exercises to be done:

Review Questions 12.1 to 12.4 & Exercises 12.1 to 12.7 at the end of Chapter 12 of MLA
Solutions to the exercises will be posted on Blackboard but you should always attempt
the questions in advance first

When you have completed this topic you should be able to:

Understand the nature of the budgetary process

Discuss the benefits of budgetary control
Describe the budget setting process
Have an awareness of how budgets operate in practice
Prepare a cash budget
Prepare other budgets
Have an awareness of contemporary issues in budgeting
 DETAILED GUIDE

TOPIC 7 Budgeting

KEY ISSUES & ASSOCIATED READING

Issue 7.1: An overview of the budgeting process: MLA pages 445-453

Issue 7.2: The benefits of budgetary control: MLA pages 453-455

Issue 7.3: The budget setting process: MLA pages 455-458

Issue 7.4: Budgeting in practice: MLA pages 459-462

Issue 7.5: The cash budget: MLA pages 463-466

Issue 7.6: Other budgets: MLA pages 466-469

Issue 7.7: Contemporary issues in budgeting: MLA pages 469-478

KEY NUMERICAL COMPETENCIES:

Calculation of cash budget (Exercise 12.4)

Calculation of other key budgets (Exercise 12.5-12.7)
 TOPIC 8:

Accounting for Control

Recommended Reading:
Topic 8 notes and slides on blackboard.
Chapter 13 MLA

Recommended problems/exercises to be done:

Review Questions 13.1 to 13.4 & Exercises 13.1 to 13.7 at the end of Chapter 13 of MLA
Solutions to the exercises will be posted on Blackboard but you should always attempt
the questions in advance first

When you have completed this topic you should be able to:

Understand the nature of the control process

Understand the importance of internal performance evaluation
Calculate a range of key variances
Reconcile budged to actual profit using variance analysis
Explain potential reasons why each variance may arise
Understand the variance investigation process
Understand the influence of behavioural issues on the control process
Understand the nature of standard costing systems
 DETAILED GUIDE

TOPIC 8 Accounting for Control

KEY ISSUES & ASSOCIATED READING

Issue 8.1: An overview of the control process: MLA pages 489-491

Issue 8.2: Variance analysis: MLA pages 491-507

Issue 8.3: When to investigate variances: MLA pages 507-511

Issue 8.4: Effective control and behavioural issues: MLA pages 511-515

Issue 8.5: Standard costing: MLA pages 515-523

KEY NUMERICAL COMPETENCIES:

A full set of calculations reconciling budgeted to actual profit

(Exercises 13.3 - 13.6)