Accounting - Edinburgh Business School

1 AC-A4-engb 2/2016 (1001) Accounting Niall Lothian John Small This course text is part of the learning content for this Edinburgh Business School course. In addition to this printed course text, you should also have access to the course website in this subject, which will provide you with more learning content, the Profiler software and past examination questions and answers. The content of this course text is updated from time to time, and all changes are reflected in the version of the text that appears on the accompanying website at Most updates are minor, and examination questions will avoid any new or significantly altered material for two years following publication of the relevant material on the website.

2 You can check the version of the course text via the version release number to be found on the front page of the text, and compare this to the version number of the latest PDF version of the text on the website. If you are studying this course as part of a tutored programme, you should contact your Centre for further information on any changes. Full terms and conditions that apply to students on any of the Edinburgh Business School courses are available on the website , and should have been notified to you either by Edinburgh Business School or by the centre or regional partner through whom you purchased your course.

3 If this is not the case, please contact Edinburgh Business School at the address below: Edinburgh Business School Heriot-Watt University Edinburgh EH14 4AS United Kingdom Tel + 44 (0) 131 451 3090 Fax + 44 (0) 131 451 3002 Email Website The courses are updated on a regular basis to take account of errors, omissions and recent developments. If you'd like to suggest a change to this course, please contact us: Accounting The Accounting programme is written by Niall Lothian, formerly Professor at Edinburgh Business School , Heriot-Watt University, and John Small, Professor Emeritus at Heriot-Watt University.

4 Both have previously occupied chairs in the University s Department of Accountancy and Finance. Professor Lothian has taught at IMEDE (now IMD) in Lausanne and is currently a member of the visiting faculty of INSEAD, Fontainebleau; the European School of Management and Technology, Berlin; and Duke Corporate Education. He has conducted seminars and managerial briefings in Europe, Africa and China, the latter under the auspices of the United Nations Industrial Development Organisation. Professor Lothian has been consultant to British government agencies such as the Ministry of Defence and the Cabinet Office and to numerous international companies.

5 His current research and consulting interests include the study of managerial controls over R&D expendi-ture, a field in which he has published widely, and the Accounting implications of flexible manufacturing systems. A chartered accountant by professional training, he is a Past President of the Institute of Chartered Accountants of Scotland. He was the inaugural chairman of the audit advisory board of the Scottish Parliamentary Corporate Body and is chairman of Inspiring Scotland, a venture philanthropy trust.

6 Professor Lothian was made an Officer of the Order of the British Empire in the New Year s Honours 2012. Professor Small was Chairman of the Accounts Commission in Scotland from 1982 to 1991. The Accounts Commission is responsible for arranging the audit of local government in Scotland and ensuring the proper steps are taken to achieve economy, efficiency and effectiveness. He has recently served on the board of Scottish Homes. He is a member of the Council of the Chartered Association of Certified Accountants and was its President in 1982/83.

7 He has been Chairman of the Education Committee of the International Federation of Accountants and a member of the executive Board of the Union Europ enne des Experts Comptables, Economiques et Financiers. He is an honorary member of the Arab Society of Certified Accountants. He has also held visiting professorships and external examinerships at various universities and Business schools. His special interest is in the use of financial information in decision making for planning and control. In this area he is a consultant to a number of organisations and has advised companies and government agencies in the UK and abroad.

8 Professor Small was made a Commander of the Order of the British Empire in the Queen s Birthday Honours, 1991. First Published in Great Britain in 1991. Niall Lothian and John Small 1991, 1998, 2001, 2003, 2007, 2014. The rights of Niall Lothian and John Small to be identified as Authors of this Work have been asserted in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publishers.

9 This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publishers. Accounting Edinburgh Business School v Contents PART 1 FINANCIAL Accounting FOR MANAGERS Module 1 an introduction to Accounting and the Accounting Equation 1/1 Approaching Accounting 1/2 The Reality of Accounting 1/2 What Accounting Is 1/3 Focus on Profit-Seeking Businesses 1/5 Who Are the Users of a Company s Accounting Information?

10 1/6 For What Sort of Decisions Do these Users Value Accounting Information? 1/6 Common Information Requirements among Users 1/8 The Accounting Equation 1/9 The Accounting Statements 1/12 Sole Trader versus MBA 1/23 Accounting : The External and Internal Functions 1/24 Accounting Principles 1/25 Review Questions 1/26 Case Study 1/31 Module 2 The Income Statement 2/1 introduction 2/2 What Is Profit?