Introduction to Accounting

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Pru Marriott, J.R. Edwards & H.J. Mellett

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    Dedication

    for Hannah and Joe

    Series Editor's Preface

    One of the favourite ploys used by marketing departments is to re-launch the same, unchanged product as ‘new and improved or ‘best ever’. The publication of an Introduction to Accounting, 3rd edition might indicate that something similar could be said about this book. However, in this instance there really are several major changes from the second edition, which are intended to appeal to a new generation of readers.

    Most notably, Introduction to Accounting, has a new author, Pru Marriott, to complement the talents of John Edwards and Howard Mellett and to provide a fresh perspective on the contribution an introductory textbook can make to current learning and teaching methods. Increasingly, students expect regular feedback from their teachers on their academic progress and modern textbooks must provide a similar response to their readers. It is in this context that the authors have included in each chapter ‘activities’ that are designed to give students practice in applying the concepts and techniques described in the text. Students are then able to assess their own progress in achieving the learning outcomes against the solutions at the end of the chapter. In addition, the authors have also provided a set of professional examination questions for each topic that can be used as formative assessment in preparation for formal examinations.

    The third edition of Introduction to Accounting also reflects the recent developments in financial reporting, and in particular the impact of some of the most important accounting standards published since the second edition. Detailed discussion of FRS3 Reporting financial performance and FRS10 Goodwill and intangible fixed assets have contributed to the increase in the size of the chapter on Company Accounts, making it the largest chapter in the book. Similarly, the importance of understanding financial accounts for the decisions of investors, lenders and creditors has been reflected in a major revision and expansion of the material in the chapter on Interpretation of Accounts.

    There is one aspect of the book that has not changed, and that is the authors' highly readable style that has made the previous two editions so popular. The authors have a real knack of explaining the concepts and techniques of accounting in a way that appeals both to students on specialist accountancy courses and to students taking accounting as an option in a business studies or management course. Introduction to Accounting has already stood the test of time, and this ‘new and improved’ third edition will ensure that it remains one of the best, if not the ‘best ever’ introductory textbooks on accounting.

    MichaelShererUniversity of Essex

    Preface

    Recent years have seen an increasing interest in the study of accounting, both as a subject in its own right and as an adjunct to other disciplines, such as engineering, law and medicine. This trend reflects recognition of the fact that the financial aspects of human enterprise cannot be ignored; the activities of almost any undertaking have financial consequences that should be measured and controlled, and this requires the involvement of someone versed in the appropriate techniques. However, it must be remembered that the operation of an accounting system is itself neutral, and the financial information produced has to be interpreted and its relevance weighed, alongside other considerations, before decisions are made. This process requires that the users of accounting information understand what lies behind it and the extent of its uses and limitations.

    The authors have produced this book to provide an introduction to accounting that embraces the basic techniques and the underlying theoretical concepts and shows how these are applied in various circumstances. It is designed to meet the needs of both the non-specialist and those intending to specialize in accounting at undergraduate and postgraduate levels. To meet these objectives the text is fully illustrated with worked examples which are reinforced with student activities and end-of-chapter questions. Solutions to all activities are given at the end of each chapter and just over half of the answers to the end-of-chapter questions are provided in the Appendix at the end of the book. The remaining solutions to the end-of-chapter questions are included on the Sage website at: http://www.sagepub.co.uk/resources/marriott.htm

    Questions in the book have been taken from the papers of the following examining bodies: AAT, AEB (now OCR), ACCA and ICSA. We gratefully acknowledge permission granted by these bodies to reproduce the questions contained in this text; the contents of the solutions are entirely our responsibility.

    The book has been designed to be read in chapter order, and readers are advised to follow this; however, a number of chapters can be bypassed by the non-specialist. The chapters dealing with the complexities of double entry bookkeeping and more technical issues (Chapters 5, 6, 7 and 9) may be less relevant to those studying business studies, engineering, law, etc. The remaining chapters are not dependent on the student having a full understanding of these topics.

    The first three chapters introduce the subject, the balance sheet and the calculation of profit as an increase in the value of an enterprise. Chapter 4 examines one of the most basic records, that of cash received and paid, and shows how its contents are converted into a comprehensive set of accounting statements. Chapters 57 cover the accounting process based on the double entry system of book-keeping from the initial record of each transaction through to the production of a final report. By this stage the reader should have grasped the underlying techniques, and Chapter 8 discusses the more subjective areas of asset valuation and profit measurement. Chapters 9 and 10 consider the application of accounting theory and techniques to specific forms of enterprise, namely partnerships and limited companies. Chapters 11 and 12 deal with the role of the cash flow statement and ratio analysis in the interpretation of financial information. Chapters 13 and 14 focus on aspects of costing relevant to an introductory text on accounting; specifically, the calculation of total cost, the use of costs as the basis for decision-making and the operation of systems of standard costing and budgetary control. When the second edition was written it incorporated major changes designed to improve and update the original work. This third edition is a continuation of this evolutionary process. This version naturally includes numerous minor changes to modernize the work. The major revisions compared with the second edition are as follows:

    • Chapter 10 incorporates the developments in reporting financial performance and the treatment of goodwill and intangible fixed assets and discusses the issue of research and development activities.
    • Chapter 11 on the cash flow statement now deals with the changes introduced by FRS 1 (revised).

    The authors are conscious that there are now many modes of study and that some students may be required to work independently without the tutor present. Other students will follow a more traditional route using the text in a classroom environment. In an attempt to meet the needs of both these groups, most worked examples are followed by a student activity. For students studying on their own, these activities can be used to test their knowledge and understanding as they progress through the book. For students whose lecturers adopt the text, the activities can be used in the classroom to reinforce the learning outcomes in an interactive way. Both groups will find the solutions to the activities conveniently placed at the end of the respective chapters.

  • Appendix: Solutions to Questions

    Odd-numbered solutions appear here, as well as 6.2, 6.4 and 6.6. All other even-numbered solutions appear in the Solutions Manual.


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