Accounting for Managers: Interpreting Accounting Information for Decision Making, 4th Edition

Solutions to Questions

One of the problems that most students of accounting face is being able to tackle calculation problems. The ‘fear of numbers’ is quite common with postgraduate students and practising managers. Students often look back to find a similar ‘model question’ and then try to repeat the calculation, simply replacing the numbers. This is not good practice as it does not help the student to think about the concepts involved. Each problem is different, and this mirrors day-to-day business decisions. Solving these problems is about applying the underlying concepts.

The questions in each chapter require the reader to perform calculations. In attempting to solve these problems, you need to think about

• what the business problem is;
• the information that is provided to solve the problem;
• the most appropriate technique to apply to the problem; and
• how to apply the technique to solve the problem.

Solutions for Chapter 1

1.1

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 under which managers have to provide an account to other stakeholders in the business.

1.2

i. The main activities of financial accountants involve collecting financial transaction data in the company’s accounting system; classifying those transactions in terms of their effect on income, expenses, assets, liabilities ...