Management Accounting. Part 1 – Balance Sheet, Profit Loss Account - Werner Seebacher - ebook

Management Accounting. Part 1 – Balance Sheet, Profit Loss Account ebook

Werner Seebacher

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„Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account.” is based completely on the textbook “Management Accounting.”. The textbook “Management Accounting.” describes in detail the Big Picture – the central overall connection in accounting/controlling – as well as the elements which affect this connection: Balance Sheet | Profit/Loss Account | Profit Plan | Finance Plan | Budgeted Balance Sheet. “Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account” deals with the contents of and the connections between the elements Balance Sheet and Profit/Loss Account in detail. Additionally, the effects of concrete accounting/controlling activities and business cases in and on balance sheet and profit/loss account are presented and annotated. Target groups of “Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account” are students of economic/business courses in the framework of their basic education or in the framework of their introductory courses, students doing post-graduate programmes, as well as managers in enterprises with practical experience – all of them facing the challenge of having to understand and to apply the basic connections of accounting in enterprises – presented in and through balance sheet and profit/loss account. „Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account” is supplemented and continued by “Management Accounting. Part 2 - Profit Plan | Finance Plan | Budgeted Balance Sheet”.

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Werner Seebacher

Management Accounting.Part 1

Balance Sheet | Profit/Loss Account

AuthorWerner Seebacher

ISBN 978-3-7375-8474-6

First Edition 2016

www.management-accounting.net

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Disclaimer of liability

Please note that despite careful processing all data, annotations, presentations and calculations in this book, as well as in the numerical examples given, are made without warranty and that the author refuses to accept any liability.

 

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Foreword

“Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account.” is based completely on the textbook “Management Accounting.”.

The textbook “Management Accounting.” describes in detail the Big Picture – the central overall connection in accounting/controlling – as well as the elements which affect this connection: Balance Sheet | Profit/Loss Account | Profit Plan | Finance Plan | Budgeted Balance Sheet.

“Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account” deals with the contents of and the connections between the elements Balance Sheet and Profit/Loss Account in detail. Additionally, the effects of concrete accounting/controlling activities and business cases in and on balance sheet and profit/loss account are presented and annotated.

Target groups of “Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account” are students of economic/business courses in the framework of their basic education or in the framework of their introductory courses, students doing post-graduate programmes, as well as managers in enterprises with practical experience – all of them facing the challenge of having to understand and to apply the basic connections of accounting in enterprises – presented in and through balance sheet and profit/loss account.

“Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account” is supplemented and continued by “Management Accounting. Part 2 - Profit Plan | Finance Plan | Budgeted Balance Sheet”.

Overview of the Contents

1. Introduction

2. Survey of the Contents

3. Balance Sheet | Profit/Loss Account

4. Balance Sheet | Profit/Loss Account - Numerical Examples

Table of Contents

1. Introduction

 

2. Survey of the Contents

2.1. Balance Sheet

2.2. Profit/Loss Account

2.3. Balance Sheet | Profit/Loss Account

2.4. Balance Sheet | Profit/Loss Account

Profit Plan | Finance Plan | Budgeted Balance Sheet

2.5. Profit Plan

2.6. Finance Plan

2.7. Profit Plan | Finance Plan

2.8. Budgeted Balance Sheet

2.9. Finance Plan | Budgeted Balance Sheet

2.10. Profit Plan | Finance Plan | Budgeted Balance Sheet – the Big Picture

 

3. Balance Sheet | Profit/Loss Account

3.1. Connections

3.1.1. Balance Sheet

3.1.2. Profit/Loss Account

3.1.3. Balance Sheet | Profit/Loss Account – Connection

3.1.4. Balance Sheet | Profit/Loss Account – Procedure

3.1.5. Profit and Compilation of Profit

3.1.5.1. Compilation of Profit based on Balance Sheet | Profit/Loss Account

3.1.5.2. Compilation of Profit based on Cash Method of Accounting | Income-Surplus Method

3.1.5.3. Effects of the Different Methods of Compiling the Profit

3.2. Balance Sheet

3.2.1. Fixed Assets

3.2.2. Current Assets

3.2.3. Inventory

3.2.4. Receivables | Receivables from Trade | Accounts Receivable

3.2.5. Bank Account | Bank Balance, Cash | Cash Balance

3.2.6. Deferred Charges

3.2.7. Equity Capital and Reserves

3.2.8. Debt Capital

3.2.9. Liabilities | Liabilities from Trade | Accounts Payable | Payables

3.2.10. Provisions

3.2.11. Deferred Income

3.3. Profit/Loss Account – Total Cost Method

3.3.1. Turnover/Sales

3.3.2. Material Expenses

3.3.3. Personnel Expenses

3.3.4. Depreciation

3.3.5. Other Operating Expenses

3.3.6. Expense for Interest Paid

3.3.7. Other Operating Income

3.3.8. Income from Interest

3.3.9. Extraordinary Income

3.3.10. Extraordinary Expenses

3.3.11. Tax

3.3.12. Formation of Revenue Reserves

3.3.13. Reversal/Retransfer of Revenue Reserves

3.3.14. Change in Inventory

3.3.15. Goods on Own Account (Capitalized)

3.4. Profit/Loss Account – Cost of Sales Method

3.4.1. Turnover/Sales

3.4.2. Production Costs | Production Expenses (for services which were necessary for achieving the turnover)

3.4.3. Gross Profit (of Turnover/Sales)

3.4.4. Distribution Costs | Distribution Expenses

3.4.5. General Administrative Costs | General Administrative Expenses

3.4.6. Other Operating Expenses

3.4.7. Total Cost Method and Cost of Sales Method – Integration of the Presentation

3.5. Profit/Loss Account – Result Items

3.5.1. Operating Result

3.5.2. Financial Result

3.5.3. Profit | Loss from Ordinary Activities

3.5.4. Extraordinary Result

3.5.5. Net Profit | Net Loss

3.5.6. Distributable Profit

3.5.7. EBIT | EBT | EAT

3.5.8. EBIT | EBT | EAT | EBITD | EBITDA

 

4. Balance Sheet | Profit/Loss Account - Numerical Examples

4.1. Example 1: Foundation of an Enterprise

4.2. Example 2: Investment

4.3. Example 3: Financing

4.4. Example 4: Investment and Financing

4.5. Example 5: Purchase of Goods, Use of Goods, Turnover/Sales

4.6. Example 6: Deferred Charges

4.7. Example 7: Deferred Income

4.8. Example 8: Provision

4.9. Example 9: Asset Disposal

4.10. Example 10: Goods on Own Account

 

Author

Method

List of Relevant Literature

Index of Figures

1. Introduction

“Management Accounting.” is based on the idea that all accounting/controlling considerations in an enterprise are always focused on the Big Picture – the comprehensive overview or comprehensive presentation of these business activities as a whole. All business activities are always analyzed and evaluated with reference to this overall connection.

For this reason there are substantial differences in “Management Accounting.” compared to classical textbooks on accounting/controlling or to standard literature in the field of accounting/controlling.

In order to give a total, general overview of the connections in accounting – independent of national and international trade and tax laws – neither references to legal texts are given nor paragraphs or legal regulations are mentioned.

Concentrating on the connections, certain specific parts which are of importance to specialists in accounting are excluded and avoided on purpose, because for newcomers in accounting they usually produce fear of approach.

In this context, in “Management Accounting.”, a kind of presentation has been chosen to show the connections between balance sheet and profit/loss account, so that only the final effects of economic activities are considered directly in balance sheet and profit/loss account, whereas the usual presentation of detailed account items and entry formulas is completely avoided.

The approach that is used in “Management Accounting.” focuses on two central connections which form the basic structure of presenting the economic activities in accounting/controlling of an enterprise:

The first of these two connections is the basic connection between Balance Sheet and Profit/Loss Account.

The second decisive connection is based on the interaction of the components result (profit or loss respectively), liquidity (solvency) and balance sheet which – with a view to the future – are presented through the elements Profit Plan, Finance Plan and Budgeted Balance Sheet.

Combining the two groups of topics Balance Sheet | Profit/Loss Account and Profit Plan | Finance Plan | Budgeted Balance Sheet, the circle of the effects of economic activities of an enterprise closes. The connection of accounting/controlling as a whole opens up.

The two central groups of topics which are presented in “Management Accounting.” – Balance Sheet | Profit/Loss Account and Profit Plan | Finance Plan | Budgeted Balance Sheet meet exactly at the interface between past, current and future situation:

The group of topics: Balance Sheet | Profit/Loss Account deals with the past or the current situation of the enterprise.

The group of topics: Profit Plan | Finance Plan | Budgeted Balance Sheet deals with the future development of the enterprise.

The basic elements which are used remain the same in both groups of topics, also the contents and connections. What changes is the way they are considered and the terms which are used.

In a first step, “Management Accounting. Part 1 - Balance Sheet | Profit/Loss Account” deals with the presentation of the basic contents of and the connection between the elements Balance Sheet and Profit/Loss Account. Subsequently and building on them, the connections described are presented and annotated in form of case studies.

The second fundamental connection in accounting, the central “Accounting/Controlling Overall Context”, the connection between the elements Profit Plan, Finance Plan and Budgeted Balance Sheet is shown in “Management Accounting. Part 2 - Profit Plan | Finance Plan | Budgeted Balance Sheet”.

2. Survey of the Contents

“Management Accounting.” covers the range:

- from the effects of business activities regarding the aspects of profit/loss, liquidity or solvency respectively (presented through surplus of or demand for cash) and balance sheet,

- via the central elements of accounting/controlling: Balance Sheet, Profit/Loss Account, Profit Plan, Finance Plan and Budgeted Balance Sheet,

- as well as to their development from a time-wise point of view – from the past over the current situation (each presented through Balance Sheet and Profit/Loss Account, possibly also through a Cash Flow Statement) to the future (presented through Profit Plan, Finance Plan and Budgeted Balance Sheet).

The following short overview of the elements and connections used is meant to make the structure of “Management Accounting.” easier for the reader and also to help with assigning the contents.

The following elements are presented in this overview: