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Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
 Contents

CHAPTER 3 The double-entry system 80

Chapter overview 80
3.1 Transaction analysis 81
3.2 Transaction analysis extended 83
3.3 Recording transactions: double-entry bookkeeping 89
3.4 More about accounts 92
3.5 More examples of how debits and credits work 93
3.6 Debits and credits extended 96
3.7 Arranging accounts on the balance sheet 102
3.8 More journal entries 103
3.9 Cash versus accrual accounting revisited 105
APPENDIX TO CHAPTER 3: A brief history of early accounting 127
A3.1 Mesopotamia to Rome: 4500 BC to AD 400 128
A3.2 The Middle Ages to the Renaissance: AD 400–1500 128
A3.3 Britain: 1500 to the early 1800s 129
A3.4 Financial accounting’s recent history 131

CHAPTER 4 Record-keeping 133

Chapter overview 133
4.1 The importance of good records 134
4.2 Financial accounting’s transactional filter 134
4.3 Accounting’s ‘books’ and records 137
4.4 An illustrative example 150
4.5 Electronic commerce 158
4.6 Managers, bookkeeping and control 159

CHAPTER 5 Accrual accounting adjustments 175

Chapter overview 175
5.1 Conceptual foundation of accrual accounting 177
5.2 Accrual accounting adjustments 184
5.3 Multi-column worksheets 191
5.4 The financial period 195
5.5 Contra accounts 195
5.6 Illustrative example 198
5.7 Managers and accrual accounting assumptions 204

CHAPTER 6 Financial reporting principles, accounting

standards and auditing 226
Chapter overview 226
6.1 Accounting regulation in Australia 228
6.2 International financial reporting standards 230

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202 vii
Contents

6.3 The importance of accounting standards and principles 231

6.4 Accounting principles and the use of accounting information 231
6.5 Framework for the preparation and presentation of financial statements 233
6.6 Assets and liabilities: valuation and measurement 238
6.7 The annual report and financial statements 242
6.8 The external auditor’s report 245
6.9 The nature of a profession and professional ethics 248
6.10 Capital markets 250
6.11 Contracts and financial accounting information 256
6.12 Managers and financial accounting standards 258

CHAPTER 7 Internal control and cash 273

Chapter overview 273
7.1 Internal control 274
7.2 Internal control of cash 277
7.3 Bank reconciliations 279
7.4 Performing a bank reconciliation from information in cash journals 284
7.5 Petty cash 287
7.6 Disclosure of internal control in annual reports 288
7.7 Managers and internal control 290

CHAPTER 8 Accounts receivable and further record-keeping 309

Chapter overview 309
8.1 Receivables 310
8.2 Control accounts and contra accounts 311
8.3 Accounts receivable and contra accounts 311
8.4 Illustrative example 317
8.5 Trade discount and cash discount 321
8.6 Detailed recording using special journals, subsidiary ledgers and control accounts 322
8.7 Prime entry records: special journals 324
8.8 Subsidiary ledgers and control accounts 324
8.9 Operation of special journals and subsidiary ledgers 325
8.10 Role of general journal and general ledger 332

CHAPTER 9 Inventory 353

Chapter overview 353
9.1 Inventory control 354
9.2 Accounting entries for perpetual and periodic inventory 356
9.3 Inventory valuation and cost of goods sold 359
9.4 More about inventory cost flow assumptions 361

viii Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
 Contents

9.5 An example: Meeix Ltd 363

9.6 Lower of cost and net realisable value rule 366
9.7 Retail inventory and standard costs 367
9.8 Disclosure of inventory accounting policies 368
9.9 Managers and the valuation of inventory 369

CHAPTER 10 Noncurrent assets 380

Chapter overview 380
10.1 The cost of an asset: basic components 381
10.2 Depreciation of assets and depreciation expense 382
10.3 Depreciation bases and methods 385
10.4 Depreciation example 391
10.5 Gains and losses on noncurrent asset disposals 392
10.6 Asset revaluations 393
10.7 Asset impairment 396
10.8 Intangible assets 397
10.9 Goodwill 400
10.10 Finance leases 401
10.11 Managers and noncurrent assets 402

CHAPTER 11 Liabilities 417

Chapter overview 417
11.1 What is a liability? 418
11.2 General measurement principles 419
11.3 Financial statement presentation of liabilities 420
11.4 Payables 421
11.5 Interest-bearing liabilities: short term 423
11.6 Interest-bearing liabilities: long term 424
11.7 Tax liabilities 427
11.8 Provisions 427
11.9 Contingent liabilities 430
11.10 ‘Off balance sheet’ financing 432
11.11 Goods and services tax 433
APPENDIX TO CHAPTER 11: Future cash flows: present value analysis 452
A11.1 Future cash flows 452
A11.2 Interest and present value 453

CHAPTER 12 Investments and shareholders’ equity 456

Chapter overview 456
12.1 Intercorporate investments and corporate groups 458
12.2 Consolidations 461

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Contents

12.3 Shareholders’ equity 464

12.4 Share capital 465
12.5 Reserves 468
12.6 Retained profits and dividends 468
12.7 Bonus issues and share splits 471
12.8 Managers, investments and shareholders’ equity 472

CHAPTER 13 Revenue and expense recognition: additional

concepts 483
Chapter overview 483
13.1 Revenues 484
13.2 Revenue recognition 485
13.3 The expenses concept: the Framework 492
13.4 Statement of profit or loss and other comprehensive income 494
13.5 Statement of changes in equity 497
13.6 ‘What if’ (effects) analysis 498
13.7 Managers and the recognition of revenues and expenses 501

CHAPTER 14 The statement of cash flows 511

Chapter overview 511
14.1 The purpose of cash flow analysis 512
14.2 Overview of the statement of cash flows 513
14.3 Preparation using the direct method 518
14.4 Interpreting a statement of cash flows (direct method) 528
14.5 Preparation using the indirect method 529
14.6 Interpreting a statement of cash flows (indirect method) 532
14.7 Cash flow and the manager 534

CHAPTER 15 Financial statement analysis 561

Chapter overview 561
15.1 Investment and relative return 562
15.2 Introduction to financial statement analysis 562
15.3 Common size statements 564
15.4 Woolworths Limited: an example company 565
15.5 Financial statement ratio analysis 567
15.6 Integrative ratio analysis 577
15.7 Financial statement ratio analysis example 579
15.8 ‘What if’ effects on ratios 590
15.9 Measuring a manager’s performance 592

x Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
 Contents

CHAPTER 16 Accounting policy choices 615

Chapter overview 615
16.1 Introduction 616
16.2 Background to accounting policy choices 616
16.3 Inventory valuation and COGS: effects 620
16.4 Depreciation effects analysis 621
16.5 Intangibles effects analysis 622
16.6 Accounting policy disclosure 623
16.7 Accounting policy choices: management’s objectives 623

CHAPTER 17 Sustainability reporting 637

Chapter overview 637
17.1 What is sustainability reporting? 638
17.2 What is reported in sustainability reports? 639
17.3 Do stakeholders require more than financial reporting? 641
17.4 Why do organisations produce sustainability reports? 642
17.5 Criteria for sustainability reporting 643
17.6 Trends in sustainability reporting 646
17.7 Energy efficiency as an important example of sustainability 648
17.8 Integrated reporting 648

APPENDIX Woolworths Limited 2017 Annual Report 658

Glossary 697
Index 711

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202 xi
PREFACE

One question I have been frequently asked since writing the first edition of this book is: why write an
introductory accounting textbook?
First, I have been involved in teaching introductory financial accounting for over 35 years. I enjoy
trying to get across the introductory concepts. Second, I have been surprised at the differences
between how introductory accounting is taught in most undergraduate programs and how it is
taught in MBA courses in the United States and Australia. Thirty years ago there were good reasons
for the differences, as most of our first-year undergraduate students were accounting majors. This is
not the case today. Third, when I ask attendees at executive education programs what their
accounting background is, many respond that they did first-year accounting 10-plus years ago but
found it boring!
With this in mind, I tried to add to an undergraduate book some of the features that MBAs and
executives seem to enjoy. We don’t want our students returning in 10 years and suggesting our
courses are boring! Talking about companies and relating the material to annual reports helps
students to get interested.
With all of the above in mind, we set about incorporating the following in the book. First, we
have tried to make clear to students the importance of accounting information by frequent
reference to current material. Second, as companies are the most common business organisations
in Australia today, we start by writing about companies, rather than spending many introductory
chapters concentrating on sole traders. Third, to keep this book’s material interesting and relevant,
we have made frequent references to the content of annual reports. Students learn about real
companies and can follow their performance in the newspapers or the share market if they wish.
Fourth, we believe that the depth of technical knowledge in this book will challenge both
accounting and non-accounting majors.
The first edition of this textbook was adapted from the second edition of the best-selling
Canadian introductory financial accounting textbook of the same name written by Michael Gibbins.
In the Australian edition, we have added eight chapters as well as reorienting the material towards
the Australian context.
The most attractive features of the early editions have been retained: an easy-to-read style with a
wealth of extracts from company annual reports, ‘How’s your understanding?’ activity questions
throughout each chapter, questions at the end of each chapter relating to real annual reports, as
well as a set of cases with questions relating to the Woolworths Limited Annual Report 2017
(appendix at the end of the book).
Students should take advantage of the ancillary material that goes with this book, in particular the
CourseMate website, which includes revision quizzes, practice questions, annotated weblinks and
much interactive material. Also, the publisher has made available a suite of additional resources for
instructors. Students may like to also obtain the accompanying Study Guide, which provides
numerous additional questions.
We trust that you will enjoy the book.
Ken Trotman

xii Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
ABOUT THE AUTHORS

Ken Trotman is Scientia Professor in the School of Accounting at UNSW Sydney. He is a Fellow of
both CPA Australia and Chartered Accountants Australia and New Zealand. Ken’s major research
interests include examining the processing of information by users of accounting reports and
auditors, and the factors that affect the quality of their decisions. He has received a number of
major awards from the American Accounting Association including Outstanding Educator Award by
the Audit Section, the Notable Contribution to the Auditing Literature Award, and Notable
(Lifetime) Contribution Award in Behavioral Accounting Literature. He is a former president of the
AFAANZ, a former Coopers & Lybrand visiting research professor and Director of Research for the
audit section of the American Accounting Association. He has over 35 years of university teaching
experience. In addition to teaching at UNSW, he has taught at the University of Illinois at Urbana–
Champaign, Cornell University and the University of Michigan. He has extensive consulting
experience and has conducted many executive training programs in both the private and public
sectors. He has published widely in Australian and international research journals and was inducted
into the Australian Accounting Hall of Fame in 2011.

Elizabeth Carson is a Professor in financial accounting and auditing at UNSW Sydney. Elizabeth’s
research interests include economics of global and national audit markets, industry specialisation by
auditors and audit reporting. Her PhD investigating global audit firm networks and global industry
specialisation by audit firms was awarded the American Accounting Association Auditing Section
Outstanding Dissertation Award in 2008. Her work has appeared in leading academic journals
including The Accounting Review, Auditing: A Journal of Practice and Theory and Accounting and
Finance. Elizabeth teaches at postgraduate level in financial accounting and auditing, as well as
supervising research students in the Honours, MPhil and PhD programs. She received the Pearson
Education Accounting Lecturer of the Year award for her development of the ‘Accounting: A User
Perspective’ subject in the Masters of Commerce program. Prior to joining academia, she worked
with Pricewaterhouse Coopers (PwC) and is qualified as a chartered accountant. She presently holds
the role of Associate Dean Research at UNSW.

Kate Morgan is a sessional lecturer in the School of Accounting, UNSW Sydney, teaching the core
financial accounting subject in the Masters of Professional Accounting Program. She has extensive
experience in the teaching of introductory financial accounting including design and question
setting. She has designed accounting materials for undergraduate and masters programs in both
face-to-face and online settings including MBA face-to-face and online programs. Kate developed
material for the first edition of this book, has regularly updated material through many editions
and has now joined the team as an author. Prior to returning to the university she held senior
management positions specialising in project and program management, accounting and
information systems design.

xviii Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
 ACKNOWLEDGEMENTS

The completion of this book was only achieved with the help of many individuals. My greatest thanks
go to my former colleague, the late Gordon Howitt. Over 40 years ago Gordon inspired my interest
in accounting. He taught me first-year accounting and subsequently as a staff member provided me
with guidance and support. Without his help I could not have written this book. During the first
edition he encouraged me, regularly checked on progress, continually read drafts, provided many
questions, authored the solutions manual and generally offered friendship and support. This
support continued with the reviewing of the second edition. For 50 years he made an outstanding
contribution to accounting education at UNSW. I certainly have never met a more dedicated
accounting teacher. It has been a privilege to work with him and we all miss his inspiration.
My original co-author Mike Gibbins was kind enough to invite me to adapt his original Canadian
textbook. Mike has an outstanding reputation as a researcher and I liked his version of the book so
much that I decided to take on the task of co-author. Mike has now retired after a very distinguished
career as one of the world’s leading accounting researchers and a truly outstanding teacher.
Professor Elizabeth Carson took over as co-author, has provided me with many helpful suggestions
on previous editions of the book and has helped to reshape many parts of the latest editions of the
book. Our latest co-author, Kate Morgan, has contributed to the book across numerous editions and
now takes on a more extensive role.
My life has been made much easier with the help of some very capable research assistants. Staff
at UNSW and some other universities have been generous in providing me with material. Michael
Pennisi provided material on GST and material on subsidiary ledgers, now in Chapter 8. Athol
Carrington and Gordon Howitt provided me with some material in Chapter 5, as well as numerous
questions, and Malcolm Miller with some material in Chapter 7. Rosina Mladenovic provided some
material for Chapters 9 and 10 as well as numerous comments on the book. Gerry Galley wrote
substantial sections of Chapter 11. Noel Harding provided material for Chapter 7. Chapter 17 was
largely written by Andrew Trotman with excellent inputs from Tanya Fiedler, Sarah Adams and Hien
Hoang as well as advice from Roger Simnett and Patricia Strong. Questions were also provided by
Kevin Clarke, Victoria Clout, Claudia Gormily, Dean Hanlon, Noel Harding, Cameron Hooper,
Andrew Jackson, Helen Kang, Jeffrey Knapp, Chris Poullaos, Patricia Strong and Per Tronnes. Other
useful comments were provided by present and ex-UNSW staff including Kar Ming Chong, Robert
Czernkowski, Neil Fargher, Roger Gibson, Wendy Green, Noel Harding, Andrew Jackson, Amna
Khalifa, Janice Loftus, Diane Mayorga, Malcolm Miller, Richard Petty, Baljit Sidhu and Roger
Simnett. Over various editions, advice from Stephen Bah (University of Newcastle), Peter Carey
(Monash University), Peter Collett (University of Tasmania), Russell Craig, Linda English (University of
Sydney), Vic Fatseas (Charles Sturt University), Jack Flanagan, Dean Hanlon (Monash University), Jan
Hollingdale (Bond University) and Greg Whittred was appreciated. Cengage also arranged for use
of some material in Chapter 6 from the US book by I. Solomon, L. Wither, P. Vargo and L. Plunkett.
A special thanks to Judith Quinn for extensive word processing of the materials.

Ken Trotman

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202 xix
Acknowledgments

Cengage would also like to thank the following reviewers, who provided helpful and useful
comments while this edition was being developed:
Abdel Halabi, Monash University
Dean Hanlon, Monash University
Christina James-Overheu, University of Southern Queensland
Youngdeok Lim, University of New South Wales
Maria Mucciarone, Murdoch University
Karen Nicita, North Sydney Institute of TAFE (Meadowbank)
Dr Afzalur Rashid, University of Southern Queensland
Jackie Yong, University of Newcastle.

xx Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
 Introduction to
financial accounting
1
ON COMPLETION OF THIS CHAPTER, YOU SHOULD BE ABLE TO:
LO1 describe the basic purpose of financial accounting (1.1, 1.2)
identify the users of accounting information and the decisions they make that require accounting information
LO2 (1.3)
LO3 identify the people who are involved in financial accounting (1.4)
LO4 describe how accrual accounting differs from cash accounting (1.5)
LO5 explain the basic contents of the three key financial statements and describe the purpose of each statement (1.6)
LO6 describe the basic principles and assumptions of accounting (1.7, 1.8)
LO7 explain why accounting is important (1.9).

CHAPTER OVERVIEW
Accounting has been described as the ‘language of business’. It provides managers within organisations and
those outside the organisation (e.g. investors and creditors) with information about the financial performance
and financial position of the business. Regardless of what type of career you pursue, accounting information
will have important effects on you.
This chapter introduces you to financial accounting and illustrates some useful accounting concepts and
techniques. It outlines a way of thinking about financial accounting that will be important to your career,
whether you become an accountant or a user of accounting in business or in other walks of life. We believe
that every manager is a user of accounting information but some managers use accounting information
better than others. You are introduced to the social setting of financial accounting and some of the people
involved. Financial accounting is complex and requires sound judgement because it attempts to serve the
needs of all these people, not all of whom necessarily see things the same way. You are then introduced to
one of the cornerstones of how financial accounting works: accrual accounting, the broad framework within
which financial accounting reports are prepared. You are also introduced to the three key financial
statements and the basic financial statement assumptions.

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 Financial accounting: an integrated approach

1.1 Use and preparation of accounting

LO1 Financial accounting has value because the information it produces is used in a variety of ways. Users include
managers, investors, bankers, financial analysts and many others. Such people study accounting to learn how
to use information effectively and to do their jobs better. For accountants, this information is essential to the
services they provide.
Accounting is a complex human activity. Accounting information doesn’t just happen: it is produced by a
large set of people, activities and computers. To be effective users of the information, people need to know
something about how and why the information is prepared. Accountants’ expertise is all about the how and
the why.
The demand for useful information shapes how financial accounting information is prepared; for example,
when producing annual or monthly performance reports. How it is prepared shapes its use; for example, in
analysis of financial statements and managerial decisions using accounting information.

FOR YOUR INTEREST

Learning terminology is important. To help you with that, this book has a glossary of terms at the back on page 697. If
you’re not sure what a term means, look it up right away.
Accounting is a challenging discipline that involves many capabilities: assigning numbers to represent financial
phenomena; providing explanations of those numbers; analysing and verifying the information prepared by others;
understanding the needs of those who use accounting’s reports to make decisions; engaging in oral, written and
electronic communication with the many people involved in an organisation’s financial activities; and maintaining
judgement that is sound, objective and ethical.
Much of the challenge of accounting is in figuring out which numbers to use and deciding what the numbers tell us.
Adding and subtracting the numbers is often the easy part. This makes accounting both easier and harder to learn than
you might have thought. Accounting is rooted in the financial setting, and has its own vocabulary, so don’t expect it all
to make perfect sense at the beginning. It will take a while for you to acquire the knowledge that creates an
understanding of business and accounting as they really are in our world. This understanding will be based on your
knowledge of both concepts and techniques, and of the viewpoints of both accountants and the users of accounting.
The going will not all be easy, but if you give it your best effort, you may be surprised at the high level of
sophistication you will reach. Here is one important suggestion. The only way to learn accounting is to do problems. It
is vital that you do more than just read the examples. After reading the chapter, come back and do the examples to
check your understanding. Throughout the book there are many questions called ‘How’s your understanding?’. Try to do
the question and then look up the answer at the end of the chapter. These questions are numbered 1A, 1B, 1C, etc.
where 1 indicates the chapter and the letter of the particular question.

1.2 Financial accounting

LO1 Accounting is a process of identifying, measuring and communicating economic information to allow
informed decisions by the users of that information. Accounting systems are often described as either
financial accounting systems (where periodic financial statements are provided to external decision-makers,
such as investors, creditors and customers) or management accounting systems (including information for
planning and performance reports to managers throughout the organisation; that is, internal decision-
makers).
Financial accounting measures an organisation’s performance over time and its position (status) at a point
in time, and does so in Australian dollars, US dollars, yen, euros or whatever currency is judged relevant to
the organisation. This measurement of financial performance and financial position is done for all sorts of

2 Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
 CHAPTER 1: Introduction to financial accounting

organisations: large and small businesses, governments from local to national levels, universities, charities,
churches, clubs, international associations and many others. The financial statements, which are financial
accounting’s reports, summarise the measurements of financial performance and financial position in
standard ways thought to be useful in evaluating whether the organisation has done well and is in good
shape. These financial statements include notes, which contain many words (sometimes dozens of pages) of
explanation and interpretation, in addition to the numbers. The statements report on the economic and
financial matters and are largely for the use of people outside the organisation, such as investors, lenders,
club members, regulatory agencies and taxation authorities.
In summary:
• Financial performance is the generation of new resources from day-to-day operations over a period of
time.
• Financial position is the organisation’s set of financial resources and obligations at a point in time.
• Financial statements are the reports describing financial performance and financial position (e.g. the
balance sheet and the income statement).
• Notes are part of the statements, adding explanations to the numbers.
As we will see throughout this book, financial performance and position are highly related. Good
performance is likely to lead to a healthy financial position; if a company has been making profits, it will
probably build up resources. On the other hand, a healthy financial position facilitates performance; if you
have lots of resources compared to obligations, the company can undertake activities that lead to good
performance.
Another branch of accounting, management accounting, is oriented towards helping managers and others
inside the organisation, in contrast to financial accounting’s more external focus. While management
accounting is not examined in this book, students interested in how financial accounting measures
managerial performance will find frequent references to the relationship between managers and financial
accounting. In the end, all forms of accounting exist to help people such as managers, investors, bankers,
legislators and the public make financial decisions.

HOW’S YOUR UNDERSTANDING?

1A What are the two main things that financial accounting measures?
[Answers to all ‘How’s your understanding?’ questions are at the end of each chapter. Make sure you try to answer
the question prior to looking up the answer.]

1.3 Who uses financial accounting information?

This book will show you the many ways in which financial accounting has been shaped by the development LO2
of business and society. Financial accounting helps:
• stock market investors decide whether to buy, sell or hold shares of companies
• banks and other lenders decide whether or not to lend
• managers run organisations on behalf of owners, members or citizens (in addition to the help provided by
management accounting and other sources of information)
• management by providing basic financial records for the purposes of day-to-day management, control,
insurance and fraud prevention
• governments in monitoring the actions of organisations and in assessing taxes, such as income tax and
the goods and services tax (GST).

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202 3
Financial accounting: an integrated approach

Whole books can be, and have been, written about each of these functions. Though this book emphasises
externally oriented financial accounting for business firms, don’t forget that there are many other
organisations that use, and are affected by, accounting. When words like ‘organisation’ or ‘company’ are
used, the implications often go well beyond business firms.
The centre of our interest in this book – financial accounting for the organisation – operates within and
serves a complex social setting. It seeks to monitor and report on financial events initiated by or happening
to the organisation. Accounting is not a passive force within the social setting: it tells us what is going on,
but in so doing it affects our decisions and actions and, therefore, also affects what is going on.
The social setting is composed of many people, including groups, companies, institutions and other
parties interested in, or having an influence on, the company’s financial accounting. As we will see many
times in this book, these parties do not share the same interest in the company’s accounting, and may even
be in competition or conflict with each other. For example, management are likely to prefer higher salaries
but this may or may not be in the best interest of shareholders. Most will be in the same country as the
company and its management but, increasingly, companies and other organisations are operating
internationally. The other groups interested in, and affecting, the company’s financial accounting may be
located anywhere on the planet.
Let’s consider some possible users of the financial statements of a listed company:
• A company’s board of directors manages the company on behalf of its shareholders. One function of the
board, which involves the financial statements, is hiring the company’s top operating management –
especially the chief executive officer (CEO). Suppose you are a member of the board and are preparing
for a discussion at the next board meeting. The board evaluates the CEO’s performance continuously,
which is its responsibility. The financial statements have been provided to the board prior to the
meeting, and will be a major contribution to this evaluation.
• A company’s shares are listed (i.e. can be bought and sold) on the Australian Securities Exchange (ASX).
Suppose you are a financial analyst for an investment banker and are preparing a report projecting future
earnings and making recommendations about whether the company’s shares are worth buying, keeping if
already held, or instead should be sold. You have the financial statements and will use them to support
your report.
• A company has several hundred million dollars in bank borrowings, and lines of credit (pre-authorised
borrowing capability) for millions of dollars more. Suppose you are a commercial lending officer for a
bank, conducting a regular review of the company’s borrowing status. You must consider the quality of
the company’s financial performance and assets (many of which have been assigned as security on bank
loans, and therefore could be seized if the company doesn’t pay its loans back on schedule). Financial
performance is important because net profit generates cash to pay loans, and a good past record
suggests that the company is likely to be able to earn profit in the future. You have requested the
financial statements to use in your review.
• A company depends on a large number of suppliers to obtain goods and services. Suppose you are the
sales manager of a stationery supplier and are considering signing a long-term contract to supply the
company. You want to sign the contract because your company needs the business, but you have to be
satisfied that your shipments will be paid for. More positively, you hope that if you do a good job, you
will have an opportunity to grow with the company. Most of the information you need has been received
already, but you have obtained the financial statements and are reviewing them as you make your final
decisions about the contract.
• Management and unions often negotiate about an increase in pay rates for workers. One key input is the
ability of the company to pay these increases. A company’s financial statements are an important input to
this decision.
In summary, these scenarios indicate the following reasons for using the company’s financial statements:
• evaluation of the CEO’s performance by a member of the board of directors
• preparation of ‘buy’, ‘sell’ or ‘hold’ recommendations by a financial analyst

4 Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Random documents with unrelated
content Scribd suggests to you:
l’emmener, de la prendre malgré moi, comme je l’ai prise malgré ma
mère ?
Le souvenir de sa mère morte acheva de le mettre hors de lui. Il
cria :
— Eh bien, non ! je t’ai promis de te sauver, — je te sauve !… Par
notre passé de vingt ans d’affection, Albert, par notre amitié toujours
vivante, tu n’emmèneras pas cette femme ! J’écraserai cette
puissance malfaisante, avant qu’elle ait pu te perdre !… Mais vois
donc, regarde-la donc ! Regarde comme elle est pâle, sous ses
habits de deuil… Tu sais de qui elle est en deuil ?… Elle tuerait ta
mère, comme elle a tué la mienne, si je n’étais pas là, moi, pour
vous garder contre elle ! — Regarde-la bien, je te dis, pendant que je
la dévoile, — regarde moi ça bien en face !… Ça ne s’est jamais
donné, afin de se vendre un jour plus cher. Peut-être bien qu’elle est
encore vierge ; on ne sait pas ! Soit ! Regarde-la donc, la vierge
adultère ! Regarde-moi ce visage démonté, d’où toute beauté a
disparu. On n’y voit plus que la rage de la défaite, la honte d’être vue
à fond, la terreur sans repentir, d’être châtiée ! Mais regarde-la donc
en ce moment… Elle est horrible : elle est sincère ! Ce n’est plus
Marie : c’est Rita !
Et comme Albert, les yeux égarés, hurlait à son tour : « Tais-toi !
ou je ne réponds plus de moi-même ! » le comte Paul, comme pour
la piétiner d’un mot, répétait avec rage : « Rita ! Rita ! Rita ! »
Elle ne savait toujours pas s’il était sûr de la présence de l’autre.
Elle était là, muette, droite sur ses pieds crispés, attentive, le cou
tendu, comme la bête au ferme.
C’était ici le dénouement d’une de ces tragédies sourdement
compliquées, qui, aux yeux du monde, resteraient inexplicables, car,
pour les comprendre, il faudrait, comme le Dieu de la Bible, sonder
les cœurs et les reins des acteurs en lutte ; mais le monde ne les
voit pas ; ce sont des drames ignorés comme il s’en passe pourtant
tous les jours entre les murs de ces maisons riantes, dont les hautes
fenêtres, encadrées de riches tentures, laissent entrevoir aux
passants des tableaux et des plantes rares, et qui, ainsi vues du
trottoir, muettes, nobles, paisibles, semblent les asiles même du
bonheur.
Paul fit un pas vers la porte de son cabinet ; et, d’un ton tout à fait
tranquille :
— Me crois-tu donc capable de parler au hasard, quand je
t’affirme qu’on te trompe ?… Et puisque le mari c’est toi, cherche
donc l’amant, — malheureux ! Tiens, il est ici, je parie !
Il essaya d’ouvrir la porte qui résista, fermée en dedans.
Elle comprit que tout était perdu. Il n’y avait plus qu’à faire bonne
contenance.
— Allons, — dit-elle, d’une voix sèche, vulgaire, avec un
haussement d’épaules, — il est clair que vous savez tout. Soit.
D’ailleurs, j’en ai assez ! mais je tiens à vous dire que je ne suis pas
le monstre que Monsieur d’Aiguebelle imagine. J’ai épousé, — c’est
vrai, — pour son titre et pour sa fortune, un homme que je n’aimais
pas. Mais quand vous mariez ainsi vos filles ou vos sœurs, vous
appelez ça tous les jours un mariage de convenance… Celui que j’ai
épousé m’a rendue malheureuse et je l’aurais quitté, — c’est encore
vrai, — pour chercher le bonheur avec un autre… moins exalté et
plus riche. Mais, si vos lois le permettent, qu’aurait-on à y
reprendre ? Enfin, j’étais bien près d’avoir pour amant un homme
que j’aimais depuis longtemps… l’auteur de ces funestes lettres que
vous avez lues, malgré moi, une certaine nuit, vous souvenez-vous,
Monsieur d’Aiguebelle ? Eh bien ! mais qu’est-ce que cela prouve,
sinon que je suis capable de fidélité, et que j’aurais eu, de guerre
lasse, un amant, — comme toutes les femmes ? Voilà bien du fracas
pour une histoire assez commune, mon cher !… Je croyais que,
dans votre monde, on était resté plus Louis XV !
Elle se tenait, la tête haute, dans une attitude de défi.
Albert, la tête haute également, blême, supportait le coup en
soldat, — et, l’œil fixe, il mesurait l’abîme qu’on venait d’ouvrir
devant lui.
— Enfin, dit-elle, que me veut-on ? Vous ne me changerez pas,
n’est-ce pas ?… Vous ne me tuerez pas non plus, je pense ?… Ça
n’est pas votre genre… Je ne vois pas beaucoup ça dans les
journaux de demain : « Le crime de la rue Saint-Dominique. Mort
tragique et inexplicable de la comtesse d’Aiguebelle. »… Vous
voudrez éviter ça, je m’en doute !
Elle pensait à tout, et elle riait méchamment.
— … Alors, quoi ? Il faut prendre un parti pourtant ! Notez que je
n’ai commis réellement aucune faute — et que je suis toujours
punie !… C’est même agaçant, à la fin !
Elle avait l’air très ennuyé et nonchalant.
Le comte Paul s’approcha d’Albert et lui mit affectueusement une
main sur l’épaule. C’était un geste de consolation.
Ensuite, il alla à la porte de son cabinet, dont il écarta la lourde
draperie ; et, le visage tourné vers cette porte, derrière laquelle
s’agitait une douleur inconnue :
— Allons, ouvrez !… On sait qui vous êtes, Monsieur Terral !
Le silence qui suivit fut court, mais il fut profond comme la mort.
Ce qui répondit enfin, ce fut un bruit bizarre, qu’on ne comprit pas
tout de suite, un coup sec ; mat, comme étouffé… Son revolver lui
avait servi… Ne venait-il pas d’apprendre qu’elle s’apprêtait à fuir
avec un autre ? Lui aussi, il venait de mesurer l’abîme, mais, déjà
pris de vertige, il y avait roulé.
Les deux hommes s’élancèrent contre la porte… Des
domestiques accoururent… Léon Terral, vivant encore, mais blessé
mortellement, demanda à être porté chez son père.
 VIII

Dès qu’elle s’était vue seule un moment, Marie Déperrier, avec

un grand sang-froid, était allée mettre son chapeau, et prendre, dans
sa chambre, son sac de voyage toujours tout prêt.
Comme elle partait, elle croisa dans l’escalier un homme inconnu
à qui elle fit un petit salut et un sourire. C’était le commissaire de
police, qui s’expliqua fort bien le suicide de Léon Terral : — il était
chargé de l’arrêter.
La jeune comtesse d’Aiguebelle, son petit sac à la main, s’en alla
demander asile à Théramène surpris. Là, au moins, on la laisserait
tranquille. Elle évitait les curiosités d’hôtel.
Pinchard ne l’interrogea même pas :
— Ça te regarde, ma fille ! Je n’ai pas besoin de savoir. Des gros
chagrins, des histoires, des drames, quoi !… L’amour, vois-tu, c’est,
comme la langue, ce qu’il y a de meilleur, et ce qu’il y a de pire. Ah !
ce bossu d’Ésope avait bien de l’esprit !…
Il posa une serviette blanche sur un coin de table débarrassé,
pour la circonstance, des brochures et des copies de rôles qui
l’encombraient d’ordinaire, et, en mettant le couvert, il disait, le
philosophe :
— Le drame, c’est la vie… Tout passe.
En ajoutant, « hormis Dieu ! » il eût parlé précisément comme
l’abbé.
Elle le regardait faire, assise sur le lit, songeuse.
Il courut chez le charcutier.
— Pas de jambon, — un pâté !… Je régale une duchesse, — et
une vraie encore ! Un pâté de lièvre, voisin, — avec du veau dedans,
et une tête de faisan dessus !
Ils dînèrent en tête-à-tête.
— Sans toi, mon bon Théramène, j’aurais passé une fichue nuit,
car je couche ici, entends-tu ?… Oh ! tu ne peux pas te douter du
service que tu me rends. C’est bon tout de même, mon vieux, d’avoir
des gens de cœur près de soi, en de certains moments… Non ; vrai,
sans toi, Théramène, ce que je serais embêtée, ce soir !… Au fond,
vois-tu, j’ai du vrai chagrin.
Elle songeait : « Il était fou, ce malheureux Léon, c’est clair. Sans
ça, c’était devenu si simple, — puisque c’était forcé, — de partir
ensemble ! »
Elle regrettait le Léon d’autrefois, mais ce fou d’aujourd’hui, ce
désespéré, c’était, après tout, une chance, de n’avoir pas été obligée
de le suivre.
Théramène mit avec soin des draps blancs à son lit ; et il passa
la nuit sur son fauteuil, sommeillant de temps à autre, se réveillant
pour la regarder dormir, — heureux de jouer les pères nobles au
naturel.
Elle aussi se réveilla plusieurs fois, cette nuit-là. Quel parti
devait-elle prendre ? Où irait-elle ? Qu’allait-elle devenir ?
Quand le jour parut, et qu’elle ouvrit les yeux, elle trouva
Théramène debout près du lit, et qui, vêtu de son velours râpé et de
sa soie éclatante, lui présentait un chocolat fumant sur un plateau,
apporté du cabaret voisin.
— Heureux de vous servir, princesse !
— Donne-moi mon petit sac, dit-elle aussitôt.
Il posa le plateau et courut au sac.
— J’ai diablement peur d’avoir oublié quelque chose de très
important, fit-elle.
Elle cherchait, — sous les yeux de Théramène ébloui. Un rayon
de soleil, par l’humble fenêtre à tabatière, entrait, jouait gaiement sur
son cou délicat. Ses cheveux dénoués, irisés de lumière, inondaient
ses épaules nues. D’une Vierge de Raphaël, elle avait vraiment
toutes les grâces candides, l’ovale pur du visage, la fraîcheur dorée,
un peu rose sous l’ambre lumineux, et surtout, dans ses yeux bleu
pâle, la pureté de l’innocence même.
— Ah ! ça y est ! cria-t-elle… Sapristi ! que j’ai eu peur !
— Sauvé ! merci, mon Dieu ! déclama Théramène.
Elle tira avec soin, du sac bondé de bibelots, — un étui d’ivoire
sculpté, qu’elle ouvrit. Et elle lut à haute voix :
— Tcherniloff !
Après tout, qu’était-ce pour elle que cette aventure de son
mariage ? Une simple affaire manquée ; tout au plus un retard de six
mois à la vie aventureuse qu’elle avait toujours rêvée.
A présent, elle était libre, et seule maîtresse de sa destinée.
 IX

Deux ans après, aux Bormettes, le comte Paul d’Aiguebelle, mari

de Pauline, Albert de Barjols, mari d’Annette, veillaient, sous la
lampe paisible.
Les hommes lisaient. Les deux jeunes femmes, attentives et
souriantes, se montraient de mignonnes dentelles et des rubans à
orner de petits bonnets d’enfant.
— Tiens, regarde ça, dit à voix basse Paul à Albert, en lui
passant son journal et en lui désignant du doigt la rubrique : Échos
des deux mondes.
Le journal disait :

« La princesse Rita Tcherniloff vient d’arriver à Spa. On

prétend ici qu’elle n’avait jamais épousé le prince, et qu’elle a
été naguère expulsée de Pétersbourg, après des aventures tout
à fait cosaques. On dit encore qu’elle serait espionne aux gages
de plusieurs puissances qu’elle trahirait également les unes
pour les autres. Mais rien de tout cela n’est prouvé. On
calomnie tant aujourd’hui, que la médisance en devient
suspecte. Quoi qu’il en soit, tout le monde s’accorde à admirer
cette femme, illustre par la beauté, par l’intelligence, par la
fortune, aussi bien que par la bizarrerie éclatante de ses
aventures, vraies ou fausses. A Spa, son arrivée a fait
sensation.
Comme le disait, l’autre jour, M. X de Z, secrétaire de
l’ambassade de France à Rome : « C’est une des reines du
monde. »

Paris, 24 février 1894.

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